Key Takeaways
Today, we announced the public launch of the Delta-Hedged Jupiter Liquidity Provider (hJLP) strategy* on Drift. hJLP offers a sophisticated risk-adjusted approach to capture JLP yields while minimizing market exposure.
Jupiter’s Perpetual Platform has generated over $180M in fees since launch, providing solid returns for JLP. However, token holders face risks from both crypto price swings and trader PnL exposure. The hJLP strategy aims to mitigate these risks by automatically hedging both components.
The strategy was developed to manage the inherent risks of holding JLP by neutralizing the delta exposure (price risk) of the underlying assets via short positions in SOL, ETH, and BTC.
Liquidity providers in hJLP vaults can benefit from reduced volatility, lower risk with sustained yield during downturns, and the convenience of passive management for attractive risk-adjusted returns. Vaults are non-custodial, giving hJLP depositors full control of the movement of their funds.
Read the full hJLP whitepaper here.
hJLP Vaults
One hJLP vault is currently live — taking USDC deposits — with a vault that takes JLP deposits and a leveraged hJLP vault going live soon.
- hJLP — Deposit token: USDC - LIVE
- hJLP — Deposit token: JLP
- 2x Leveraged hJLP — Deposit token: USDC or JLP
Withdrawal requests can be submitted anytime, and deposited funds are subject to a three-day redemption period. Any upside profit accrued during the redemption period is not included in the total withdrawal amount. Gauntlet applies a performance fee on deposits and withdrawals above the high water mark. Please note that given the mechanics of hJLP (swapping from USDC to JLP), a depositor's return may initially show as negative.
We also provide white glove service for deposits over $100,000. This includes individual technical and analytical support to help understand the mechanics of the vault and general market conditions. To learn more about this service, contact @riskringer on Telegram or email perpetuals@guantlet.xyz.
The Benefits of hJLP
- Reduced volatility: mitigates the impact of market swings on JLP positions.
- Yield preservation: aims to maintain JLP’s attractive yields with lower risk and higher Sharpe ratio.
- Trader PnL Hedging: The hJLP strategy automatically hedges against traders' open positions that may impact JLP returns, effectively neutralizing PnL exposure.
- Automated Hedging: dynamically adjusts short positions based on real-time price delta affecting the JLP pool.
Understanding hJLP Mechanics
The hJLP strategy uses the Drift Protocol, a Solana-based decentralized exchange, as its primary hedging venue. Drift offers perpetual futures trading with key features that align well with our hedging requirements: high liquidity, cross-margining, and an onchain order book.
To make delta calculations, we measure JLP’s exposure to price movements of the underlying assets (e.g. SOL, ETH, and BTC) using real-time data ingestion from several sources, including JLP pool composition, open perpetual positions, JLP token supply, and market prices.
The delta for each asset is calculated using the following formula:
\[\Delta_a = \frac{\mathit{spotLiquidity}_a - \mathit{longPerp}_a + \mathit{shortPerp}_a + \mathit{undistributedFees}}{\mathit{jlpSupply}}\]
Where:
- \({spotLiquidity}_a\) is the amount of asset 'a' held in the JLP spot liquidity.
- \({longPerp}_a\) is the total long perpetual positions for asset 'a'.
- \({shortPerp}_a\) is the total short perpetual positions for asset 'a'.
- \({jlpSupply}\) is the total supply of JLP tokens.
- \({undistributedFees}\) are the fees that traders have already paid but are sitting in "escrow," waiting to be split between JLP and protocol. We hedge these fees under the assumption that the market will price them in.
To assess strategy performance, we engaged in robust backtesting of multiple time-bound and threshold-based hedging strategies. We selected the strategy best optimized for risk-adjusted returns and operational efficiency.
Key features implemented in our backtesting strategy:
- Rolling delta calculation (to avoid the impact of flash crashes)
- USDC-JLP TWAPing for USDC-denominated vault
- Production-level testing with seven-figure amounts
Leveraging Years of Risk Modeling and Vault Curation for the Largest DeFi Protocols
We sit at the forefront of economic modeling for the crypto industry with applied research and protocol optimization teams that build on years of experience across DeFi and TradFi. Our mission is to drive the advancement and understanding of blockchain economies through rigorous quantitative research and strategic optimizations.
Since early 2024, we’ve collaborated closely with the Jupiter team to optimize their perpetual exchange. Our work has included publishing comprehensive risk methodologies, building custom parameter optimizations and risk models, continuous monitoring of market dynamics, providing a comprehensive real-time dashboard, and more.
The launch of the hJLP strategy is another important milestone in our work with the Jupiter community. We will continue providing impactful risk recommendations and analysis as Jupiter continues to grow as Solana’s largest perpetual exchange.
Explore the hJLP vault here, and we invite you to reach out to perpetuals@gaunlet.xyz with any questions.
* Before using hJLP, make sure you read our disclosures and disclaimers here.
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