Market and strategy risk

The risks that come from the strategy itself, hedged liquidity provision, even when every system works as designed.

These risks exist even if every contract, server and venue works exactly as intended. They are properties of hedged concentrated liquidity as a strategy.

Hedged is not neutral

The shorts offset most of the price exposure the ranges carry, not all of it.

Residual exposure by design. Delta Hedge Standalone targets 80% of its range's BTC delta, leaving about 20% long BTC. Basis Plus Core's Alpha ranges hedge 40% of range value with a fixed short that is not resized while the range is open. A sharp move against the unhedged share is a loss.
A daily hedge is not an exact hedge. The engine reviews positions once a day on closed daily candles and resizes a tracked short only when coverage drifts more than 30% from target. Between reviews, and inside that band, the hedge and the range diverge.
Basis between venues. The range is priced on Uniswap on Arbitrum; the short is priced on Hyperliquid's perpetual. The two prices can differ, and the difference is not hedged.

Concentrated liquidity earns fees only while the market price is inside the range. When the price leaves, that range earns nothing until the engine re-centres or closes it, and the position is left holding more of whichever asset fell in price. Alpha ranges at plus or minus 6% leave range often and are given up to 14 days out of range; the wide DynHedge range at plus or minus 20% leaves less often and is given two days. A range that is out of range and hedged is a position paying funding and trading fees while earning no LP fees.

Impermanent loss is real loss here

Holding a concentrated range means selling the asset as it rises and buying it as it falls, inside the range. That is the source of impermanent loss. The short is what offsets it, so the strategy's result depends on the short tracking the range's exposure closely enough. When it does not, the loss is realized when the range is closed.

Funding cuts both ways

A perpetual short pays or receives funding depending on the market. When shorts are paid, funding adds to the return; when shorts pay, it subtracts from it. Extended periods of negative funding for shorts are a direct drag on the strategy. Funding is a cost of the hedge, not a Tuo fee, and it is not capped.

A short can be liquidated

Each short is opened with a margin cushion (2.5x the venue requirement in the engine's sizing) and the keeper will not return margin while a short is open, because that margin is what holds the position off its liquidation price. A fast enough rally can still liquidate a short on the venue. When that happens the hedge is gone, the range is unhedged, and the margin is lost. The vault then records the return as what actually came back, which may be zero. There is no mechanism that recovers a liquidated short.

Returns are backtest targets

The target returns (25-35% net APY for Basis Plus Core, about 20% for Delta Hedge Standalone) and the expected drawdowns (about 13.6% and 16.4%) come from backtests of the frozen engine over past market data. They describe what the strategy aimed for in simulation. Live markets differ from the backtest in liquidity, fees, funding, slippage and the engine's own execution latency. Treat every figure as a backtest target and nothing more.

Nothing on this page is bounded by the vault. The on-chain keeper budget (1.5% of basis per day) limits losses the keeper causes inside the vault; it does not limit losses from price moves, funding or a liquidation on the venue.

Concentration

Every position is in ETH and BTC against USDC on Arbitrum, hedged on one venue. There is no other asset, chain or venue in the product. A period that is bad for hedged ETH and BTC liquidity is bad for every Tuo position at once.

See also Counterparty and venue risk for what happens when the venue or the bridge fails rather than the market.