In this article we will see how to ride the wave of crypto airdrops on the Solana cryptographic ecosystem, by implementing advanced strategies, such as delta neutral, to increase on-chain trading volumes and simultaneously earn a yield.
Many DeFi protocols operating on Solana could soon release an airdrop to their users, so it is good to be prepared by interacting with them as much as possible.
The delta neutral approach allows generating a boost in on-chain metrics while earning interest on one’s capital without worrying too much about market volatility.
Obviously, there are also risks to underestimate in this case: before delving into these complex operational strategies, it is necessary to be aware of how perpetual trading, lending platforms, and more generally web3 applications work.
All the details below.
Summary
The Solana DeFi ecosystem and the multiple opportunities to earn crypto from airdrops
The Solana ecosystem is shaping up to be an ideal place where crypto airdrop hunters can likely achieve great satisfaction in 2024.
With the growth of the number of protocols developed on this blockchain, new opportunities for airdrop farming emerge, especially in protocols that do not yet have a native token.
After the successful cases of JITO and BONK, which gave profits with 3 zeros to their respective early adopters, more and more projects are coming forward announcing an incentive program for their communities or revealing future distributions.
One example is the decentralized market aggregation platform Jupiter, which recently announced that it will give away 4 billion JUP crypto tokens to its supporters.
On January 31st, the doors will be opened to claim the token, which will be given to over 1 million eligible addresses.
In addition to these just mentioned, there are countless applications that have spoiled an airdrop and that encourage users to use them consistently.
All this does is create hype and increase on-chain metrics on Solana such as trading volumes, number of wallets, and number of transactions made.
In particular, this narrative has contributed to the growth of the daily volume of assets transferred on the network in question, from a value of 1 billion dollars recorded at the beginning of October 2023, to a value of 45 billion dollars reached on January 5th.
Obviously, with the increase in the amount of on-chain assets being moved, the fee revenues on Solana also increase, which has seen a significant surge since October.
The number of SOL locked in staking on LSD platforms is also constantly increasing.
The enthusiasm generated by the Jito airdrop, which rewarded activities of liquid staking, has led more and more users to consider the idea of delegating their SOL on-chain through these third-party solutions.
In fact, by doing so, in addition to farming one or more airdrops, you will obtain a yield on the staking of the SOL crypto, and potentially an additional one with the liquid token that can be used in DeFi to generate a yield.
Compared to the beginning of 2023, the number of SOL used in LSTs has increased from 10 million tokens to the current 17 million, for a total increase of approximately 665 million dollars.
Delta neutral strategy on Solana protocols for a return independent of market volatility
Given the expanding trend of crypto airdrops on Solana, let’s now see how to use an advanced DeFi strategy to maximize interactions with the most promising protocols of the moment and simultaneously earn a yield.
Let’s talk about the delta neutral approach: a solution that allows investors to generate income from their capital without exposing themselves to the volatility of the cryptocurrency market.
To eliminate market directional risk, the delta neutral strategy involves opening a position on a derivative market with a funding rate that pays in relation to the directionality of the trade, while simultaneously buying or selling the same quantity of tokens spot.
In this way, a delta is obtained, which is the ratio of variation between the price of the product and the change in the price of the underlying asset itself, which is equal to zero and eliminates potential losses related to the depreciation of the traded cryptocurrency.
What is earned is the funding rate, which in order to make the strategy work must be higher than the costs of spot commission and obviously must pay for the open perpetual position.
Now, leaving aside the technicalities and focusing on the operational level, let’s see how to implement this strategy using two Solana protocols, namely Drift and Jupiter.
The goal in this case is to earn yield and maximize the chances of qualifying for the Drift crypto airdrop, a DEX perpetual operating on Solana.
The same mechanism can also be used for other perpetual applications that promise airdrops.
To apply the delta neutral strategy on Drift and Jupiter, it is necessary to follow the following steps:
- Go to Drift, and choose which token to open a position on based on the one with the highest funding rate;
- open a 1x leverage short position with half of the available capital;
- enter Jupiter and buy the same amount of tokens sold with the short (another 50% of available capital);
- Deposit the spot on the “Insurance Fund” and “Vaults” sections of Drift to earn additional yield.
By doing so, we have gained a yield that is equal to the financing rate minus the commission costs of the Solana chain incurred for the operations, and at the same time we have also farmed the Drift airdrop.
Potentially, trading volumes can be increased by collateralizing the token purchased spot on lending platforms to borrow USDC or SOL and repeat the steps previously executed in a loop (in this case, however, it is important to be careful not to get liquidated).
In order for everything to go smoothly, it is essential to carefully calculate the potential earnings derived from the funding rate and the costs of other operations.
Small advice, on the “funding history” section of Drift, carefully select the tokens that pay the most to open a short position (if the rate is negative, then the long positions will be paid).
Obviously, even a delta neutral strategy presents risks to consider: in addition to manual execution errors that can occur during long farming sessions, it is also possible that the DeFi platform we are operating on may be subject to hacks or exploits.
