Delta-neutral crypto strategies. Part 1
Delta-neutral crypto strategies. Part 2
https://www.publish0x.com/real-world-assets/delta-neutral-crypto-strategies-part-2-xlqmelg
Maximum extractable value. Maximum extractable value or Miner Extractable Value (MEV) can be defined any automated interaction executed on blockchain which is done to exploit inefficiency and has positive expected value. Though it is challenging to specify where MEV strategies belong to, it is not incorrect to talk about them in the article about delta neutral trading strategies.
Conceptually it is the same thing as high frequency trading in the traditional markets. These strategies typically involve pending transactions in the mempool. The most popular MEV strategies are sandwich attacks and liquidations.
Sandwiches are perhaps the most infamous type of MEV. They are considered negative externalities and are frowned upon by the community. As already mentioned above, they are like high frequency trading in equity markets in that they front-run transaction that are pending in the mempool. Let’s say, there is an order to buy 1,000 ETH on a decentralized exchange (DEX). We can safely assume that this order will rise the price of ETH. What a sandwich attacker would do is this. First, he places an ETH buy order before your transaction. Thus, he front-runs your purchase order. Then, once your buy order is executed, he (or actually his bot) places an order to sell ETH. He buys ETH before you anticipating an increase in ETH price and then closes his position selling ETH at a higher price.
Conclusion
Delta neutral strategies are a good solution to decrease market risk in DeFi. By investing in them, users can reduce their exposure to the volatile crypto market. They can be as diverse as leveraged stablecoin farming, funding rate arbitrage, spot-futures arbitrage or MEV strategies. Considering that digital assets are a new asset class, there is a lot of inefficiency in the market which can be exploited with delta neutral strategies while limiting your exposure to wild market swings. Especially during crypto winter (the name for bear market in crypto) these strategies are an invaluable tool in one’s portfolio. They are uncorrelated with neither Bitcoin nor altcoins nor NFTs, and as such, they can outperform decentralized and even traditional markets during hard times.
