Delta Neutral Staking

Staking originally only referenced proof-of-stake consensus networks and their tokens but now refers to any mechanism to reward holders who deposit tokens for almost any reason, including for protocol fee sharing or backstopping an insurance pool. Whether staking to validators or depositing into smart contracts, the potential to earn high returns — usually measured by annual percentage rate (APR) — is one of the key factors driving crypto market adoption and activity.

The rewards can be substantial; LooksRare’s native LOOKS token currently earns trading fees and inflationary token rewards that have been fluctuating between a 100% and 200% annualized return.  

*Source: *Staking Rewards

Of course, these returns generally require taking price risk on the staked token. With crypto as volatile as it is, price declines could easily cause net returns to be erased, or be extremely negative.

Price risk, however, can be “delta” hedged by fully offsetting the long spot position with an equal value short position. No matter what happens to the price of, in this case, LOOKS, a “delta neutral” position would cause zero loss.