Francium Launches First Farming Strategy — Pseudo-Delta Neutral Hedging Strategy

4 min readNov 20, 2021

As we all know, the main purpose of Leveraged Yield Farming is to improve capital efficiency. In the pursuit for leveraged yields, we can choose to open long or short farming positions according to our view on the market. However, one often overlooks the risk of liquidation. With the volatile market recently, a more neutral and lower-risk method of farming is needed.

In the process of exploring farming strategies tailored to weather the volatility in the market, the crypto community has explored the idea of hedging from traditional finance, in farming. One instance is the Pseudo-Delta Neutral Strategy.

Delta is the differentials in price of the assets in your portfolio. When we say ‘Delta-neutral’, we are expecting overall delta of your assets to total to zero. Naturally, you might ask: “Since I can’t lose money, I won’t gain either, right?”… While that might be true in CeFi, you can still earn profits from neutral positions when you farm on DeFi because you’re providing liquidity and will be rewarded with the yields.

Strategies like these are complicated but are not entirely out of your reach. This is where Francium comes in to make it easy for you. While the Francium team is working hard to integrate strategy tools that will help you design your own farming strategies, they have also been exploring the most effective farming strategies out there and they will be deploying them for you to use.

With that in mind, the team is proud to present their first farming strategy — Pseudo-Delta Neutral Hedging Strategy.

What is Delta-Neutral Hedging Strategy?

The strategy takes a long and short position in an asset simultaneously to minimize the effect on your portfolio when the underlying asset’s price moves. With this Delta-neutral strategy, you can expect higher capital utilization rate and profit.

Will the position in this Delta-Neutral Hedging Strategy be liquidated?

Long story short, liquidations are not triggered on this strategy as stop-losses are in place when you deploy this strategy on Francium. This is where the pseudo nuance comes into the picture — when you open a pseudo-delta neutral position, you are actually betting for the asset’s price to move within a particular range. In other words, the two true Delta neutrals are stable and profitable as long as they are within acceptable limits. By design, the neutral strategy’s default stop-loss threshold is at 10% of your position. Total liquidation of a position is avoided with this protection strategy.

With our stop-loss mechanism, the asset you are invested in with this hedging strategy will be returned to you if equity value moves 10% below your entry. For example, if you invested $1,000, stop-loss triggers when your equity value falls to $900, and the remaining asset will go to your wallet after deducting a certain amount of robot fees.

The underlying assets selected for the Pseudo-Delta Neutral Hedging Strategy are $whETH and $USDC. We select these assets as they are relatively stable and have excellent leverage returns.

Moreover, Francium offers you a profit simulator to help you simulate the price fluctuations.

In the graph below, the horizontal axis shows the price movement of $whETH and the vertical axis shows the profit/loss (%) of the position. You can input experimental numbers into the simulator to have a better understanding of profit dynamics.