Neutral Farming
What is Neutral Farming?
Neutral farming is a strategy designed to minimize exposure to price movements while maximizing fee earnings. This is done by balancing your position between an asset like SOL and a stable asset like USDC. You borrow one asset, combine it with the other, and provide liquidity in a Concentrated Liquidity Automated Market Maker (CLAMM).
However, it’s important to note that pure delta-neutral positions are impossible due to the nature of liquidity pools. This strategy is better described as pseudo delta-neutral, as slight imbalances may occur. In practice, such positions function as a short volatility strategy, meaning you are effectively betting on the price staying within a narrow range. Delta-neutral farming offers a balanced risk-reward ratio, making it a compelling choice for stable returns.
Key Characteristics of Delta-Neutral Farming
Pseudo Delta-Neutral
True neutrality isn’t achievable because liquidity pools naturally expose you to price movements. Instead, this strategy minimizes exposure by balancing borrowed and deposited assets.
The closer the price stays to the center of your range, the more effective this strategy becomes.
Short Volatility
This strategy profits from low market volatility.
Your main goal is to earn fees while the price remains stable within your range. If the price moves too far in either direction, your impermanent loss increases.
Balanced Risk-Reward
Delta-neutral farming doesn’t aim for large directional profits. Instead, it offers a consistent and relatively lower-risk way to earn fees.
Ideal for users looking for stability in volatile markets.
You can use the PnL calculator at the top of the screen to simulate how long you need to stay in range—based on the last 24-hour yield estimate—to become fully profitable within the full range.
In this example, it will take approximately 5 days to reach full profitability. Don’t forget to set up limit orders to secure your profits and minimize potential losses.
How to Set Up a Delta-Neutral Position
Balance Your Borrow Ratio
Adjust your Borrow Ratio until the directional bias displays "Neutral".
Set a Balanced Range
Choose a price range where you expect the market to remain stable.
A tighter range generates more fees but increases the risk of the position going out of range.
Aim for a range that provides equal upside and downside potential. In the example above, there is a 5% buffer to the downside and 5% to the upside. As a result, impermanent loss is symmetrical on both sides.
Leverage
Use moderate leverage to enhance your returns without introducing excessive risk.
Be cautious, as higher leverage increase exposure if the price moves sharply.
Important: This setup results in a position that is delta-neutral in USDC terms. If you want to be delta-neutral in SOL terms, click the arrow in the top-left corner, then adjust your borrow ratio until impermanent loss to the downside equals impermanent loss to the upside. The directional bias will then show as slightly long.
Advanced Tip: Boost Profits Through Auto-Compounding
Important Notes
Risk of Range Breakout: If the price moves outside your range, you stop earning fees and may be left holding an imbalanced position. Regular monitoring is essential.
Short Volatility: This strategy is most effective in stable markets where prices are unlikely to move significantly. It works best when the price stays within the range you set.
Fees as Compensation: While price exposure can’t be fully eliminated, the fees you earn help offset this risk and provide consistent returns.
Final Reminder:
Delta-neutral farming is not about chasing big profits—it’s about stability and consistent fee earnings, during Flat Market. By carefully balancing your position and monitoring your range, you can achieve a strategy that offers one of the most balanced risk-reward ratios in liquidity farming.
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