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INTRODUCTION

In DeFi, attempting to predict the perfect moments to buy or sell tokens is a skill that only a few individuals  have truly mastered. The rise of DeFi (Decentralized Finance) has opened up fresh and often simpler methods for cryptocurrency enthusiasts to make their money grow.

With cryptocurrencies gaining popularity, it's important to grasp more advanced DeFi strategies to make the most out of your investments and reduce potential risks. 

Advanced DeFi strategies in cryptocurrency are sophisticated approaches used by experienced DeFi users to maximize profit and manage risks within the decentralized financial landscape. 

In this guide, we're diving into strategies that are a step beyond the norm. These advanced DeFi strategies are like the secret weapons of experienced experts. They're designed not only to help you potentially earn more, but also to protect you from big losses. In a market that can be uncertain, these strategies provide a safety net, making sure you're not taking unnecessary risks.

Before going into these strategies it's important to take your time to think about all the possible outcomes before making a decision instead of rushing into it.

In these low risk strategies, we will be using solana based platforms to explain these strategies. Examples of solana based platforms we will be using are: Francium, Orca, Drift and marginFi.

Francium is a platform on Solana that offers strategies like leveraged/hedged farming.

Orca is a decentralized exchange built on Solana, where people can trade cryptocurrencies and also earn fees by adding their assets to the platform's liquidity pool.

 Drift protocol is a trading protocol on the Solana blockchain, where DeFi traders can access leveraged trading, allowing them to potentially amplify their trades by up to 10 times through perpetual trading .

MarginFi is a lending platform on the Solana network. They give people open access to borrowing and lending.

Keep in mind that advanced DeFi strategies also include spreading out your investments, protecting yourself from risks which  helps make the strategies safer to use.

APPLICATION OF ADVANCED DEFI STRATEGIES

When discussing low-risk advanced DeFi strategies, there is a technique that aids in safeguarding one's equity even when prices fluctuate. This technique ensures your investment remains unaffected by price movements, this technique is known as DELTA-NEUTRAL.

'Delta' refers to the variations in prices among the assets you possess. When aiming for 'Delta-neutral,' the objective is to balance out the total price differences of our assets, creating a financial equilibrium.

You might be wondering:  Does protecting my  investment also mean missing out on the potential for higher earnings? Although this can be the case at times, the DeFi ecosystem always introduces a groundbreaking concept.

Even if one is playing it safe with neutral positions,  maybe together with yield farming, more ways are open to earn more rewards, also by providing liquidity, one is able to receive more yields too. This is similar to gaining benefits while ensuring your investment remains protected from sudden price shifts.

Now, let's explore the strategies involved in this concept. We’ll walk through the specific steps, shedding light on how these approaches work within the DeFi landscape.

Today, we will explore three advanced strategies in detail and illustrate how you can keep track of all of them using the Step Dashboard.

• The Delta-Neutral Hedging Strategy

• The Delta-Neutral  Farming Strategy 

• The Dynamic Yield Cultivation Strategy

 

THE DELTA NEUTRAL HEDGING STRATEGY

The delta neutral hedging strategy is a tactical approach in which one simultaneously buys and sells  an asset. The purpose behind this strategy is to lessen the potential impact of price fluctuations on your overall portfolio.

In this strategy, I will be using Francium, a Solana platform  that provides leverage and hedged farming in the solana ecosystem

This is a breakdown of this strategy :

In this strategy, we will be using the RAY/USDT pair
STEP 1 : Connect your solana wallet to francium app 

STEP 2 : Deposit any amount of the base token of the pair into your solana wallet. In this pair, the base token is USDT and we’ll be depositing $100 worth of USDT. Remember, to check the template of francium, to be sure its placed on “NEUTRAL FARMING”

STEP 3 : Take 25 USDT and borrow an equivalent amount of USDT to create a leveraged position in the 3X leveraged RAY/USDT pool. This means you now have 75 USDT worth of RAY (raydium) exposure,  but you only invested 25 USDC initially.

NOTE: Here, you have a long exposure of 75 USDC worth of RAY. This means you'll benefit if the price of RAY goes up.

 

STEP 4

Take the remaining 75 USDT and borrow an equivalent amount of RAY to create a short position in the same 3X leveraged RAY/USDC pool. This means you now have a short position worth 75 USDC in RAY, but you haven't invested any additional funds.

NOTE: Now you have a short exposure of 75 USDC worth of RAY. This means you'll benefit if the price of RAY goes down.

The purpose of this strategy remains the same: to establish a balanced position where the long exposure and the short exposure offset each other (achieving Delta-neutral). This helps minimize the overall impact on your portfolio when the price of the underlying asset (RAY) changes.

 Step finance Dashboard helps you view the delta-neutral  hedging strategy with ease.

Remember, cryptocurrency prices are highly volatile. If the price of the underlying asset (in your case, RAY) experiences significant fluctuations, it could lead to losses in both your long and short positions, potentially outweighing any gains from being Delta-neutral, This risk is called “Price Volatility Risk”

 

It's important to have a thorough understanding of the price behavior of the assets involved and to be prepared for the possibility of rapid price fluctuations.  Remember to Implement risk management strategies, such as setting stop-loss levels,which  can help mitigate the impact of price volatility on your portfolio.

 

THE DELTA-NEUTRAL  FARMING STRATEGY 

The concept of the delta-neutral farming strategy revolves around a method where you engage in both buying and selling the same asset on an exchange simultaneously.

In this strategy, I will be using the Drift Protocol, which is an open-source decentralized exchange that supports spot trading, perpetual swaps, borrowing/lending, and more.

Funding Rates play a crucial role in this DeFi strategy because they can impact its overall profitability and effectiveness as they fluctuate.

Funding rates are payments that happen between people who are trading contracts for cryptocurrencies. These contracts are special because they don't have an end date; you can keep them for as long as you want.

Now, when some traders say they believe the price will go up (they go "long"), and others say it will go down (they go "short"), the prices of these contracts can sometimes get a bit off from the actual prices of the cryptocurrencies.

To fix this, DeFi exchanges like Drift Protocol,  use these funding rates. If the funding rate is negative, people who said the price will go down have to pay a little to the ones who said it will go up. If the rate is positive, the opposite happens.

These payments happen every hour, but they only matter to people who still have their contracts at those times. If someone closes their contracts before the payment time, they don't get involved in these payments.

You can find this funding rate on a special screen when you're trading these contracts.

 It's important to know about it if you're trading with this strategy,This is a breakdown of this strategy :

STEP 1 :

Connect your Solana wallet to Drift app 

 

STEP 2 :

Deposit (min. amount  is $10) the available token of the pair into your drift wallet. On Drift, deposited assets automatically earn yield through lending.

STEP 3:
Buy a significant quantity of SOL in the current market to secure your position in the spot market.

Keep it in mind that there are various methods available to acquire an underlying asset within Drift using the "order type" feature.

 

STEP 4 :
In perpetual contracts, we'll be selling the main asset "SOL." If you're using the current market price, make sure you think twice before selling in these contracts. It's important to balance your position by buying the same amount of the crypto asset in regular markets.

 

In this strategy, your positions are balanced to minimize risks, while the  funding rates influence the rewards earned from assets held in the portfolio

Your can view both your positions and profit of this strategy on the Step Dashboard.

 

In summary,  In this strategy I currently own $12 worth of SOL in the spot market , and I have taken a short position for an equal  amount of SOL in perps . In this my setup, a delta -neutral position is created , which allows me to farm the negative funding rates of the perp positions

When approaching DeFi neutral farming strategies, it's important to do so with a combination of caution and curiosity. While these strategies offer opportunities for increased profits and risk management, they also demand a deep understanding of the underlying assets, market dynamics, and potential risks involved.

THE DYNAMIC YIELD CULTIVATION STRATEGY

 The dynamic yield cultivation strategy is a combination of "leveraged yield farming" and "degen farming".

Leveraged yield farming involves utilizing borrowed funds (leverage) to increase the amount of cryptocurrency you invest in yield farming protocols, aiming to enhance the potential returns on your investment, while degen farming involves engaging in DeFi protocols or platforms that offer exceptionally high yields

The word "degen" comes from "degenerate," which is often used informally to refer to actions or behaviors that are speculative.

This strategy involves a multi-step approach to maximize your yield farming efforts. Here's a breakdown of the process: 

STEP 1 : USING THE STEP FINANCE ANALYTIC PLATFORM

You begin by utilizing the Step analytic platform . This platform provides insights into on-chain market data, such as liquidity pools (LPs) on decentralized exchanges and many more. By analyzing this data, you can identify efficient LP’s that have high APY, which have  potential for profitable 

In this first step, we are using USDC/CROWN, which has an APY of 1,042%.

Also, you use the fee filter in descending order, you should also observe the LP’s that are generating most fees, and in this case, the TOP 1  is USDC/CROWN through orca.

For this pair, a good choice would be to set up a concentrated liquidity pool (CLMM) using the orca  platform.

Remember, You're engaging in yield farming for CROWN tokens, and you're taking advantage of the high APY yields with the intention of later selling them which is a component of this strategy.

STEP 2 : USING THE MARGINFI PLATFORM

You then move to the MarginFi platform. This platform allows you to borrow funds (leverage) to increase the amount of cryptocurrency you'll invest in yield farming protocols.

In this second step, I'm planning to use SOL, which currently has an annual yield of 1.93%. My belief is that SOL's price will double in the coming years.

Here,  I'll deposit 6 SOL as collateral and borrow 30% of its value in USDC. I'll then allocate this USDC to the degen  farming part of my  portfolio. I chose to use 30% of the deposited SOL because it's a relatively small amount, reducing the risk of liquidation, while also aiming to generate additional passive income through degen farming.

Remember, the step finance dashboard keeps your portfolio up-to-date

 

STEP 3 : USING THE ORCA PLATFORM

With the borrowed funds, you invest in a yield farming protocol such as ORCA . Orca supports various liquidity pools, which enables you to provide liquidity and earn rewards in the form of additional tokens.

In this third step, we will be providing liquidity for USDC/CROWN that we found earlier using the Step Analytics platform. Remember, this strategy is aimed at taking advantage of the high APY yields.

 

When choosing price ranges, we will be choosing “PASSIVE RANGE”, because it has lower divergence loss

You  activate the deposit ratio to automatically trade the token to match the ratio displayed above

 The Step Dashboard  always watches over liquidity pools and evaluates yield farming methods.

 

The Dashboard shows the current yield reward and the timeframe for the next yield reward

 

RISK MANAGEMENT AND EXIT STRATEGIES

Once involved in advanced DeFi  strategies , you have a crucial responsibility to effectively monitor and adjust your positions, this process ensures that your positions align with market conditions, risk tolerance, and your overall investment objectives.

To achieve this,one has to utilize a range of strategies and tools to adapt to changing market dynamics.

Here are the points in detail which involve potential exit scenarios and adaptability.

 

1. THE DELTA-NEUTRAL HEDGING STRATEGY

The delta neutral hedging strategy involves buying and selling an asset at the same time. This is done to reduce the potential effects of price changes on your overall investment.

It's important to keep an eye on it regularly to keep it balanced.

 

Exit strategy includes:

1. Profit Target Reached: If the strategy achieves the desired profit, positions can be closed to lock in gains.

2. Loss Limit Reached: If losses exceed a predefined threshold, positions can be closed to limit further losses.

3. Market Event: Big changes in the market could lead to changing or exiting positions to avoid potential negative effects.

 

2. THE DELTA-NEUTRAL FARMING STRATEGY

Remember, In delta-neutral farming, one of your aims is to capture the spread between spot trading and perpetual trading. So, it's important to regularly monitor their volatility levels, remember that this strategy depends on the funding rate.

Exit scenarios might include:

1. When the difference in volatility becomes smaller (spread narrows), you might consider closing the position or making changes to capture profits.

2. If the difference in volatility increases significantly (spread widens), you may need to make adjustments to avoid potential losses.

3. Funding rates go positive and now it costs money to short SOL so strategy doesn’t work anymore

 

 

3. DYNAMIC YIELD CULTIVATION STRATEGY (LEVERAGED YIELD FARMING AND DEGEN FARMING)

This strategy involves maximizing yield by leveraging assets in decentralized finance (DeFi) protocols. It’s important to monitor the yield rates, interest rates, and changes in protocol parameters

Exit strategy includes:

1. If the earnings go down a lot, you might close or change your positions to prevent losses.

2. If the liquidity pools fail, you should exit your positions to reduce potential losses.

3. The yields of the pool you’re in drop, so many farmers rotate to the newest token farm with high APYs.

CONCLUSION:

The utilization of the Dynamic Yield Cultivation Strategy, which encompasses Leveraged Yield Farming and Degen Farming, alongside the Delta-Neutral Farming Strategy and Delta-Neutral Hedging Strategy can all be viewed on the Step  Dashboard

The Step Dashboard is a comprehensive tool for monitoring all your decentralized finance (DeFi) activities within the Solana ecosystem . This includes tracking assets, monitoring liquidity pools, assessing yield farming strategies. For DeFi users, who often have multiple investments and complex strategies, the Step Dashboard simplifies their decision-making process.