Market Volatility Risks
Volatility Risks:
It is too complicated/impossible to completely and perfectly hedge against the volatility of the cryptocurrency market, as the aforementioned factors are too unpredictable for any given model. Even the most sophisticated strategies, such as employing shorts/AAVE borrowing, have only shown to be slightly effective, but never perfect.
In order to completely understand GMS Vaults respective Delta-Neutral strategy based on BMX and BLT, investors must first fully understand the 3 main risks involved with market volatility:
Trader’s profit and losses from BLT pool
Impermanent loss due to price volatility + assets weight changes
Volatility from small assets in the pool (Aero, Well)
Tackling Volatility Risks:
Among these 3 main risks, Risk 1 works in favor of BLT, as traders statistically WILL lose over a long enough period of time.
=>To put this in GMS's Risk Hedging perspective, with the trading performance fee and the additional revenue from traders' losses, BLT has almost always been outperforming other indexes/LPs throughout its whole existence.
Risks 2 and 3, however, are the most concerning as crypto is a volatile asset class and impermanent loss has always been a risk that liquidity providers, in this case, GMS Delta-Neutral Vaults Stakers, have to take.
=> This brought GMS Vaults to the creation of our Pseudo-Delta-Neutral Strategy with a risk-absorbing reserve - Protocol's BLT RESERVE .
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