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Orange launched two Delta Neutral vaults at Lab🧪
The Lab is a sector to list experimental vaults that are not backtested by Orange.
The vaults are to demonstrate the effect of IL reduction by rebalancing frequency.
The vaults are already running and will be on UI as soon as UI dev is done.
As the name suggests, the lab is a place to experiment with LP strategies.
This time, we will deploy two vaults and test our hypothesis in a controlled experiment.
The Lab is intended to make Orange more transparent and allow us to develop a new strategy that the backtesting tool doesn’t cover, but at the same time, it can be used as a place to register Orange vaults with third-party strategists. (e.g., market maker and individual strategist)
Orange's Vault is designed to be very flexible and strategist-friendly: by simply entering a price range and delta hedge percentage, Orange Vault automatically calculates asset allocations within the integrated AMM and hedge strategy, utilizing flashloan to minimize swap and rebalancing costs.
https://github.com/orange-finance/alpha-contract/blob/main/contracts/core/OrangeAlphaVault.sol#L566
We’d like to test the following hypothesis for this time.
Increasing rebalancing frequency reduces Gamma exposure, reduces IL and improves overall results.
And we’d like to verify this by running the vault on-chain directly, skipping backtest due to the fact that backtesting this hypothesis requires us to rebuild our backtesting tool.
Complete the backtest, announce the result, launch the Vault, then show that the strategy runs identically as the backtest.
This is the launch flow Orange has been taking so far. While backtest does not prove future profitability, it is a very effective method for looking at the effectiveness and characteristics of strategies, and Alpha Orange Vault was born from backtest.
We are backtesting ideas to improve the Vault from various angles, mainly range setting and hedging strategy. After Alpha Vault's launch, we moved to a backtesting environment in Python, allowing us to experiment with more complex existing financial methods such as GARCH.
However, it limits the scope of hypothesis testing to the specifications of the backtesting tool, which means that some ideas could not be tested.
Currently, Orange performs backtests using the hourly dataset provided by The Graph. This makes us a lot easier to backtest our strategy, but it also is a constraint that limits the frequency of rebalancing to hourly at most. Currently, no service provides a handy dataset with a unit finer than 1 hour, so we have to rebuild from scratch to be able to backtest such a hypothesis. (transaction events basis)
For this time, hypothesis testing will be done by test in prod and will be operated for several weeks to measure the effectiveness.
Deploy two vaults with the same strategy, changing only the rebalancing frequency.
DN1
Range Setting: Bollinger Band
Hedge Strategy: Delta Neutral
Frequency: 60min
DN2
Range Setting: Bollinger Band
Hedge Strategy: Delta Neutral
Frequency: 5min
Price fluctuations will increase or decrease the ETH position on uniswap, resulting in a delta. In short, there is Gamma exposure. Even if the Delta hedge strategy is neutral and IL is considerably mitigated, IL will occur between rebalances due to Gamma.
Shorter rebalancing intervals can help reduce the impact of the gamma but can also produce unnecessary losses. (e.g., when the price rises, the position is DNed, and then the price returns to the original, etc...) Although the number of rebalancing cycles will increase, we think this would improve overall performance by reducing gamma exposure.
These vaults are already running and will be on UI as soon as it’s ready.
UI is now being developed…
We are looking for strategists and Lab supporters! If you’d like to utilize Orange’s Vault for your strategy or join the vaults at Lab, please submit the application below.
Orange is also looking for quants and Python engineers to work with us on a structured product that pursues real yield based on the use of AMM.
Please join Orange’s discord server and ping the dev team or DM on Twitter ;)
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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