Strategy
Pair Trading: A Style for Uncertain Markets
Markets look uncertain. It's a bit difficult to predict the next move.
In times like these, there's one strategy that you can reliably use: pair trading.
What is it? At its core, pair trading involves taking a long position on one asset and a short position on another asset.
You're betting on the relative performance between tokens rather than the direction of the overall market.
Think of it like this: you're not trying to predict if the entire crypto market will go up or down — you're just predicting which of the two tokens will perform better.
For instance, if you believe Solana ($SOL) will outperform Ethereum ($ETH), you could short ETH and go long SOL at the same time. This way, you're not exposed to the market's overall direction — just the relative strength between the two.
Why do people use it? Because it lets you exploit price differences between correlated assets without caring which way the market moves.
Recently, the crypto market just went through its largest liquidation event, and macro news like Trump doubling down on the trade war with China is shaking risk assets. On the other side, the Fed is printing more money & global liquidity levels are still increasing. So it's an uncertain, sideways, choppy market.
You don't want to have directional bets on BTC or ETH. The market might still go either way.
But you can still make money via pair trading. You just need to find two correlated assets where you can bet on their relative performance.
If you're a manlet & believe SOL will outperform ETH, then you can: 1x Short ETH & 1x Long SOL.
Why this work?
- #1. Virtually No Market Exposure. If the overall market dumps, both ETH and SOL will drop. But your ETH short offsets the loss on your SOL long. You're not betting on direction — just relative movement.
- #2. Exposure to Your Preferred Asset. Since you believe SOL will outperform ETH, you'll profit as long as that thesis holds true — even in a bearish or sideways market.
That's the beauty of pair trading: it works in bullish, bearish, and sideways markets — only relative performance matters.
Now, there are some things to keep in mind while executing this style.
#1. Have a solid thesis
Pair trading isn't random hedging. You need a clear thesis on why one token will outperform the other.
Here are some common ways traders build that thesis:
- Technical Analysis: e.g., SOL/ETH ratio hitting a key support level.
- Catalysts: token unlocks, protocol upgrades, or ecosystem changes.
- Fundamental View: You're a SOL bull who thinks it's undervalued versus ETH.
- Mean Reversion Plays: common in sideways markets where ratios revert to their averages.
- Narrative Rotations: e.g., "memecoins are cooked — it's buyback token season."
Your timeframe should align with your thesis as well. Someone trading based on a fundamental thesis should not blindly follow someone trading on technical indicators.
#2. Study Market Structure.
Make sure there's enough liquidity. For example, Illiquid assets can be risky to short as sudden spikes in trading volume or market-moving news can drive sharp upward price movements.
Low-float & high FDV are also generally riskier. They can be controlled/manipulated by whales & market makers. Be aware of liquidity traps and manipulation.
#3. Manage position health. Don't use too much leverage. 10/10 should've burnt this lesson into your minds. Watch out for funding rates & liquidation levels.
If you want some ideas for the trade, there are many tokens with >$5M in token unlocks this week. Generally, unlocks = selling pressure = price goes down.
One idea:
- Short the weakest coin among the unlocking tokens.
- Long a major token like BTC or a stronger token from the same sector for tighter correlation.
If you think the market has overcorrected from the unlock FUD, you can do the reverse trade as well. It all comes down to your take on which asset will perform better.
As for onchain venues for executing pair trading,
- You can execute pair trades manually on Perp platforms. With tokenless protocols like Lighter, this is also a great opportunity for airdrop farming.
- Pear Protocol: It provides a (single-click/)better interface for users to execute pair trading on onchain perps like HyperLiquid.
Predicting market direction can be hard. Predicting which asset will outperform another is often easier. Pair trading is a great opportunity to leverage that.
In choppy markets, it's one of the smartest ways to trade without getting rekt.
Sponsored Deep Dive by Solstice
Solstice Finance: Institutional-grade Stablecoin Yield for Solana
Markets are uncertain. Many people are moving to stablecoins.
Your stablecoins shouldn't sit idle. They should earn yield with the best risk-to-reward ratio.
Solstice is the best option on Solana.
- USX is their 100% collateralized USD stablecoin.
- eUSX is the yield-bearing version of USX. You get it by depositing USX into YieldVault.
- SLX is their upcoming protocol token. (You should join their points program to qualify for a juicy airdrop.)
Let's get into more details.
#1. $USX
It's a stablecoin 100% backed by stable collateral.
Soon, users will be able to verify the collateral with real-time proof of reserves.
Whitelisted users mint or redeem USX using USDC or USDT. They're incentivized to maintain the stablecoin peg. So you can expect it to stay pegged to USD.
It's also integrated with 50+ DeFi partners on Solana. You can use it onchain, from payments to DeFi Strategies, as any other stablecoin. With Solstice, you can earn points for a juicy airdrop as well.
#2. eUSX & YieldVault
Solstice also provides institutional-grade yield for its users.
Users can deposit stablecoins into the YieldVault & get eUSX in return. The vault will earn yield using delta-neutral strategies. And the value of eUSX will increase to reflect the yield.
Let's go into more detail.
What are delta-neutral strategies?
Some strategies can make money regardless of whether markets go up or down.
Examples include simple arbitrage strategies. Imagine $TOKEN is trading on Binance for $100 and for $95 on Uniswap. The arbitrageur can buy from Uniswap and sell on Binance at the same time and pocket the $5 difference.
There are more such strategies.
They allow you to earn yield without exposure to how the price moves.
But we can't access many of the good delta-neutral strategies. There's a high barrier to entry.
- Connections with multiple exchanges.
- Ability to monitor markets 24x7 in real-time.
- World-class infrastructure to reliably land transactions at specific prices.
Many strategies aren't even accessible to retail like us. They're locked behind huge minimums and institutional barriers.
This is where Solstice comes in.
It's backed by Deus X Capital, which has $1+ billion AUM across 40+ portfolio companies. The project's security has been audited by audit firms like Halborn Security, with 100% findings addressed.
Solstice has been successfully executing these strategies since 2022.
Now, they're bringing these strategies to us.
In their 25+ months of live trading, they've
- made 21.5% returns in 2024.
- 16.2% over the trailing 12 months.
- Positive returns in 100% of all months.
Remember, these Solstice strategies work in all conditions.
In fact, the gains yield increase when crypto markets get chaotic. It had worked through Terra collapse, FTX bankruptcy, and the 2022 crypto winter.
Even if the market gets rekt, Solstice can keep making money.
Solstice's YieldVault shares that yield to depositors.
Here's how it works:
- You deposit USDC to YieldVault and get eUSX in return.
- Solstice will take that money and earn yield using delta-neutral strategies.
- The yield will be reflected in the value of the eUSX token.
eUSX can be used across DeFi. So there's no opportunity cost for using the YieldVault.
And if you want your stablecoin back, you can always redeem eUSX for the underlying stablecoins anytime you want. But for any withdrawals more than $1,000 USDC, there is a 7-day cooldown period.
(The cooldown period is necessary to safely manage the capital for delta-neutral strategies and the USX liquidity stability.)
The institutional grade yield is attractive enough for most people. But they have a bonus reward as well.
#3. Points program & $SLX
Solstice is running a points program called "Flares". Earning those points will qualify for a juicy airdrop.
Solstice is setting up to be Solana's default stablecoin.
- >80% of Solana's stablecoin supply is USDC & USDT.
- The yield USDC & USDT generates is going to Solana competitors like Base chain & Plasma.
- Solana community needs a stablecoin that'll direct the stablecoin yields into the Solana ecosystem.
- $USX & $eUSX are best positioned to become the Solana-native stablecoin.
Solstice is tackling a massive opportunity. So the $SLX airdrop will be a massive windfall as well.
You can get that airdrop by earning "Flares", which is pretty simple.
- Use USX for your normal Solana onchain activities.
- Deposit into the YieldVault and earn institutional-grade yield.
- There are DeFi activities listed by the protocol to earn additional points.
The protocol has already attracted the initial cohort of users. Within a month of launch, it already has >$216 M in total value locked.
This is a time-sensitive opportunity. The earlier you join, the more points you can earn.
🚀 DeFi Catalysts
Ethena is expanding its "stablecoin-as-a-service" platform by integrating with Conduit, the "L2-as-a-service" platform.
MegaETH, the high-performance Ethereum L2, has bought back 4.75% of the company from early investors.
Jupiter introduced Ultra V3, their most advanced end-to-end trading engine. It'll have tangible benefits like 34x better sandwich protection
Ink, the Ethereum L2 powered by Kraken, released Tydro. While it's governed by $INK, it'll be powered by Aave.
Polymarket has launched 15-minute up/down crypto prediction markets on crypto prices secured using Chainlink.
PayPal's PYUSD has recently crossed the $1 billion in total supply.
📰 Industry News
AWS outage affected crypto companies & L2s like Base experienced significant slowdowns or partial outages.
Dankrad, a major Ethereum Foundation researcher, has joined Ethereum competitor Tempo. Analysts are largely seeing this as bearish.
OpenSea has distributed Treasury Chests, aka NFT rewards, to users. They've also announced that $SEA will launch in Q1 2026.
🐦⬛ X Hits
- Ray Dalio on gold.
- Crypto cards market overview.
- Privacy is the next big crypto unlock.
- Apps to try on the Monad ecosystem.
- DAO governance tokens vs ownership coins.
- Prediction markets overview.
- Stablecoins beyond the dollar.
😂 Meme
Until next time,
Edgy
Today's email was written by Edgy and Yayya.
DISCLAIMER: I'm NOT a financial advisor. This content is for education and information purposes only. Crypto and DeFi are risky and speculative. Please do your research before investing.
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