Portfolio Management for DeFi Options and Perpetuals

Detailed Instructions

First, define the Greeks (Delta, Gamma, Vega) you will hedge against and set acceptable tolerance bands (e.g., Delta ±0.05 ETH). Identify primary and fallback oracle data sources for asset prices and implied volatility. For perpetuals, monitor the funding rate as a key risk factor.

• Sub-step 1: Connect to price feeds like Chainlink (e.g., 0x5f4eC3Df9cbd43714FE2740f5E3616155c5b8419 for ETH/USD) and volatility oracles such as Voltz Protocol.
• Sub-step 2: Define your portfolio's target neutrality profile. For instance, aim for a net Delta of zero for directional risk.
• Sub-step 3: Set up monitoring for liquidity pools (e.g., Uniswap V3 pools for the hedging assets) to assess slippage impact.

Tip: Use a decentralized data mesh like Pyth Network for low-latency, cross-chain price data to improve reaction times.

Detailed Instructions

The engine continuously calculates the portfolio's net Delta exposure by summing the Delta of all options and perpetual positions. When the exposure breaches your tolerance, it triggers a hedge. Use perpetual swaps or spot assets on decentralized exchanges for execution.

• Sub-step 1: Calculate Delta using the Black-Scholes model for options and a simple 1:1 ratio for perpetuals (long = +1 Delta, short = -1 Delta per contract).
• Sub-step 2: Execute the hedge trade via a smart contract router. For example, to hedge -2.5 ETH of Delta, buy 2.5 ETH worth of perps on GMX or swap for ETH on a DEX.

solidityCopy
// Pseudo-code for a hedge check
if (abs(netPortfolioDelta) > deltaTolerance) {
    uint256 hedgeAmount = convertDeltaToAssetAmount(netPortfolioDelta);
    executeSwapOrPerpTrade(hedgeAmount, isBuy);
}

• Sub-step 3: Log all hedge transactions with parameters like price, slippage, and gas cost for post-trade analysis.

Tip: For gas efficiency, batch hedge transactions or use layer-2 solutions like Arbitrum, where many DeFi perps and options reside.

Detailed Instructions

Gamma risk arises from Delta changes as the underlying price moves, and Vega risk from changes in implied volatility. Manage Gamma by dynamically adjusting the frequency or size of Delta hedges. Hedge Vega by taking offsetting positions in volatility products.

• Sub-step 1: Monitor Gamma exposure. A high positive Gamma portfolio benefits from large price moves but requires more frequent Delta rebalancing. Set a Gamma threshold (e.g., 0.1) to trigger a hedge review.
• Sub-step 2: For Vega hedging, use volatility tokens (e.g., on Voltz Protocol) or options on the opposite side of your portfolio. If your portfolio has a Vega of +$50,000, sell volatility swaps or buy put options to offset.
• Sub-step 3: Implement a schedule for periodic Vega rebalancing, such as every 4 hours or when the DVOL index moves by more than 5%.

Tip: Use yield from funding rates on perpetual positions to subsidize the cost of frequent Gamma rebalancing transactions.

Detailed Instructions

Deploy the complete framework as a set of smart contracts, often called a Hedging Vault, on your target chain (e.g., Ethereum Mainnet or Arbitrum). Fund it with capital for hedging operations and set up a multi-sig wallet for administrative controls.

• Sub-step 1: Deploy the manager contract using a script. For example: forge create --rpc-url arbitrum --private-key $PK src/HedgingManager.sol:HedgingManager.
• Sub-step 2: Create a dashboard (using a framework like Dash or a custom front-end) that displays real-time metrics: Net Greeks, P&L, funding rate accrual, and gas expenditure.
• Sub-step 3: Set up alert systems using services like OpenZeppelin Defender or Tenderly. Trigger alerts for critical failures, capital depletion below a threshold (e.g., 10 ETH), or when Greeks exceed tolerance for more than 10 minutes.

Tip: Start with a whitelisted test environment on a testnet, using mock assets and oracles, to refine logic without financial risk before mainnet deployment.

Detailed Instructions

Begin by conducting a comprehensive risk assessment of your entire portfolio. This involves calculating key metrics like Value at Risk (VaR) and Greeks (Delta, Gamma, Vega, Theta) for options, and funding rate exposure for perpetuals. Use on-chain analytics platforms like Nansen or DeFiLlama to track protocol-specific risks.

• Sub-step 1: Export all position data from protocols like Lyra, Dopex, GMX, or dYdX using their respective subgraphs or APIs.
• Sub-step 2: Aggregate data into a dashboard (e.g., using Google Sheets or a custom script) to calculate net Delta and total collateral posted.
• Sub-step 3: Identify over-concentrated assets (e.g., >30% of portfolio in ETH calls) and underutilized capital sitting idle in wallets.

Tip: Use a script to periodically fetch your portfolio's health. For example, query the GMX subgraph for your account's collateral and position sizes.

javascriptCopy
// Example: Fetch GMX positions for an address
const query = `
  query {
    positions(
      where: {account: "0xYourAddressHere"}
    ) {
      size
      collateral
      indexToken
      isLong
    }
  }
`;

Detailed Instructions

Leverage cross-margin accounts and collateral efficiency mechanisms to free up locked capital. Protocols like Synthetix Perps, Lyra's Newport upgrade, or GMX's multi-asset pools allow you to post a single collateral asset (e.g., USDC, ETH) to back multiple positions. This reduces the need for over-collateralization.

• Sub-step 1: Migrate isolated margin positions on platforms like dYdX v3 to a cross-margin account on a supported protocol.
• Sub-step 2: Deposit collateral into a shared liquidity pool. For instance, on Synthetix, stake SNX or sUSD into the Spartan Council pool.
• Sub-step 3: Use this shared collateral to open new options or perpetual positions without depositing additional funds. Monitor your collateralization ratio to ensure it stays above the liquidation threshold (e.g., 150%).

Tip: Always verify the smart contract addresses for the latest pools. The main Synthetix Perps V2 market proxy on Optimism is typically 0x2B3bb4c683BFc5239B029131EEf3B1d214478d93.

solidityCopy
// Example: Interacting with a cross-margin contract (conceptual)
// address perpMarket = 0x2B3bb4c683BFc5239B029131EEf3B1d214478d93;
// IPerpetualMarket(perpMarket).modifyCollateral(accountId, amount, "USDC");

Detailed Instructions

Automate strategies to maintain a delta-neutral or defined-risk profile while earning yield. This involves using perpetual swaps to hedge the delta of options positions or running covered call / cash-secured put vaults. Employ keeper networks like Gelato or Chainlink Automation to execute rebalancing.

• Sub-step 1: Set up a script that calculates your portfolio's net Delta every hour. If Delta exceeds ±0.1, trigger a hedge.
• Sub-step 2: To hedge, open an inverse perpetual position on GMX or Kwenta. For example, if you are net long 1 ETH Delta, short an equivalent amount of ETH perpetuals.
• Sub-step 3: For yield, deposit funds into an automated options vault like Theta Vaults on Ribbon Finance, which sells weekly covered calls.

Tip: Use a dedicated wallet for automation with a small gas budget. Set clear parameters: "Redeploy strategy if ETH price moves >5% or every 24 hours."

pythonCopy
# Pseudo-code for a simple delta hedge check
current_portfolio_delta = get_portfolio_delta()
if abs(current_portfolio_delta) > 0.1:
    hedge_size = -current_portfolio_delta
    # Execute perpetual short order on GMX via API
    place_order(symbol='ETH-USD', size=hedge_size, is_long=False)

Detailed Instructions

Capital efficiency is dynamic. Implement a continuous monitoring and rebalancing loop to adjust for market movements, harvest accrued yield, and compound returns. Focus on funding rate arbitrage for perpetuals and theta decay for short options.

• Sub-step 1: Daily, check funding payments on perpetual positions. If funding is positive, consider increasing position size; if negative, consider reducing or hedging.
• Sub-step 2: Weekly, close expired or profitable options positions (e.g., >50% profit) and redeploy capital into new opportunities.
• Sub-step 3: Use yield aggregators like Convex Finance or Aura to stake LP tokens from DEXes where you provide liquidity for options/perpetuals markets, boosting APY.

Tip: Set up alerts for key events: liquidation risk (<160% collateral ratio), extreme funding rates (>0.1% per 8h), or large option position expirations.

bashCopy
# Example cron job to run a rebalancing script daily
0 8 * * * /usr/bin/node /path/to/your/rebalance-script.js >> /var/log/defi-rebalance.log