Module6.3｜How does JLP Delta Neutral Strategy work

JLP Delta Neutral strategy is designed to provide stable returns through a delta-neutral, leveraged JLP position. First, we will convert the USDC user deposited into JLP, then deposit them on Drift as collateral to establish hedged short positions in SOL, ETH, and BTC, neutralizing the price exposure of JLP. The platform will monitor the positions that need to be hedged in real time. Once the JLP position changes, the hedging position size will be adjusted in time to hedge the JLP exposed position.

At the same time, in order to maximize the efficiency of capital utilization, we will also use the existing JLP in the vault as collateral, borrow USDC, convert into JLP to leverage the JLP positions held in the Vault. The short hedging positions of SOL, BTC, ETH will also be increased simultaneously to ensure that the entire position is fully hedged. NX Leveraged Delta Neutral Vault designed a very unique dynamic leverage system which will adjust the leverage amount according to the JLP Yield and the lending&perpetual market situation to maximize the vault yield with 100% safety control.

General Working Follow

1

Users deposit USDC

2

Conversion to JLP

3

Dynamic Leverage

4

Risk hedging

5

Position monitoring & dynamic adjustment

6

User Benefits

By participating in this strategy, users can achieve stable and continuous returns under lower-risk conditions.

Example

Tomorrow is the Ice Cream Festival! Everyone can “predict” whether the future price of ice cream will go up or down.

Perpetual Contract vs. Ice Cream Price Prediction Game Similar to cryptocurrency perpetual contracts, this game has no set end time—you can keep playing as long as you want.

Guessing Price Up (Long) or Price Down (Short) Some people believe the price of ice cream will rise in the future, so they “go long” (buy). Others believe it will fall, so they “go short” (sell).

Funding Rate: The “Tip” to Balance Ice Cream Prices Since this is a “prediction” game, we introduce a “tip” mechanism called the funding rate to bring the predicted price closer to the actual ice cream price.

Scenario 1: Everyone Thinks Ice Cream Prices Will Go Up If many people “go long” and predict a price higher than the actual price, those who went long will need to pay a “tip” to those who went short. This “tip” is the funding rate and aims to encourage people to go short, balancing the predicted price with the actual price.

Scenario 2: Everyone Thinks Ice Cream Prices Will Go Down Conversely, if everyone “goes short” and predicts a lower price than the actual price, those who went short will need to pay a “tip” to those who went long. This incentivizes people to go long, helping to align the predicted price with the actual price.

How Does the Funding Rate Work?

• Positive Funding Rate: Those who go long pay a “tip” to those who go short.

• Negative Funding Rate: Those who go short pay a “tip” to those who go long.

How to Make Money from the “Tip” System?

1. Accurate Prediction

If you predict the ice cream price trend correctly—for example, predicting it will rise and it actually does—you can profit from the price increase.

1. Funding Rate Arbitrage

Even if you're unsure about the direction of the ice cream price, you can still make money by utilizing the funding rate.

Example:

Let’s say the funding rate is positive, meaning those who go long must pay a “tip” to those who go short. If you think the “tip” is too high, you can simultaneously “buy real ice cream” and “go short” on the same amount of ice cream. Regardless of how the price moves, your gains and losses will roughly cancel out, but you’ll still collect the “tip” paid by long traders.

Conversely, if the funding rate is negative, and you have real ice cream in hand, you can earn the “tip” paid by short sellers by simultaneously “selling real ice cream” and “going long.”

Summary

The funding rate acts like a “tip” system in the ice cream price prediction game, balancing the predicted price with the actual price. By understanding this mechanism, you can profit by making accurate predictions or utilizing the funding rate. But remember, predictions come with risks, so participate carefully!