#Delta-Neutral Strategy

At the heart of HYYY's stability mechanism lies our sophisticated delta-neutral strategy, focusing on two primary yield sources: spot-future funding rate arbitrage and cross-venue funding rate arbitrage. Rather than being tied to specific underlying assets, our approach emphasizes relationships between positions, enabling more flexible and efficient yield generation. By leveraging Hyperliquid's high-performance DEX infrastructure with hourly funding settlements, we can execute these strategies with minimal slippage and maximum efficiency.

#Spot-Future Funding Rate Arbitrage

Funding rates represent the premium or discount between perpetual futures and the spot market. This mechanism ensures perpetual futures prices converge with spot prices.

For a leverage ratio L, the optimal capital split for delta neutrality is:

This leads to the net funding calculation:

where:

• $C_{total}$ is the total capital
• $C_{futures}$ is the capital in futures
• $r$ is the hourly funding rate
• $L$ is the leverage ratio (e.g., 3)
• The fraction represents capital efficiency

When funding rates are positive, longs pay shorts. When negative, shorts pay longs. Our strategy requires specific capital allocation for delta neutrality:

1. 75% in spot position (1x leverage) = 1/4 of capital in futures
2. 25% as futures margin (enabling 3x leverage) = 3/4 of exposure
3. This creates equal position sizes for perfect delta neutrality

For example, with $100 total capital and BTC funding rate on Hyperliquid at +0.003% per hour:

• $75 in spot position (1x) = $75 exposure
• $25 as futures margin (3x) = $75 exposure
• Total: $75 long spot + $75 short futures = Delta neutral

#Cross-Venue Funding Rate Arbitrage

Instead of using spot markets, we can arbitrage funding rate differences between perpetual futures on different venues. This approach offers higher capital efficiency through moderate leverage on both sides.

For cross-venue with equal capital split:

where:

• $r_1$, $r_2$ are the funding rates on each venue
• $L$ is the leverage ratio (e.g., 3)
• $\frac{1}{2}$ represents the 50/50 capital split

#Example Strategy

#Strategy Comparison

Using our example funding rate of 0.003% per hour, this translates to:

• Daily rate: 0.003% × 24 = 0.072%
• Annual rate (simple): 0.072% × 365 = 26.28% APR

With this baseline funding rate, here's how the two strategies compare in terms of actual returns:

• Spot-Future Strategy: 19.71% APR (due to 75/25 capital split)
• Future-Future Strategy: 37.76% APR (due to higher capital efficiency)

#Implementation

Our implementation combines both strategies dynamically, with a strong emphasis on risk management and intelligent position management. These strategies are deployed across different vaults based on their risk-reward profiles and market conditions:

• Cross-Venue Integration:
  • Monitors and executes on funding rate opportunities between Hyperliquid and CEXs
  • Leverages AI-driven market intelligence for optimal venue selection and timing
• Risk Controls:
  • Maintains substantial liquidation buffers through careful position sizing
  • Implements real-time monitoring and automated position adjustments
  • Utilizes multi-layer safety mechanisms for liquidation prevention
  • Employs strict exposure limits per venue and strategy
  • Leverages cross-margin capabilities for optimal capital efficiency
  • Implements exchange-level margin monitoring for proactive risk management

This sophisticated approach allows us to generate sustainable yields while maintaining perfect delta neutrality for USDhy's stability. For a comprehensive understanding of our risk management framework and mitigation strategies, please refer to our detailed Risks and Mitigation documentation.