Teahouse ETH Vault (Low-risk)

Risk Category: Low

Details

Vault Information

Maximum Fund Size: No Limit Asset Token: $ETH ShareToken: $TeaETH $TeaETH Token contract Address: 0xE1B3c128c0d0a9e41aB3fF8f0984e5d5bEf81677 Locked Period: Every day 13:00 UTC+8 – 15:00 UTC+8 Note: Deposit/withdrawal requests may take up to 2 working days in the UTC+8 timezone to process and enter into the next round.

Normal market trends and expected volatility should not significantly affect the performance of ETH portfolio.

Summary

This strategy aims to earn ETH by building a portfolio with ETH-derivative assets, including through ETH options trading, Liquity arbitrage, and yield farming. Risk-reward balance is achieved by portfolio theory using diversification and efficient frontier methods. We balance the risk and return by manipulating the weight of each strategy in the portfolio, targeting a 15% return with a 5% risk.

Please refer to the Strategy Design tab for more details.

Depositing & Withdrawing

• Please see our guide on how to deposit and withdraw funds.

• If you request to deposit $ETH during Round X, your funds will enter the strategy in Round X+1, and you can claim $TeaETH in Round X+1 (or later).

• The earliest you can request to redeem $TeaETH into $ETH will be in Round X+1, for the funds to be removed from the strategy in Round X+2. You will be able to claim the corresponding $ETH to your wallet in Round X+2.

• If you do not redeem $TeaETH into $ETH, your funds will automatically continue into the following Rounds.

Fees

Teahouse will assess Platform Fees, Management Fees, and Performance Fees for this strategy.

Platform Fees

Entry fee: None / Exit fee: 0.2%

E.g., I initially invested 1 $ETH, and upon exit, I have 1.5 $ETH. I will have paid 1 * 0.1% = 0.001 $ETH at entry and 1.5 * 0.2% = 0.003 $ETH at exit, for a total platform fee of 0.004 $ETH.

Management Fees

1.7% (Annualized) divide by 52 weeks to get weekly fees charged: 0.03269%

E.g., I initially invested 1,000 $ETH, and 1 week later, the $TeaETH Token value increased to 150% of the original. When exiting after a week, it will incur 1.7% * 1,500 $ETH * 1/52 = 0.49038461 $ETH. Alternatively, if it takes a full year to reach 150%, then I will incur 1.7% * 1,500 $ETH = 25.5 $ETH.

Performance Fees

10% of profits made.

Disclaimers

Your friendly Teahouse Hosts would like to remind you that nothing contained on this website should be construed as financial advice. Teahouse makes no guarantees, express or implied. Please note the high-volatility nature of cryptocurrencies and DYOR. Be responsible for your actions and beware of scams.

Strategy Design

Introduction

This strategy aims to earn ETH by building a portfolio with ETH-derivative assets, including through ETH options trading, Liquity arbitrage, and yield farming. Risk-reward balance is achieved by portfolio theory using diversification and efficient frontier methods. We balance the risk and return by manipulating the weight of each strategy in the portfolio, targeting a 15% return with a 5% risk.

Options Trading

We sell ETH European covered calls on Ribbon Finance on a weekly basis and hedge the position on GMX. In this section, we discuss the pricing method and introduce our delta-neutral hedging method.

Model

A common model for European options is the Black-Scholes model, which can be formulated as:

where C_0 is the option price, T is the expiration period, S(t) is the underlying asset price at time t, K is the strike price, and r is the risk-free interest.

Assume that the asset price follows geometric Brownian motion, i.e.,

where B(t) is the standard Brownian process, then the fair price of the option can be derived by:

Covered Call in ETH

Ribbon Finance sells ETH covered calls with ETH, so we need to consider the price of ETH when calculating the price C_0:

Delta-Neutral Hedge

To calculate the delta of the call option, we differentiate the option price with respect to the ETH price:

Strategy

We sell the covered call and calculate the delta of the position. If the delta is smaller than a certain threshold, we will open a long position on GMX to make it delta-neutral. Then, we periodically recalculate the delta and adjust the long position after a given time interval.

Liquity Arbitrage

Liquity is a 0%-interest-rate lending protocol, where one can use ETH as collateral to borrow LUSD, a stablecoin. Due to the $110%$ collateral ratio and its redeem function, the price of LUSD is volatile around $1 but does not depeg. We conduct LUSD/USDC arbitrage by setting the arbitrage price range. When the price is out-of-range, there is an arbitrage opportunity. When the price is within range, we stake LUSD into the stability pool on Liquity to earn yield.

Arbitrage Price Range

We analyze the LUSD/USDC price and determine the arbitrage price range using recent pricing data. The length of the recent pricing data is selected by cross-validation.

Yield Farming

We deposit ETH into lending protocols to earn interest. In addition, the ETH reserved for covered call hedging and maintaining collateral ratio on Liquity is also used for yield farming.