After my first Pseudo-Delta Neutral Hedging (PDN) article, I had received feedback from some readers that my explanation of achieving the PDN state through the balancing of the non-stable asset in LP position and debt differs from some other explanations that they had heard or learned about, where the 2 positions that have been set up will balance out each other, and they are somewhat confused by the 2 different approaches.
Disclaimer: This is not investment or financial advice, but a sharing of my adventures and learnings in crypto space, where I conduct various experiments with different tokens and protocols across different blockchains.
Well, they are actually the same, just that we are breaking down the positions in different ways. Let me explain by recapping the example I gave of setting up a PDN position by relying on 3x LYF for ETH-USDC farms:
- Set up 3x LYF with US$100 of USDC, borrowing USDC. The net position value is 3x of the initial capital or US$300. US$200 worth of USDC will be borrowed (that is the leverage) and of this initial US$300 of USDC, half of it will be converted to ETH. This means for this trade, it will be long US$150 of ETH + US$150 of USDC in the LP and short US$200 of USDC as debt.
- Set up 3x LYF with US$300 of USDC, borrowing ETH. The net position value is 3x of the initial capital or US$900. US$600 worth of ETH will be borrowed and of this initial US$300 of USDC + US$600 of ETH, US$150 of ETH will be…
