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Market Neutral Strategy

What is Market Neutral Strategy?

A Market-Neutral Strategy (Pseudo-Delta-Neutral Strategy) is a leveraged yield farming technique. With this strategy, you can earn high APY on your pairs while reducing your risk by hedging out market exposure.

How does it work?

Market Neutral Strategy is realized by simultaneously opening one long position and one short position to achieve zero net market exposure on the volatile asset in a token pair.
Let's take the 3X ETH-USDC LP as an example.
To get started, deposit a total of 400 USDC into the positions. The strategy works as follows:
  1. 1.
    Borrow 200 USDC (25%) Utilize 100 USDC from your deposit and borrow 200 USDC. The position value will be $300. Since the LP is a 50%-50% position setting, you will have a $300 - $150 = $150 cost in ETH LONG exposure.
  2. 2.
    Borrow $600 worth of ETH (75%) Utilize 300 USDC from your deposit and borrow the equivalent of $600 in ETH. The total position value will be $900. Since the LP is a 50%-50% position setting, you will have a $600 - $450 = $150 cost in ETH SHORT exposure.
Then both the long exposure and short exposure are hedged.