Δ Neutral Stablecoins

This is a new type of Stablecoin that is collateralized by Δ neutral positions or what is also known as basis trading. This means that, to achieve market neutrality and stabilize the value of the collateral backing the stablecoins, the protocol takes a proportionate position, both long and short at the same time, on decentralized collateral such as ETH, to be resilient to both positive and negative price action. This type of approach represents an important innovation that may prove itself to be very useful in the perspective of stabilizing the value of the collateral in the balance sheet of a protocol without necessarily having to rely on centralized collateral. Lemma Finance is the protocol pioneering this new type of solutions, you can find out more details about basis trading in their documents. The only problem with this is that the short side of the Δ neutral position either accumulates the funding rate as yeld or as a cost, resulting in a positive or in a negative carry depending on the market momentum. - If the Funding Rate is positive: Everybody stakes and the protocol's earnings are socialized. - If the Funding Rate is negative: Everybody unstakes so the protocol's treasury has to withstand the negative carry. A partial solution to this could involve liquid staking derivatives as Lido's stETH (once redemptions from the beacon chain are allowed) as an underlying of the basis trading strategy, in order to offset periods of negative funding and complement the positive carry of the funding rate with more profits coming from the staking yeld when the funding rate is positive. PROS: good security and solvency guarantees CONS: slow rate of adoption and sensitive to periods of negative funding without the integration of staking derivatives as collateral