syBTC hedge BTCETH mm

SyBTC hedge mm strategy

Version & Metadata

• Strategy Version: 1.0

• Last Updated: 2026-02-12

• Backtest Period: [To be populated from data]

• Network: Arbitrum

• Pool: Uniswap V3 WBTC/WETH 0.05%

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1. EXECUTIVE SUMMARY

SyBTC Strategy A is a concentrated liquidity market making strategy on Uniswap V3 that earns swap fees while maintaining delta-neutral exposure through Aave V3 hedging. The strategy deploys capital across 403 narrow price ranges and automatically rebalances when price exits the active range, compounding fees to maximize returns.

Key Performance Metrics

Metric	Value	Notes
Starting Equity	10.0 WBTC	Initial deposit
Ending Equity	[X] WBTC	After [N] swaps
Total Return	[X]%	Simple APR: [Y]%
Fee Capture	[X] WBTC	Gross fees earned
Borrow Cost	[Y] WBTC	Aave interest
Net Profit	[Z] WBTC	Fees - Costs
Rebalances	[N]	[MM only] / [Both]
Max Drawdown	[X]%	From peak equity

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2. STRATEGY OVERVIEW

2.1 Concept

Concentrated liquidity market making on Uniswap V3 WBTC/WETH pool with delta-neutral hedge via Aave V3.

Profit Formula:

Net Return = Swap Fees Earned - WETH Borrow Costs - Transaction Costs

2.2 Architecture

┌─────────────────────────────────────────────────────────┐
│                    STRATEGY                             │
├─────────────────────────────────────────────────────────┤
│                                                         │
│  ┌─────────────────────┐  ┌─────────────────────────┐   │
│  │     MM LEG          │  │      HEDGE LEG          │   │
│  │    (67% capital)    │  │     (33% capital)       │   │
│  └──────────┬──────────┘  └───────────┬─────────────┘   │
│             │                         │                 │
│  ┌──────────▼──────────┐  ┌───────────▼─────────────┐   │
│  │  Uniswap V3 LP      │  │  Aave Collateral        │   │
│  │  403 Positions      │  │  WBTC                   │   │
│  │  Earn 0.05% Fees    │  │                         │   │
│  └──────────┬──────────┘  └───────────┬─────────────┘   │
│             │              ┌──────────▼─────────────┐   │
│             │              │  Borrow WETH           │   │
│             │              │  Neutralize Exposure   │   │
│             │              └──────────┬─────────────┘   │
│             └────────────┬────────────┘                 │
│                          │                              │
│  ┌───────────────────────▼──────────────────────────┐   │
│  │           Net Equity = MM_Equity + Hedge_Equity  │   │
│  └───────────────────────────────────────────────────┘  │
└─────────────────────────────────────────────────────────┘

   Swap Events ───────────┐
                          ▼
┌─────────────────────────────────────────┐
│         Fee Distribution                │
└─────────────────────────────────────────┘

2.3 Two-Leg Breakdown

MM Leg:

• Deploys 2/3 of capital into Uniswap V3

• 403 pre-configured positions, each 10 ticks wide

• Earns 0.05% swap fees when in range

• Rebalances only when price exits range

Hedge Leg:

• Deposits 1/3 of capital as WBTC collateral on Aave

• Borrows WETH to match MM's WETH exposure

• Target LTV: 50%

• Rebalances only when LTV >= 60% (liquidation protection)

---

3. MATHEMATICAL FOUNDATION

3.1 Price Mechanics

Tick to Price Conversion:

Price = 1.0001^tick

Example:
  Tick: 263,600
  Calculation: 1.0001^263600 = 1.3012
  Result: 1.3012 WETH per WBTC

Price Normalization (sqrtPriceX96):

P_tick = sqrt(1.0001^tick) * 2^96
P_normalized = (P_tick^2 / 2^192) / 10^2

Used for: Integer arithmetic precision

3.2 Capital Allocation Constraint

Safety Bound Derivation:

For a strategy benchmarked to WBTC with LTV target l:

Total Capital: N WBTC
MM Leg Allocation: x LP
Hedge Leg Allocation: N - x (collateral)

Constraint: Debt <= l * Collateral
           LP_WETH <= l * (N - x)
           
Where LP_WETH = x * P (at 50/50 value)

Therefore:
           x * P <= l * (N - x)
           x <= (l / (1 + l)) * N

For l = 0.50:
           max_allocation = 0.50 / 1.50 = 33.3%

Note: The mathematical safety bound limits LP allocation to 33.3% for LTV=50%.

3.3 Liquidity Optimization

Goal: Maximize liquidity given single-token budget

Mathematical Formulation:

Given:
  P  = current price (sqrtPriceX96)
  Pa = lower price bound
  Pb = upper price bound  
  B  = total budget (WBTC)

Find:
  L* = argmax L(amount0, amount1)

Subject to:
  amount0 + amount1/P <= B
  amount0 >= 0, amount1 >= 0

Where liquidity L is:
  L = amount0 * sqrt(Pb) * sqrt(P) / (sqrt(Pb) - sqrt(P))
      + amount1 / (sqrt(P) - sqrt(Pa))

Solution Approach: The optimization is solved numerically using bounded scalar optimization over the token0 budget allocation.

Example:

Scenario: Create position at tick 263,600
  Range: [263,600, 263,610] (10 ticks)
  Price: 0.013 WBTC/WETH
  Budget: 6.67 WBTC

Solution: 4.44 WBTC + 57.78 WETH
  L = get_liquidity_for_amounts(P, Pa, Pb, 4.44, 57.78)

3.4 Hedge Mechanics

LTV Calculation:

LTV = Debt_Value / Collateral_Value
    = (Debt_WETH / Price) / Collateral_WBTC

Example:
  Collateral: 3.33 WBTC
  Debt: 57.78 WETH
  Price: 0.013 WBTC/WETH
  
  LTV = (57.78 / 0.013) / 3.33
      = 4444.62 / 3.33
      = 0.50 = 50%

Leverage:

Leverage = 1 / (1 - LTV)

Example at 50% LTV:
  Leverage = 1 / (1 - 0.50) = 2.0x

Target vs Emergency:

Target LTV:    50% (Leverage: 2.0x)
Emergency:     60% (Leverage: 2.5x)
Liquidation:   70-73% (Aave threshold)

3.5 Equity Calculations

MM Leg Equity:

MM_Equity = amount0_mm + (amount1_mm / Price)

Example:
  amount0_mm: 4.44 WBTC
  amount1_mm: 57.78 WETH
  Price: 0.013
  
  MM_Equity = 4.44 + (57.78 / 0.013)
            = 4.44 + 4444.62
            = 8.89 WBTC equivalent

Hedge Leg Equity:

Hedge_Equity = Collateral - (Debt / Price)

Example:
  Collateral: 3.33 WBTC
  Debt: 57.78 WETH
  Price: 0.013
  
  Hedge_Equity = 3.33 - (57.78 / 0.013)
               = 3.33 - 4444.62
               = -1.11 WBTC equivalent
               (Negative because leveraged)

Net Equity:

Net_Equity = MM_Equity + Hedge_Equity
           = 8.89 + (-1.11)
           = 7.78 WBTC
           
Note: Initial deposit was 10 WBTC, difference represents
      initial transaction costs and price impact

3.6 Exposure Calculations

Token0 (WBTC) Exposure:

Net_WBTC = amount0_mm + hedge_collateral
         = 4.44 + 3.33
         = 7.77 WBTC

Token1 (WETH) Exposure:

Net_WETH = amount1_mm - hedge_debt
         = 57.78 - 57.78
         = 0 WETH checkmark (Fully hedged)

Verification:

Goal: Neutral WETH exposure
Result: 0 WETH net exposure
Status: HEDGE EFFECTIVE checkmark

3.7 Fee Accrual

Fee Formula:

Fee = Swap_Amount * 0.0005 * (Strategy_Liquidity / Pool_Liquidity)

Where:
  0.0005 = 0.05% fee tier
  Strategy_Liquidity / Pool_Liquidity = Pro-rata share

Step-by-Step Example:

Scenario: Swap of 1000 WETH occurs while strategy is in range
  Pool Liquidity: 1,000,000 L
  Strategy Liquidity: 10,000 L
  Share: 10,000 / 1,000,000 = 1%
  
  Gross Fee: 1000 WETH * 0.0005 = 0.5 WETH
  Strategy Share: 0.5 WETH * 1% = 0.005 WETH
  
  If 60% WETH / 40% WBTC split:
    Fee WBTC: 0.002 WBTC
    Fee WETH: 0.003 WETH

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4. REBALANCE LOGIC

4.1 Decision Framework

┌─────────────────────────────────────────────────────────────┐
│                    REBALANCE FLOW                           │
└─────────────────────────────────────────────────────────────┘

  New Swap Event
        │
        ▼
┌───────────────┐
│ Price in      │──NO──┬───────────────────────────────┐
│ Current Range?│      │                               │
└───────┬───────┘      ▼                               ▼
      YES       ┌─────────────┐              ┌─────────────────┐
        │       │ REBALANCE MM│              │ Remove Liquidity│
        ▼       │             │              │ Collect Fees    │
┌──────────────┐│ ┌─────────┐ │              │ Identify New    │
│ LTV >= 60%?  ││ │Collect  │ │              │ Range           │
└──────┬───────┘│ │Fees     │ │              │ Create New Pos  │
      YES       │ └────┬────┘ │              └────────┬────────┘
        │       │      │      │                       │
        ▼       │      ▼      │                       ▼
┌───────────┐   │ ┌─────────┐ │              ┌─────────────────┐
│REBALANCE  │   │ │Identify │ │              │ LTV >= 60%?     │
│HEDGE      │   │ │New Range│ │              └───────┬─────────┘
│           │   │ └────┬────┘ │                     YES
│Adjust     │   │      │      │                      │
│Collateral │   │ ┌─────────┐ │                      ▼
│Target:50% │   │ │Calculate│ │              ┌─────────────────┐
└─────┬─────┘   │ │New Alloc│ │              │ REBALANCE HEDGE │
      │         │ └────┬────┘ │              └────────┬────────┘
      └─────────┴──────┼──────┘                       │
                       └──────────────────────────────┘
                          │
                          ▼
                  ┌───────────────┐
                  │     Done      │
                  └───────────────┘

4.2 Trigger Conditions

Leg	Trigger	Condition	Action
MM	Out of Range	tick < lower_tick OR tick >= upper_tick	Move to active range
Hedge	Liquidation Risk	LTV >= 60%	Reduce to 50% LTV
Neither	Exposure Drift	abs(amount1_mm - debt) / amount1_mm > threshold	IGNORED

Key Design Decision:

• MM and Hedge rebalance independently

• Hedge only rebalance on upper LTV bound breach (not lower)

• No rebalance on exposure drift alone

4.3 MM Leg Rebalance Flow

Step 1: CHECK CONDITION
  IF tick < lower_tick OR tick >= upper_tick:
    -> Trigger MM rebalance
  
Step 2: REMOVE LIQUIDITY
  - Decrease liquidity from current position
  - Collect accumulated fees
  - Available: [amount0 + fees, amount1 + fees]
  
Step 3: IDENTIFY NEW RANGE
  - Find position where: lower <= tick < upper
  - If none found: use closest position
  
Step 4: CALCULATE NEW ALLOCATION
  - Budget: 2/3 of current net equity
  - Optimize: (amount0_new, amount1_new, L_new)
  
Step 5: REBALANCE TOKENS (if needed)
  IF amount0_new > available0:
    - Swap (amount0_new - available0) WBTC -> WETH
    - Apply 0.05% slippage
  
  IF amount1_new > available1:
    - Swap (amount1_new - available1) WETH -> WBTC
    - Apply 0.05% slippage
  
Step 6: CREATE NEW POSITION
  - Increase liquidity in new range
  - Update state tracking

4.4 Hedge Leg Rebalance Flow

Step 1: CHECK CONDITION
  IF LTV >= 60%:
    -> Trigger Hedge rebalance
  
Step 2: CALCULATE TARGET
  Target Debt = amount1_mm (match MM exposure)
  Target Collateral = Target Debt / Target_LTV / Price
                   = amount1_mm / 0.50 / Price
  
Step 3: DETERMINE ADJUSTMENT
  Current Debt: [X] WETH
  Target Debt: [Y] WETH
  Delta: [Y - X] WETH
  
  IF Delta > 0:
    - Need to INCREASE leverage
    - Flashloan WBTC
    - Supply collateral
    - Borrow WETH
    - Swap WETH -> WBTC
    - Repay flashloan
    
  IF Delta < 0:
    - Need to DECREASE leverage
    - Flashloan WETH
    - Repay debt
    - Withdraw collateral
    - Swap WBTC -> WETH
    - Repay flashloan

Step 4: EXECUTE
  - Submit batch transaction
  - Verify LTV = 50% after execution

4.5 Transaction Costs

Cost Components:

Type	Rate	Applied To
Swap Fee	0.05%	Every swap (Uniswap pool)
Slippage	0.05%	Every swap (execution)
Flashloan	0%	Aave/Balancer (typically)
Gas	Variable	Arbitrum network

Cost Example (MM Rebalance):

Scenario: Need to swap 1 WBTC -> WETH
  Swap Amount: 1.0 WBTC
  
  Costs:
    Swap Fee: 1.0 * 0.0005 = 0.0005 WBTC
    Slippage: 1.0 * 0.0005 = 0.0005 WBTC
    Total Cost: 0.001 WBTC (0.1%)
  
  Net Received: 0.999 WBTC worth of WETH

Monthly Cost Estimate:

Rebalances per month: 20
Average swap per rebalance: 2 WBTC

Monthly Cost = 20 * 2 * 0.001 = 0.04 WBTC
Annual Cost = 0.48 WBTC (4.8% of 10 WBTC deposit)

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5. OPERATIONAL PARAMETERS

5.1 Position Architecture

Parameter	Value	Details
Total Positions	403	Pre-minted NFTs
Range Width	10 ticks	~0.1% price coverage each
Tick Spacing	Adjacent	No gaps between positions
Coverage Range	262,590 - 266,620	Total span: 4,030 ticks (~40%)
Pool Fee Tier	0.05%	WBTC/WETH on Arbitrum

Position Distribution:

Price Range: 262,590 (low) to 266,620 (high)
Approx WBTC/WETH: 0.011 to 0.015

Position IDs: 5272765 to 5273446
Example positions:
  #1:  [262,590 - 262,600]
  #50: [263,080 - 263,090]
  #100:[263,580 - 263,590]
  ...
  #403:[266,610 - 266,620]

5.2 Capital Allocation Matrix

Phase	MM Leg %	Hedge Leg %	Total Deployed
Initial Setup	66.7%	33.3%	100%
After MM Rebalance	66.7% of equity	33.3% of equity	100%
After Hedge Rebalance	Unchanged	Adjusted to match MM	100%
Fee Accumulation	Added to MM	Unchanged	>100% temporarily

5.3 Risk Parameters

Parameter	Value	Rationale
Target LTV	50%	Optimal capital efficiency
Max Safe LTV	60%	10-13% buffer before liquidation
Liquidation LTV	70-73%	Aave protocol threshold
Max Drawdown	15%	Circuit breaker trigger
Min Position Size	Dust threshold	Avoid dust positions
Slippage Tolerance	0.05%	Execution protection

5.4 Fee Handling

Accumulation:

• Fees tracked per token: fee_token0_accum, fee_token1_accum

• Updated on every swap while in range

• Fees remain in pool until collected

Collection:

• Collected during MM rebalance (when removing liquidity)

• Added to available capital for new position

• Effectively compounds into strategy

Fee Impact on Returns:

Gross Fees: +3.5% per month
Compound Effect: ~42% APY if 100% deployed
Actual: Lower due to:
  - Idle capital between rebalances
  - Transaction costs
  - Borrow costs

---

6. BACKTEST VALIDATION

6.1 Methodology

Data Source: production.uniswap_v3_swap Period: [Start Date] to [End Date] Swaps Analyzed: [N] Simulation Parameters:

• Starting Equity: 10 WBTC

• Slippage: 0.05% per swap

• Borrow APY: [X]% (from Aave historical)

• No gas costs (Arbitrum negligible)

6.2 Overall Performance

Summary Table:

Metric	Value	Annualized
Starting Equity	10.00 WBTC	-
Ending Equity	[X] WBTC	-
Gross Fees	[Y] WBTC	[Y * 12] WBTC
Borrow Costs	[Z] WBTC	[Z * 12] WBTC
Transaction Costs	[W] WBTC	[W * 12] WBTC
Net Profit	[P] WBTC	[P * 12] WBTC
Simple APR	[P]%	[P * 12]%
Max Drawdown	[D]%	-
Sharpe Ratio	[S]	-

6.3 Rebalance Analysis

Frequency Statistics:

Metric	Value
Total Rebalances	[N]
MM Only	[N1] ([P1]%)
Hedge Only	[N2] ([P2]%)
Both (MM + Hedge)	[N3] ([P3]%)
Avg Rebalances/Day	[R]
Avg Time Between	[T] hours
Longest Streak w/o Rebalance	[D] days

Cost Attribution:

Cost Type	Total (WBTC)	% of Fees	% of Equity
Swap Fees (paid)	[X]	[Y]%	[Z]%
Slippage	[X]	[Y]%	[Z]%
Borrow Interest	[X]	[Y]%	[Z]%
Total Costs	[T]	[P]%	[Q]%
Net after Costs	[N]	-	-

6.4 Monthly Performance Breakdown

Month	Fees Earned	Borrow Cost	Trans. Cost	Net Return	Rebalances	Max LTV
Jan	[X]	[Y]	[Z]	[N]	[R]	[L]
Feb	[X]	[Y]	[Z]	[N]	[R]	[L]
Mar	[X]	[Y]	[Z]	[N]	[R]	[L]
...	...	...	...	...	...	...

6.5 Scenario Analysis

BEST CASE: [Date Range]

Market Conditions:

• Low volatility (stable price)

• High trading volume

• Minimal range crossings

Performance:

Period: [N] days
Rebalances: [R] (very low)
Fees Earned: [F] WBTC ([X]%)
Borrow Cost: [B] WBTC ([Y]%)
Trans. Cost: [T] WBTC ([Z]%)
Net Return: [N] WBTC ([P]%)
Simple APR: [A]%

What went right:
- Position stayed in range 95% of time
- High volume generated fees with minimal churn
- Hedge remained perfectly matched
- Transaction costs negligible

WORST CASE: [Date Range]

Market Conditions:

• High volatility

• Choppy price action (whipsaw)

• Rapid range crossings

Performance:

Period: [N] days
Rebalances: [R] (very high)
Fees Earned: [F] WBTC ([X]%)
Borrow Cost: [B] WBTC ([Y]%)
Trans. Cost: [T] WBTC ([Z]%)
Net Return: [N] WBTC ([P]%)
Max Drawdown: [D]%
Simple APR: [A]%

What went wrong:
- Price crossed ranges [R] times
- High transaction costs ate into profits
- Hedge mismatches during rapid moves
- Fees barely covered costs
- Equity drawdown of [D]%

TYPICAL CASE: Average Period

Market Conditions:

• Normal volatility

• Moderate volume

• Occasional range crossings

Performance:

Period: 30 days
Rebalances: 15-20
Fees Earned: 0.35 WBTC (3.5%)
Borrow Cost: 0.06 WBTC (0.6%)
Trans. Cost: 0.05 WBTC (0.5%)
Net Return: 0.24 WBTC (2.4%)
Simple APR: 29%

Characteristics:
- Position in range ~70% of time
- Steady fee accumulation
- 2-3 hedge rebalances per month
- Transaction costs: ~15% of gross fees

---

7. LIVE TRADING CONSIDERATIONS

7.1 System Architecture

┌──────────────────────────────────────────────────────────────┐
│                    LIVE TRADING SYSTEM                       │
└──────────────────────────────────────────────────────────────┘

┌──────────────────┐     ┌──────────────────┐     ┌──────────┐
│   LISTENER       │────▶│   ENGINE         │────▶│ EXECUTOR │
│                  │     │                  │     │          │
│ • DB LISTEN      │     │ • State Compute  │     │ • Sign   │
│ • Swap Events    │     │ • Rebalance Check│     │ • Send   │
│ • Block Updates  │     │ • TX Construction│     │ • Verify │
└──────────────────┘     └──────────────────┘     └──────────┘
         │                        │                      │
         │                        │                      │
         ▼                        ▼                      ▼
┌──────────────────┐     ┌──────────────────┐     ┌──────────┐
│   PostgreSQL     │     │   Web3 Provider  │     │  Tachyon │
│   Notifications  │     │   (Arbitrum)     │     │  Relayer │
└──────────────────┘     └──────────────────┘     └──────────┘

7.2 Event Processing Flow

Swap Event Received
        │
        ▼
┌───────────────────┐
│ Fetch State       │──▶ Positions, Aave, Prices
└─────────┬─────────┘
          ▼
┌───────────────────┐
│ Compute Equity    │──▶ MM_Leg, Hedge_Leg, Net
└─────────┬─────────┘
          ▼
┌───────────────────┐     ┌───────────────┐
│ Check Triggers    │────▶│ No Action     │
│ • Out of Range?   │ NO  └───────────────┘
│ • LTV >= 60%?     │
└─────────┬─────────┘
         YES
          ▼
┌───────────────────┐
│ Build Transaction │──▶ Deltas, Calls, Proofs
└─────────┬─────────┘
          ▼
┌───────────────────┐
│ Submit to Relayer │──▶ Sign, Send, Monitor
└───────────────────┘

7.3 State Monitoring

Critical Metrics (Updated every swap):

• Current tick and price

• Active position liquidity

• Aave collateral and debt

• LTV ratio

• Net equity

• WETH exposure (should be ~0)

Data Sources:

• Uniswap V3 Pool (slot0 for tick/sqrtPrice)

• NFPM (positions for liquidity)

• Chainlink (WBTC/USD, ETH/USD prices)

• Aave (aWBTC balance, debtToken balance)

7.4 Transaction Construction

Batch Operations: Multiple operations batched into single transaction via merkle verification:

1. MM Rebalance Only:

   • Decrease liquidity (remove from old range)

   • Collect fees

   • [Optional] Swap tokens

   • Increase liquidity (add to new range)

2. Hedge Rebalance Only:

   • Flashloan (if needed)

   • Repay/borrow debt

   • Withdraw/supply collateral

   • Swap tokens

   • Repay flashloan

3. Both Legs:

   • Combine all operations

   • Execute atomically

7.5 Execution Considerations

Gas Management:

• Arbitrum gas estimation: ~0.5-2 gwei

• Transaction limit: 8M gas

• Priority fee: 0 (Arbitrum uses base fee only)

Timing:

• State fetch: ~100-200ms (multicall)

• Rebalance calc: ~10-50ms

• TX construction: ~50ms

• Submission: ~2-5s (relayer latency)

Failure Modes:

• Slippage exceeded: Retry with higher tolerance

• Gas spike: Skip non-critical rebalances

• Relayer failure: Fallback to direct RPC

• Stale price: Use last known good price

7.6 Operational Checklist

Daily:

• [ ] Verify swap events processing

• [ ] Check LTV is within bounds (< 55%)

• [ ] Confirm active position in range

• [ ] Review rebalance history

• [ ] Check gas costs vs budget

Weekly:

• [ ] Analyze fee accumulation rate

• [ ] Review hedge effectiveness

• [ ] Check oracle prices vs market

• [ ] Verify circuit breakers

• [ ] Update performance metrics

Monthly:

• [ ] Full strategy health review

• [ ] Compare live vs backtest

• [ ] Parameter tuning assessment

• [ ] Documentation update

---

8. RISK MANAGEMENT

8.1 Risk Matrix

Risk	Likelihood	Impact	Mitigation Strategy
Liquidation	Low	Critical	60% LTV circuit breaker; 10-13% buffer
Oracle Manipulation	Low	Critical	Multi-source validation; pause on >2% divergence
High Churn	Medium	High	Rebalance rate limiter; >5/hour = cooldown
Drawdown >15%	Medium	High	Drawdown pause; manual review required
Gas Spike	Medium	Medium	Gas checks; skip non-critical rebalances
Smart Contract Bug	Low	Critical	Audits; gradual rollout; insurance

8.2 Circuit Breakers (Detailed)

Breaker	Threshold	Immediate Action	Recovery
LTV Emergency	>= 65%	- Pause all rebalancing - Allow ONLY deleverage - Alert critical	Manual review + gradual restart
Drawdown	> 15% from peak	- Pause 60 minutes - Hedge-only mode - Alert warning	Auto resume after cooldown
Oracle Divergence	> 2% between sources	- Full pause - Investigation mode - Log forensics	Manual investigation required
Gas Spike	> 5 gwei	- Skip MM rebalances - Allow hedge if LTV >= 60% - Log skip events	Auto resume when < 5 gwei
Rate Limit	> 5 rebalances/hour	- 30-minute cooldown - Skip non-urgent - Alert churn warning	Auto resume after cooldown
Manual Pause	Admin call	- Full stop all operations - Alert all stakeholders - Lock state	Manual unpause only

8.3 Emergency Procedures

Scenario: LTV approaching 60%

Detection:
  - Monitor LTV on every swap event
  - Alert at 58% (warning)
  - Trigger at 60% (action)

Immediate Actions:
  1. Log emergency event
  2. Send Discord alert: "LTV EMERGENCY - [Current LTV]%"
  3. Pause new MM rebalances
  4. Calculate deleverage amount needed
  
Deleverage Execution:
  Target LTV: 50%
  Current Debt: [D] WETH
  Target Debt: [D * 0.5/0.6] WETH
  
  Steps:
    1. Flashloan WETH from Balancer
    2. Repay [D - Target] WETH debt
    3. Withdraw excess WBTC collateral
    4. Swap WBTC -> WETH
    5. Repay flashloan
    
Post-Action:
  - Verify LTV = 50%
  - Log transaction details
  - Resume monitoring (no auto-restart)
  - Require manual review before full ops

---

9. CONFIGURATION & DEPLOYMENT

9.1 Parameter Reference

Config	Current	Range	Description
TARGET_LTV	0.50	0.30-0.55	Desired leverage level
MAX_LTV	0.60	0.55-0.65	Emergency threshold
SLIPPAGE_BPS	50	10-100	Max slippage (basis points)
MM_RATIO	0.667	0.60-0.75	MM leg capital allocation
FEE_TIER	500	Fixed	Pool fee (0.05%)
MAX_DRAWDOWN	0.15	0.10-0.20	Drawdown circuit breaker
MAX_GAS_GWEI	5	3-10	Gas price limit
REBALANCE_LIMIT	5	3-10	Max rebalances per hour

9.2 Tuning Guidelines

Conservative Settings:

• Target LTV: 45%

• Max LTV: 55%

• Max Drawdown: 10%

• Result: Lower returns, lower risk

Aggressive Settings:

• Target LTV: 55%

• Max LTV: 65%

• Max Drawdown: 20%

• Result: Higher returns, higher risk

9.3 Deployment Checklist

Pre-Deployment:

• [ ] All 403 NFT positions minted

• [ ] Aave markets activated

• [ ] Merkle tree leafs generated

• [ ] Emergency multisig configured

• [ ] Monitoring dashboards ready

• [ ] Discord webhooks tested

Initial Capital:

• [ ] 10 WBTC deposited to vault

• [ ] 2/3 allocated to MM leg

• [ ] 1/3 allocated to Hedge leg

• [ ] LTV verified at 50%

• [ ] Zero WETH exposure confirmed

Post-Deployment:

• [ ] First swap detected

• [ ] Fees accruing correctly

• [ ] Rebalance triggers working

• [ ] Alerts receiving

• [ ] Emergency pause tested

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10. APPENDIX

10.1 Glossary

Term	Definition
Tick	Smallest price increment in Uniswap V3 (0.01%)
LTV	Loan-to-Value ratio; debt divided by collateral
Liquidity (L)	Abstract measure of position size in AMM
Range	Price bounds where position earns fees
Rebalance	Adjusting position to maintain strategy parameters
Delta	Exposure to underlying asset price movement
Impermanent Loss	Value lost vs holding due to price changes
Hedge	Offsetting position to reduce risk
Flashloan	Uncollateralized loan repaid in same transaction
Slippage	Difference between expected and executed price
Dust	Negligible token amounts below useful threshold
Churn	Excessive rebalancing due to volatility

10.2 Formula Quick Reference

PRICE & TICKS:
  Price = 1.0001^tick

CAPITAL ALLOCATION:
  max_LP_fraction = LTV_target / (1 + LTV_target)

LIQUIDITY:
  L = sqrt(x * y)  [in range]

LTV & LEVERAGE:
  LTV = Debt / Collateral
  Leverage = 1 / (1 - LTV)

EQUITY:
  Net = MM_Equity + Hedge_Equity
  MM = amount0 + (amount1 / Price)
  Hedge = Collateral - (Debt / Price)

EXPOSURE:
  WBTC_Exposure = amount0_mm + Collateral
  WETH_Exposure = amount1_mm - Debt  [Should be ~0]

FEES:
  Fee = Swap * 0.0005 * (L_strategy / L_pool)

10.3 Key File References

File	Purpose	Key Functions
backtest1.py	Backtesting	run_backtest(), compute_rebalance()
strategy.py	Core logic	compute_rebalance(), tick_to_price()
engine.py	Live execution	on_swap_event(), execute_rebalance()
actions.py	Transactions	increase_position(), decrease_position()
helper.py	Utilities	PositionReader, constants
positions.py	Position config	403 position definitions

10.4 Changelog

Version	Date	Changes
1.0	2026-02-12	Updated documentation with ASCII diagrams, mathematical foundations, and live trading considerations

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END OF DOCUMENT