Thread by @theguywhowrite

Rage Trade Delta Neutral Vaults-An overview

@rage_trade is all set to release their Delta Neutral vaults. Let's take a deep dive into what is it all about.

(This thread is carefully made considering all kinds of crypto users from noobs to pros)

What are Delta Neutral Vaults?
These are investment opportunities which are non-directional (or almost non-directional), meaning you won't be net long or short. Simply put -you long and short the same asset

But why should someone do it? Defi can provide yield for being directional- for example, if a protocol can give you 10% for providing liquidity in ETH at the same time if you can find a money market where you can short ETH paying 1%, you are gaining 9% yield without any exposure

But this is not as easy as it sounds as these investments should be constantly monitored and rebalanced to avoid liquidation.

Imagine a vault that can give you these yields with one click! @rage_trade will soon give you this option!
Let me explain
1. What are your options?
2. How it works?
3. How much yield?
3. Risks

@rage_trade will give you 2 options for you to invest into
1. Risk on vaults
2. Risk off vaults
Before explaining what those are let me explain what @GMX_IO is and how @rage_trade is using GLP to build its vaults. For Defi veterans out there you can skip this part.

@GMX_IO is a decentralized perpetual exchange built on top of @arbitrum. The narrative that makes it unique and popular is #RealYeild. The fees generated by the protocol are distributed to the GLP stakers as ETH and Escrowed GMX itself hence the yield is non-inflationary

GLP is the liquidity provider token for @GMX_IO . For @arbitrum GLP consist of :

GLP is almost 50% stable and 50% directional assets like ETH and BTC. GLP liquidity providers are currently earning nearly 50% in ETH! which is mind-blowing in this bear market.

$GMX is the protocol token of @GMX_IO , GLP stakers can get Escrowed $GMX as a reward too when they stake GLP, which will gradually unstake to $GMX token over a span of 365 days or Staked for rewards similar to regular GMX tokens.

Now let's come back to @rage_trade's Risk on Vault

The User deposits $1000 into the Rage vault. It can be in USDC(will be converted to sGLP)or sGLP(Staked GLP) . This is essentially a Long position on GMX

At the same time using Flashloans, the protocol
1. Borrows ETH+BTC worth $500 from Balancer
2. Sells it in uniswap for $500 USDC.
4. Deposit $500 and around $250-300 borrowed from Risk of Vault(More on that later)
5. Borrows $500 worth of BTC+ETH and pay back the flash loan

You only need $500 for the flash loan as GLP is around 50% stables.
Now, let's check different scenarios that could happen.
1. GLP weight change.
GLP composition can change according to trading activity.
2. Price change-ETH+BTC price changes

a) Increases in weight-Meaning GLP position outweighs shorts. The protocol will increase the short position.
b)Decreases in weight-Meaning short position outweigh GLP. The protocol will increase GLP position.

c)Price increases- GLP pos in profit and Aave Pos in the loss. The protocol will transfer GLP profits to increase the short position.
d)Price decreases- GLP pos in loss and Aave Pos in profit. Transfers short position profit into sGLP.

Risk off Vault is a stablecoin vault. The deposits to Risk off Vault will be used in Aave together with Risk on Vault's USDC as explained above. User will get their yield the levered up lending pos 2.3x + a % of yield from GLP ETH of Risk on Vault.(Around 33% of ETH yield)

Their 11-month backtesting shows that Risk on vault will get an APY of 21.83% and Risk off 8.27% assuming ETH yield is 20%

Risks
1. All the protocols contain risks-They might get hacked or can have smart contract risks.
2. ETH reward in GMX comes from the trader's loss. If all the traders will GLP position may get drained. Historically it never happened!

One question I had in mind was what will happen If Risk off vaults don't have enough liquidity to support Risk on. The Rage team were quick enough to respond in their discord that, they already thought about it and the GLP positions will be converted to stables in that case.

Alpha
1. @rage_trade doesn't have any Tokens yet. Use this information wisely!
2. You may soon be able to mint stablecoins using your vault position!

Give this post some love and retweets if you find it interesting