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Today, we're thrilled to announce that our first product, the "Alpha Orange Vault," a delta-hedging liquidity manager for the ETH-USDC pool on Uniswap v3, will be launching on Arbitrum.
This article provides information on our launch schedule and provides an overview of the vault’s strategy which is updated from the previously published article.
The Alpha Orange Vault is a delta-hedging vault that provides liquidity to the ETH-USDC pool on Uniswap v3 0.05% fee tier, earning real yield from the trading fees on Uni v3.
Pool: ETH-USDC (5bps) pool on Uniswap v3
Chain: Arbitrum
Deposit Asset: USDC
The vault will be launched on Arbitrum to the limited members of the community. The launch date is on 24th April for the Ambassador, and on 28th April for Alpha Orange Crew.
Max. Cap: $250k
Eligibility: Ambassador, Alpha Orange Crew, ???
Launch date: 24th April (for Ambassador), 28th April (for Alpha Orange Crew)
There is currently no maximum deposit limit per person. We may consider increasing the maximum cap of the pool and setting an individual cap once we reach our current limit.
The vault employs three main strategies: Delta Hedging Strategy, Smart Liquidity, and Rebalancing & Stop-loss Strategy, which have been further refined since the previous article.
Let's take a closer look at each one.
Providing liquidity on a DEX without hedging is a bullish bet that exposes liquidity providers to losses when the price of the provided asset goes down. However, with our hedge control strategy, we analyze the market trend based on a 3-day moving average and adjust our hedge position accordingly.
Delta hedging on Orange Finance is powered by Aave, a lending protocol. A portion of deposited USDC is collateralized on Aave, and ETH is borrowed from them. As the ETH position is borrowed, even if the ETH price decreases, the vault can hedge a portion of losses compared to an unhedged position.
Since price drops can often be sudden and steep, hedging downside risks helps to maintain portfolio value in the long run. Additionally, we reduce our hedge position with the hedge control strategy when the market is bullish, allowing for potential upside profit opportunities.
Smart Liquidity determines the price range for providing liquidity on behalf of liquidity providers. In order to take advantage of the capital efficiency offered by Uni v3, the vault aggressively sets the price range using a delta hedging strategy that mitigates the impact of price volatility.
The price range is set by simulating volatility with statistical and financial models and parameters.
In the alpha product, we refer to Bollinger Bands and 3DMA. After referring to simulated volatility, Smart Liquidity will set optimal range settings for a liquidity pair that enables you to benefit from the highest capital efficiency.
There will be two range settings. One is range settings for liquidity provision, the other is range settings to execute stop loss. To reduce unnecessary stop loss or rebalances, two-layered range settings aim to stabilize the vault’s performance.
When the asset price goes out of range, the deployed liquidity no longer earns trading fees from Uni v3 pool. A rebalancing strategy will be implemented when the price of assets goes out of the set range as a Stop-loss. Since liquidity is converted to either asset of the pair as a result of price movement, we liquidate the position, swap half of the liquidity to another asset of the pair again, and re-deposit liquidity with a new range simulated by the statistic approach.
Furthermore, we check all the parameters once a week, even if the price still stays within the set range, to update the protocol’s rebalancing strategy based on the market situation.
The strategy includes comparing expected returns from fees and the potential losses caused by rebalancing. Based on the trading volume and the share within the pool, we continue providing liquidity only if returns are expected to be larger than a potential loss, otherwise, we liquidate a position and keep assets till the strategy becomes profitable again.
For the alpha product, the rebalancing mechanism will be operated semi-automatically. When the price surpasses a certain threshold downward or upward, a stop-loss mechanism is fired and the off-chain execution system automatically executes the stop-loss operation. Afterward, within 24 hours, the dev team analyses the market condition and reapplies range settings, then deploy liquidity to start earning fees again.
For the main product launch in the future, Orange Finance is going to automate all the operations based on the learnings from the alpha version.
The rebalancing mechanism is automated. (May 2023)
Ahead of the Alpha Vault launch, we are currently looking for members for the Alpha Orange Crew, who will contribute to the long-term growth of Orange Finance.
By joining Alpha Orange Crew, you will receive the Alpha role in Discord, giving you access to alpha information from the team and the opportunity to deposit early into the closed Alpha Orange Vault.
To join the Alpha Orange Crew, please complete the following form.
We will close the application for the Alpha Orange Crew tomorrow, the 25th of April. Don't forget to submit the application if you haven't submitted it yet!
Orange Finance is an Automatic Liquidity-Management protocol for concentrated liquidity-type DEXes such as Uniswap v3, maximizing the capital efficiency of Uniswap v3 by maintaining an efficient price range through the use of statistical modeling and delta hedging strategies.
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