āFAQs
General Platform Questions
Why use Drift for hedging?
Several key reasons:
Avoid reflexive risk from hedging JLP on Jupiter itself
Better funding rates compared to Jupiter's fixed borrow rate
Ready-made vault infrastructure and SDK
Sufficient liquidity for current strategy size
Cross-margin capabilities are more capital efficient
How are fees calculated?
For vaults that charge performance fees:
Fees are taken on profits, not total value
Charged by account during deposits and withdrawals or quarterly across all accounts
High water mark prevents double-charging
Fees remain invested until withdrawal
For vaults that charge management fees:
Fees are taken on the total value of the account, pro rated for the time the position is held in the vault
Charged on all accounts anytime anyone deposits, withdraws or quarterly (3 business days prior to quarter end)
Fees remain invested until withdrawal
What is the high watermark and how is it calculated?
The high water mark is used to calculate the profits of your position upon which performance fees are charged. Fees on USDC denominated vaults are charged anytime an address either withdraws or deposits, as well as monthly 3 business days before the end of the month. Since users may not withdraw their full position in a given month, the high water mark tracks the highest amount of profits upon which fees have been charged, so that a user is not double charged for gains in multiple months.
The high water mark is calculated as gross of fees.
Note: Although the current balance on the Drift FE is quoted net of fees, that is only hypothetical, denoting what you would be charged if you were to withdraw your entire account today. If market valuations change and your account balance decreases, the hypothetical fees owed also decrease with it.
Why might the vault performance be positive on a given day while my personal position shows a negative return?
This is because returns are snapshotted daily, but TVL varies intraday as new depositors join or leave the vault.
As an example, suppose you were the sole depositor with $1M. In the morning, hJLP experiences a 1% loss, so your position is 990K. At noon, someone else deposits 990K, so that you now have a 50% stake in the vault. In the afternoon, hJLP experiences a 1% gain, so the vault value is 1,999,800, of which your stake is worth 999,900. At the end of the day, you lost $100, but the vault gained (1,999,800 - 1,000,000 - 990,000 = $9800). As you can see, the divergence between the daily snapshotted vault performance and personal performance is just caused by the randomness of returns sequencing and the timing of deposits and withdrawals to the vault.
What happens during platform issues?
Different scenarios have different impacts:
Jupiter issues affect JLP value and trading
Drift issues affect hedge positions
Smart contract risks exist for both. We maintain contingency plans for various scenarios, but users should understand platform risks.
Basis Strategies
How does the SOL Basis strategy work?
The SOL Basis strategy combines two yield sources in a single vault. It uses SOL LST (Liquid Staking Token) as the spot asset to earn:
Staking rewards from the LST
Perpetual funding rates from derivatives The strategy can use up to 2x leverage when market conditions create favorable spreads between borrowing costs and funding rates.
Why use dSOL as the spot asset?
We chose dSOL due to:
Deep liquidity for efficient trading
Reliable staking rewards
Strong market integration However, the strategy can optimize across different SOL LSTs based on market conditions and opportunities.
How does the BTC Basis strategy differ?
The BTC Basis strategy:
Uses cbBTC as the spot asset
Focuses purely on perpetual funding rates
Doesn't include staking yield
Can employ up to 2x leverage when spreads are attractive
Dynamically scales positions based on vault balance and market conditions
Gauntlet Basis Alpha (GBA)
What is GBA?
GBA is a portfolio strategy that deploys capital across multiple delta-neutral strategies:
hJLP allocations
SOL basis trades
BTC basis trades The strategy automatically balances these positions based on market conditions.
How does GBA manage allocations?
Initially, the strategy will employ funds based on static/manual weights. In the future iterations, the strategy will consider:
Current funding rates across markets
Available liquidity
Trading volumes
Historical performance patterns
Risk metrics and limits
Why choose GBA over individual strategies?
GBA offers:
Diversified yield sources
Optimized risk-adjusted returns
Less hands-on management needed
Beta + GBA Overlay Strategies
What are Overlay strategies?
These strategies let you earn yield while maintaining market exposure:
Deposit your SOL or BTC
Use it as collateral to borrow USDC
Deploy borrowed USDC into GBA This creates dual return streams: possible price appreciation plus basis yields.
How do Overlay strategies manage risk?
Risk management includes:
Careful collateral ratio monitoring
Dynamic leverage adjustment
Liquidation risk management
Market exposure tracking
Continuous position rebalancing
What's the difference between SOL and BTC Overlay?
Both strategies follow the same principle but differ in:
Underlying asset characteristics
Collateral ratios
Borrowing costs
Market liquidity considerations
Risk parameters
Hedged JLP (USDC) Vault
What is the USDC vault strategy?
The USDC vault lets you deposit USDC to get delta-neutral exposure to Jupiter's liquidity provision. When you deposit, the vault converts your USDC to JLP, creating matching hedge positions on Drift. You earn returns from Jupiter's trading fees and Drift's funding rates while being protected against price movements in the underlying assets.
How are returns generated?
Returns come from multiple sources:
Jupiter trading fees (from perpetual market activity)
Funding rates from Drift hedge positions
Liquidation fees when traders get liquidated
Borrow fees from traders
The strategy doesn't rely on asset price appreciation, making it effective in both up and down markets.
What happens during withdrawals?
The vault has a 3-day withdrawal period. During this time:
Your position is marked for withdrawal and will no longer accrue yield
The strategy gradually unwinds positions using TWAP
If the share value declines during this period, the withdrawal amount will be reduced proportionately
If liquidity is low, we may borrow USDC against JLP
You receive USDC back, minus any applicable fees
Why do I see initial negative performance?
Initial negative performance usually comes from entry costs:
Slippage when converting USDC to JLP
Trading fees for opening hedge positions
JLP premium/discount fluctuations These costs typically recover within 5 days through fee generation.
In-Kind JLP Vault
How does the in-kind vault differ from the USDC vault?
The in-kind vault accepts direct JLP deposits, saving on conversion costs and slippage. This makes it ideal for:
Existing JLP holders wanting price protection
Users who can source JLP efficiently
Those wanting to maintain JLP position while hedging. The vault creates hedge positions but returns JLP rather than USDC on withdrawal.
What risks does the in-kind vault hedge?
The vault hedges:
Price movements in SOL, ETH, and BTC
Delta exposure through continuous rebalancing
Market volatility through position sizing
It doesn't hedge:
Impermanent loss from pool rebalances
JLP premium/discount fluctuations
Smart contract risks
Can I deposit when JLP hits its TVL/deposit cap?
Yes, the in-kind vault remains open even when JLP reaches its TVL/deposit cap. Since you're depositing JLP directly, you avoid the premium that typically appears when the cap is hit. This is a key advantage over the USDC vault, which might restrict deposits during cap periods.
How does withdrawal work for in-kind?
You receive JLP tokens when withdrawing. The number of tokens might differ from your deposit due to:
Hedge position PnL
Accumulated fees and returns
JLP price changes relative to underlying assets. However, the USD value should remain relatively stable due to hedging.
2x Leveraged JLP Vault
How does the 2x strategy work?
The 2x strategy amplifies returns by:
Accepting your deposit
Borrowing additional funds to double exposure
Converting total capital to JLP
Creating proportionally larger hedges. This provides double exposure to JLP yields while maintaining delta neutrality.
What are the additional risks of 2x?
Beyond standard vault risks, 2x strategy faces:
Higher liquidation risk during volatility
Borrowing costs that impact returns
Larger impact from JLP premium changes
More sensitive to market liquidity
How do returns compare to regular JLP?
The 2x strategy can outperform unhedged JLP in:
Down markets (hedges provide protection)
High funding rate environments
Periods when leveraged yield exceeds price moves However, borrowing costs and larger hedging expenses can reduce returns.
What happens if markets become very volatile?
The strategy has multiple approaches for mitigating high volatility:
Automated deleveraging triggers
Dynamic collateral management
Emergency shutdown mechanisms
Increased rebalancing frequency
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