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.

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, users are able to freely exit the vault.

Liquidation

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

In the event that Theo were unable to rebalance collateral during a period of extremely high volatility, either position could be at risk of liquidation.

Mitigation Measures:

• Theo moves collateral using native bridges to ensure speed and liveness.

• In case of liquidation, a failsafe mechanism unwinds positions gracefully.

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.