Horizon Academy
English V2

Delta Neutrality

Delta neutral is a term used in traditional finance that describes a portfolio strategy that balances the positive and negative deltas, also known as “change over time”, so that the overall delta of the assets in question totals zero. Essentially, delta neutrality is achieved if the market’s base-unit size of all open longs and shorts are equal to each other which establishes a net change of zero regardless of how the asset’s price changes.
Perpetual futures, unlike traditional futures, have no expiry date, and traders can hold their positions indefinitely as long as they maintain sufficient margin. Since there is no expiration date, perpetual delta neutrality mechanisms are required to drive the futures contract price back towards the spot market price. Maintaining delta neutrality lowers the risk from market imbalances for the stakers in the Horizon Protocol ecosystem, who provide the collateral and liquidity that are used as the counterparty of all positions in the perpetual futures platform.
Without delta neutrality and mechanisms that drive neutrality, a perpetually unbalanced futures market could result in zUSD minted at the expense of the debt pool and the stakers who collateralize it.
Horizon Protocol’s liquidity is designed to facilitate the ease of use for Horizon Futures by offering liquidity to smooth out the process and allow for instantaneous transactions instead of waiting for a perfectly aligned counterparty. Delta neutrality incentives are absolutely critical to the security of Horizon Protocol’s liquidity.