Before we get started, this is not a recommendation or endorsement to buy any token mentioned or to use any strategy listed by DeFiLlama.
During this crypto bear market, we have been challenged to work harder to find better yield opportunities. A number of new tools have emerged to shine a light on the best opportunities in the market.
DeFiLlama, which has long been a popular tracker for on-chain metrics like Total Value Locked (TVL), has evolved by leaps and bounds this year. I won’t cover these in detail today but you should take a moment to check out their other tools such as:
- DeFiLlama Yields: find the best yields by asset, chain, IL risk, and more
- DeFiLlama Borrow: find the best apps to borrow with preferred collateral + debt tokens
- DeFiLlama Liquidations: find the on-chain total value of positions that would be liquidated based on collateral and DeFi money markets
One of the most unique products is DeFiLlama Strategies, which offers a list of strategies for supplying, borrowing, and lending tokens while remaining delta neutral. Delta neutral means strategies that are designed to create positions that aren’t likely to be affected by movements in the market. This is achieved by ensuring that the overall net value of an open position is as close to zero as possible. In DeFi, it normally starts with a collateral you already hold and can borrow against (ie ETH on Aave), followed by depositing the borrowed tokens (ie USDC) into another application/farm, where the lending/farming APY is higher than the borrowing interest owed on your collateral.
The key to such strategies has always been finding the opportunities, which DeFiLlama solves for with a dashboard that allows us to enter any collateral token we hold, as well as any preferred token to borrow. (see below my example to Supply ETH with no preference of Token to Borrow)
Today, I’ll show how I could use DeFiLama strategies to find a delta neutral strategy using a token for collateral I already hold. Please be mindful there’s lots of high risk protocols listed on DeFiLlama on newer high risk blockchains, with applications that are lacking liquidity and can ultimately mislead us with higher APYs due to more liquidity being borrowed, driving up interest rates paid to lenders.
How to Find Delta Neutral Strategies Earning Over 50% APY with DeFiLlama
Before we get started, please be aware of these risks.
- Smart contract risk in any protocols included in the delta neutral strategy
- Systemic risk in DeFi composability
- Pegged assets such as stablecoins can de-peg and are much less reliable on newer blockchains
- Front-end spoof attack on any DeFi app website
- Exploits in the economic design of any protocol
- Governance attacks or admin key compromise
- Liquidation if I don’t maintain a healthy LTV for my borrowed position
- If one lends on a protocol like Iron Bank with higher borrowing rates, it’s likely the utilization rate is high and hence I could be unable to withdraw my liquidity if borrowers are using the funds I supplied
Here’s how I’d get started:
- First, I go to the DeFiLlama Strategies tab here and enter whichever Collateral Token I already hold and prefer to borrow against (ie ETH). I can filter by blockchain, lending protocols and more but the few filters I prefer are below to exclude…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
