❗Risks of the JLP Delta Neutral Strategy

While the JLP Delta Neutral Strategy is designed to be a low-risk, stable-yield approach, no strategy is entirely risk-free. Below are the key risks you should be aware of before using this strategy.

1. JLP Counterparty Risk

JLP represents an index of assets (SOL, BTC, ETH, USDT, USDC) with varying weightings. If the JLP pool experiences an exploit or operational failure, the token could lose its peg to its underlying value, significantly impacting your position.

2. Drift’s Perpetuals Liquidity and Settlement Counterparty Risk

Drift provides the perpetual trading environment necessary for this strategy. However, in high-stress market conditions, liquidity may dry up, making it difficult to execute trades at optimal prices. If Drift encounters solvency issues or settlement failures, traders could face losses or delays.

3. Delta Calculation Fail

This strategy relies on precise delta calculations to maintain neutrality. Any system failure, such as RPC call errors or backend outages, could disrupt these calculations, leading to unintended exposure to market movements.

4. Market Risks Linked to JLP’s Peg

The price stability of JLP is crucial. If JLP’s market price diverges significantly from its virtual price and the mint/burn mechanism fails, this could result in losses. While extreme scenarios, such as a 99% JLP price drop, are unlikely, they should still be considered.

5. Team-Related Risks

Can the team rug pull?

No. Your funds remain in a Drift delegated vault, ensuring that you retain full control. The team has trading privileges but no custody of your funds.

Can we get liquidated?

The strategy is structured to avoid liquidation. It perfectly hedges JLP delta exposure, with a historical maximum drawdown of only around 2% (unlevered). Additionally, the strategy dynamically delivers at the first sign of liquidation risk.

What if our hedge short positions rise significantly?

This won’t lead to liquidation since the underlying JLP collateral appreciates in parallel.

By understanding these risks, you can make informed decisions when using JLP Delta Neutral vaults. Stay cautious and enjoy optimized yields!