Defi Farm #26 - October 23rd Weekly Update

Hi everyone,

Welcome to the 26th weekly edition! Let's dive in 🤿Over the past 7 days:SPY: -1.76%BTC: +2.1% ETH: +4.3%

Major L1's:SOL: -2.6%AVAX: +3.8%Near: +1.4%Algo: -1.8%FTM: +1.9%Today I'll go over:- Delta-neutral positions - Interesting news from this week- Cool projects and protocols I came across this week

⚖️ Delta-neutral positions - a very beginner introduction ⚖️

I talk a lot about "delta-neutral strategies" in this newsletter but wanted to write a short segment on it to make sure everyone fully understands what a delta-neutral strategy looks like, how to find them, and most importantly, to make sure everyone understands the risks.

A delta-neutral strategy is any position where you are indifferent to the direction of the market or the price of a token. You're equal amounts long and short an asset (neutral) and you're using those positions to earn yield somewhere in the defi ecosystem.

Many delta-neutral strategies (not all) involve depositing a stablecoin into a Borrowing/Lending protocol as collateral. Then borrowing one or many volatile assets against your stablecoin collateral. Once you have those assets borrowed, you are neutral.

Your loan from the Defi protocol is technically a short position.The tokens you hold from that borrow are a long position.They cancel themselves out.

Once you've borrowed tokens, you then use them in defi to earn yield. It's important that this yield is greater than the interest rate you're paying to borrow those tokens.

Here's an illustration with an example. (Interest rates aren't real, just for the example.)

This is the most basic example! There are about 100 different ways you can remix these strategies.

In some cases, you can "loop" on the same money market and earn yield.

Here's an example of that:

You can also borrow funds and enter LP positions on a DEX to earn yield. Here's an example of that.

From this example, you can also "remix" how you generate yield. Example shown below.

The most important thing to remember when exploring delta-neutral yield strategies.

First - You are being paid to take risk. If you think you found a great strategy that's paying 80%, you're getting paid to assume the risk associated with entering those positions. Be smart and be safe.

Second - (and related) be aware of ALL the risks you're taking in a strategy. With every new protocol you're interacting with, there's a new possibility that a smart contract exploit could result in a loss of funds. With every LP position you enter, you're exposing yourself to impermanent loss.

Third - Monitor your borrow positions. You should only enter these positions if you're willing to somewhat actively manage them. Whenever you borrow capital from a defi protocol, you're given a Health score based on the collateral ratios of the tokens you deposited. Be sure that you monitor your positions to make sure that you don't get liquidated. I usually set up phone calls and text alerts for certain price levels using Crypto Alerting.

This past week DefiLlama launched a great new tool that helps people explore different strategies within defi.

Again - I encourage everyone to explore, but just remember, if a strategy you find is paying a lot, it's doing that for a reason. The defi market has become pretty efficient at pricing risk. This DefiLlama tool shows ALL opportunities for yield, even opportunities within really early defi protocols without audits, and within pools without a ton of liquidity.

DYOR, don't invest more than you're willing to lose, etc etc.

Interesting news and things from this week

Some cool stuff happened this past week. Here is just a small sampling.

• Sunsec posted an amazing Notion page that lists over 95 DeFi hacks and exploits, their date, how much was lost, and an in-depth look at what caused the issue (even the code snippet that was used to exploit). If you're ever feeling invincible, just read through this link.

• Mintify raised $1.6 million in a seed round to build the "bloomberg terminal for NFTs"

• NewComputerCorporation raised a $2.5million seed round to build decentralized API infrastructure

• Celestia raised $55million to build modular blockchain infrastructure to help individuals launch their own blockchains.

• LavaLabs (not to be confused with Larva Labs) raised $10million in a series A to continue building blockchain games.

• There was another money market incident. This time Moola Market for $8.4 million. Basically the same incident as what happened to Mango Market. TL;DR don't put money in money markets where there are illiquid, small cap coins used as collateral. The potential for "bad debt" is just way too high.

Interesting protocols/projects I found this week

Collection.xyz (link) - Sudoswap has been pretty popular in the news recently. It allows you to trade NFTs without paying royalty fees to the creator, just paying a small swap fee. Sudoswap uses a liquidity pool model similar to decentralized AMMs that allow users to trade fungible tokens. The only issue with this model is that NFT liquidity pools don't have a large amount of liquidity (yet). Collection.xyz is trying to change that by making it extremely easy for NFT projects and users to create liquidity incentives on an NFT AMMs (like Sudoswap).

That's all I have for this week! Stay safe out there and as always, stay yielding!

If you ever want to chat with me and nerd out about defi/web3, I made some time available on my calendar each week. Feel free to schedule some time!

-Andy