Vaultka
Search
K

GLP Neutral - DILUTED VODKA

GLP Neutral has features of:

  1. 1.
    Automatic hedging and rebalancing to manage the exposure towards the non-stable token components of the GLP token
  2. 2.
    Auto-compound the yield payout constantly to lock its value in stablecoins

Approach

The exposure towards BTC and ETH in GLP is dynamically hedged in Vodka Vault. According to the simulation, BTC and ETH exposure have demonstrated 97% correlation of delta drift of GLP token, hedging away BTC & ETH price risk has therefore reformed the vault asset to largely delta neutral to the market.
Hedging is achieved through shorting BTC and ETH based on the corresponding weighting in GLP (Phase 1) with smart contracts of reputable lending protocols. Severe backtesting and simulation are underway to determine the best dynamic rebalance point based on GMX traders' opened long/short positions to further stablize the equity value of Vodka.

Workflows

Step 1: “Manager” simulates and determines the amount of to-be-hedged BTC and ETH
Step 2: “Manager” borrows Flash Loan in BTC and ETH on Balancer
Step 3: The borrowed BTC & ETH is converted into USDC on Uniswap
Step 4: The exchanged USDC and additional USDC from v-WATER is deposited into AAVE as collateral in an initial Health Factor of 1.5x to borrow corresponding amount of BTC & ETH for the Flash Loan repayment
Step 5: “Health Factor Monitor” continues to monitor the latest Health Factor in AAVE to prevent liquidation

Rebalance Mechanism

The hedging amount will be rebalanced in consideration of the three factors below:
  1. 1.
    Time period
  2. 2.
  3. 3.
    Health Factor
There are also constraints regarding the amount of single transaction for rebalancing, yield conversion and max. slippage.
For details, please refer to here.
To ensure efficiency during the rebalancing process, the following actions will be performed in one go:
  • Auto-compound of rewards from GLP
    • ETH is emitted as yields to GLP holders. Both rewards will be allocated to VODKA holders and v-WATER holders based on the Utilization Rate (UR) of v-WATER Vault.
    • The ETH reward allocated to VODKA holders would be re-invested in GLP to achieve the effects of auto-compounding and delta-neutral.
    • The ETH reward allocated to v-WATER holders would be converted into USDC and deposited into AAVE to earn supply interest compoundingly.
  • PnL realization on AAVE
    • The short positions of BTC & ETH opened on AAVE will be rebalanced to realize the corresponding PnL.
    • If the token price of BTC and/or ETH drops, the Health Factor in AAVE will be improved (higher than 1.5x). The surplus collateral in AAVE will be withdrawn to purchase more shares of GLP to enhance the vault’s profitability.
    • If the token price of BTC and/or ETH is up, the Health Factor in AAVE will deteriorate (lower than 1.5x). A part of the vault asset will be converted to the collateral asset and deposit to AAVE to maintain a favorable Health Factor avoiding liquidation.