Risks

While Straddle is designed to minimize risk while remaining highly decentralized, users should be aware of the following risks when depositing:

Negative Funding

Straddle yield relies on a positive funding rate for Ethereum perpetuals contracts on exchanges such as Hyperliquid. Historically, the funding rate has predominantly remained positive due to bullish market biases.

In the event that the funding rate were to be negative for a prolonged period of time, Straddle would experience a negative APY while remaining delta-neutral. Historically, Straddle has never experienced a day where funding has averaged negative.

Mitigation Measures:

• Negative funding does not pose a significant risk to users' principal as the strategy remains delta-neutral.

• In case of a prolonged period of negative funding, Theo will automatically rebalance positions to decrease exposure negative funding.

Liquidation

Theo continuously rebalances collateral between Aave and Hyperliquid, ensuring the health of both the long and short legs of the Straddle vault.

Mitigation Measures:

• Theo pegs accounts to extremely safe leverage levels to ensure wicks cannot cause liquidations.

• Theo is constantly rebalancing accounts as asset prices fluctuate.

• In the case where account healths are deteriorating rapidly, Theo uses the stablecoin networking infrastructure to post collateral nearly instantly.

Since Straddle is a decentralized vault, it is not exposed to risks associated with Centralized Exchanges (CEXes), as is the case for other similar products.