Overall
  • 👋Welcome to Artichoke
  • Single-Sided LP Mechanics
    • 📠Basic Mathematics
    • 💰Related Pricing
    • 📊The Bonding Curve
    • ⌛Staking & Impermanent Loss
    • 🔙Variation and Returns
    • 🧮Total Returns
  • Single-Sided Liquidity Strategies
    • 1️⃣Uniswap's Inherent Hedging
    • 2️⃣The Straddle
    • 3️⃣Delta-Zero
  • Protocol Architecture
    • 🔀Virtual Omnipool and Tails
    • ⚖️Stabilizer Pool
    • 👨‍💻Product Overview from the User Perspective
  • Token Metrics
    • 🪙CHOKE Token
    • 📈Accruing Value
    • 🔥Burn Schedule
  • Staking
    • 📗Staking Guide
    • ❔Staking FAQ
  • Security Report
    • 🔐Artichoke Alpha Phase Report
  • FAQ
    • ❓Frequently Asked Questions
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  1. Single-Sided Liquidity Strategies

Delta-Zero

PreviousThe StraddleNextVirtual Omnipool and Tails

Last updated 1 year ago

As per stated on The Straddle, we can obtain a delta-zero strategy over Uniswap's LPs using a long straddle option strategy. Assuming a bidirectional hedging, this strategy profits if the price of the underlying asset (in this case, the tokens in the Uniswap liquidity pool) moves significantly in either direction.

By holding both the underlying tokens and the call and put options, you can create a delta-neutral portfolio. This means that your portfolio's delta (i.e., sensitivity to changes in the price of the underlying tokens) is close to zero.

Mathematical Approach

Let's assume we want to create a delta-neutral portfolio using a Uniswap LP with two tokens, token XXX and token YYY.

Let's say we currently hold an amount of token XXX in the liquidity pool, and we want to create a delta-neutral portfolio by buying options with token YYY. To do this, we can borrow an equivalent amount of token YYY from the Lendor Contract, using token XXXas collateral.

Let's call the amount of token XXXwe currently hold in the LP X0X_0X0​. In that sense, we can borrow an equivalent amount of token YYY, which we'll call Y0Y_0Y0​, from the Lendor Contract. This creates a new portfolio with X0X_0X0​ amount of token XXXin the liquidity pool, and Y0Y_0Y0​amount of token YYY that we've borrowed from the lending protocol.

To create a delta-neutral position, let's assume User A has 10k USD of token xxx. In order to provide liquidity using Artichoke, he has to deposit xxx as collateral on the Lendor SC. After this, the smart contract will automatically borrow the user 10k USD of token yyy, and will deposit both assets on the (x,y)LP(x,y)LP(x,y)LP for a time ttt.

After User A wants to get out the position, he must interact with the Lendor SC and close it. The smart contract will return Δx\Delta xΔx assets to User A plus the fees accured during the time ttt. On the other hand, Δy\Delta yΔy tokens will be returned to the vault and compensate both (x,y)(x, y)(x,y) for price movements.

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