Hexer 🧠

Generating Alpha in All Market Conditions: A Quantitative Approach to Tokenomics-Driven Pairs Trading 1/7 A quantitative, market-neutral strategy can generate alpha irrespective of market direction. The thesis is to construct a pairs trade based on fundamental tokenomic divergences: long a deflationary asset with revenue-driven buybacks, and short an inflationary asset with significant insider token unlocks. 2/7 The long position targets protocols with "Real Yield." These projects allocate substantial protocol revenue to programmatically buy back their native tokens. This mechanism creates a deflationary force by reducing circulating supply and providing constant, structural buy-side pressure, directly linking protocol success to token value. 3/7 The short position targets protocols with predictable inflationary headwinds. Empirical analysis of over 16,000 token unlocks reveals a clear pattern: ~90% of events create negative price pressure. Unlocks designated for teams are most detrimental, correlating with an average price drop of -25%. 4/7 An archetypal pair would be Long HyperLiquid ($HYPE) vs. Short Arbitrum ($ARB). Hyperliquid utilizes ~97% of its substantial trading fees for automated $HYPE buybacks. Conversely, Arbitrum's tokenomics include a multi-year linear vesting schedule for insiders, creating persistent, predictable supply pressure 5/7 Execution requires specific instruments. Perpetual futures offer capital-efficient long/short exposure without expiration. A cross-margin account is strategically imperative; it pools collateral across all positions, allowing unrealized profits from one leg to offset losses on the other, thus preserving the hedge and preventing premature liquidation of a single leg. 6/7 A systematic framework for implementation and risk management: • Position Sizing: Positions must be dollar-neutral at entry to eliminate market beta. • Entry/Exit Signals: A rolling z-score of the pair's price ratio can identify statistically significant deviations for trade entry and mean-reversion exits. • Risk Mitigation: A stop-loss must be applied to the spread itself, not the individual asset prices, to protect the core thesis from invalidation. 7/7 This strategy exploits a quantifiable market inefficiency: the asymmetric pricing of slow, cumulative deflationary pressure versus sharp, predictable inflationary shocks. The objective is to achieve a high Sharpe Ratio, indicating superior risk-adjusted returns that are fundamentally uncorrelated with the broader digital asset market. big thank you to @hansolar21 I mainly traded isolated margin till the point I first saw his perp account on @Lighter_xyz and then I realised portfolio optimisation is so much easier with cross margin if you understand Market Neutral Positions, up 6 figures since and sharpe ratio at 5, since I trade market neutral