Detailed Instructions

Begin by deploying the core strategy vault smart contract to your chosen EVM-compatible network, such as Arbitrum or Optimism, using a verified factory contract (e.g., 0x742d35Cc6634C0532925a3b844Bc9e...). This vault will act as the central custodian for all assets and logic. The initial step is to deposit the primary collateral asset, typically a stablecoin like USDC or a liquid staking token like wstETH. For example, a user might deposit 100,000 USDC to seed the strategy. This capital forms the basis for all subsequent synthetic operations and must be approved for spending by the vault contract.

• Sub-step 1: Call the vault's initialize() function with parameters like the _governor address and _feeRecipient.
• Sub-step 2: Execute an ERC-20 approve() transaction for the collateral token, granting the vault contract an allowance (e.g., 100000000000 for 100k USDC).
• Sub-step 3: Call the vault's deposit() function, specifying the amount and the depositor's address to mint vault shares (e.g., deposit(100000e6, msg.sender)).

Tip: Always verify the contract's source code on a block explorer like Etherscan and confirm the initial collateralization ratio, which should be over 150% for safety.

Detailed Instructions

With collateral locked, the strategy mints synthetic assets (synths) that represent exposure to an underlying asset, like synthetic Tesla stock (sTSLA) or a synthetic gold index (sXAU), without holding the actual asset. This is achieved by interacting with a synthetic asset protocol like Synthetix or a custom vault module. The minting process relies on a decentralized oracle network, such as Chainlink, to provide a secure price feed (e.g., 0x5f4eC3Df9cbd43714FE2740f5E3616155c5b8419 for ETH/USD). The vault will call a mintSynth() function, locking collateral at a predefined collateral ratio (e.g., 200%) to mint the synth.

• Sub-step 1: Query the current price from the oracle aggregator to calculate the mintable synth amount (e.g., uint256 price = AggregatorV3Interface(oracle).latestAnswer()).
• Sub-step 2: Invoke the synth issuer's issue() function, specifying the synth amount and collateral (e.g., issueSynths(5000e18) for 5000 sTSLA).
• Sub-step 3: Verify the synth balance in the vault and the updated collateralization ratio to ensure it remains above the liquidation threshold.

Tip: Monitor oracle heartbeat and deviation thresholds to avoid stale prices that could trigger unintended liquidations.

Detailed Instructions

The minted synthetic assets are not held idle; they are deployed into yield-generating derivative markets to capture returns. This typically involves supplying synths as liquidity to perpetual futures exchanges (e.g., GMX, Perpetual Protocol), options vaults (e.g., Lyra, Dopex), or lending markets (e.g., Aave, Compound). For instance, the vault could supply 5000 sTSLA to a lending pool to earn borrow interest, or provide it as collateral to sell covered options. The specific integration requires approving the derivative protocol and calling its deposit function.

• Sub-step 1: Approve the target derivative contract (e.g., 0x489ee077994B6658e... for Aave's pool) to spend the synth tokens.
• Sub-step 2: Call the deposit function, such as supply(sTSLA_address, 5000e18, vault_address, 0) on Aave.
• Sub-step 3: The vault receives a derivative token (e.g., aToken or option NFT) representing its position and accrued yield.

codeCopy
// Example: Supplying to a lending market
IERC20(sTSLA).approve(lendingPool, amount);
ILendingPool(lendingPool).supply(sTSLA, amount, address(this), 0);

Tip: Strategically allocate across derivatives to balance yield, impermanent loss risk, and liquidity. Using a yield optimizer like Yearn can automate this.

Detailed Instructions

This ongoing phase involves harvesting accrued yield, rebalancing the portfolio, and actively managing risk parameters. Yield is typically harvested by claiming rewards tokens (e.g., staking rewards, protocol tokens) and swapping them back to the base collateral. The vault must regularly check its health factor and collateralization ratio across all positions to avoid liquidation. Automated keepers or a governance multisig can trigger rebalancing actions, such as closing a derivative position, burning some synths to free collateral, or adjusting the synth mix based on market conditions.

• Sub-step 1: Call claimRewards() on the derivative platform and swap rewards via a DEX aggregator like 1inch (router address 0x1111111254EEB25477B68fb85Ed929f73A960582).
• Sub-step 2: Use a price monitoring script to check if any position's collateral ratio falls below 180%, triggering a depositMoreCollateral() or reducePosition() call.
• Sub-step 3: Periodically rebalance by burning a portion of synths (e.g., burnSynths(1000e18)) and re-deploying capital into higher-yielding opportunities.

Tip: Implement circuit breakers and withdrawal queues for extreme volatility. Use risk management frameworks like Gauntlet to simulate stress scenarios.

Detailed Instructions

Begin by scrutinizing the smart contract code of the protocols you intend to use. This includes the core synthetic asset minting contracts (e.g., Synthetix's Synthetix.sol), derivative vaults (e.g., GMX's GlpManager.sol), and any associated liquidity pools. The goal is to identify vulnerabilities that could lead to fund loss.

• Sub-step 1: Audit History & Team: Check if the protocol has undergone professional audits by firms like Trail of Bits or OpenZeppelin. Review the audit reports and verify that all critical issues have been resolved. For example, check the public repository for commit history addressing audit findings.
• Sub-step 2: Code Immutability: Determine if the contracts are upgradeable via a proxy pattern. If they are, identify the admin keys or governance multisig controlling upgrades. A common command to check a proxy admin on Etherscan is to look at the "Read Contract" tab for the admin or owner function.
• Sub-step 3: Centralization Vectors: Look for centralized points of failure, such as price oracle reliance (e.g., Chainlink's AggregatorV3Interface) and admin functions that can pause contracts or change critical parameters like fees.

Tip: Use tools like DeFiLlama's 'Risks' section or the Solidity Visual Developer extension in VSCode for initial code review.

Detailed Instructions

This step involves modeling your financial exposure. Market volatility directly impacts synthetic asset pegs and derivative positions, while liquidation risk is critical for leveraged strategies. You must calculate specific thresholds to avoid unexpected losses.

• Sub-step 1: Calculate Liquidation Price: For a leveraged position on a platform like dYdX or GMX, compute the exact price at which your position becomes undercollateralized. For a long ETH position with 5x leverage, the liquidation price is significantly closer to the entry price than with 2x leverage. Use the protocol's formula, often available in their documentation.
• Sub-step 2: Assess Impermanent Loss (IL): If providing liquidity in a pool containing a synthetic asset (e.g., a sETH/ETH pool), model the IL for different price divergence scenarios. A 50% price change in one asset can lead to significant IL compared to holding.
• Sub-step 3: Evaluate Slippage and Fees: Factor in trading fees (e.g., 0.3% on Uniswap v3), borrowing fees on money markets (e.g., Aave's variable rate), and the slippage tolerance you set for transactions. High slippage in a volatile market can erode profits.

Tip: Use calculators like the IL calculator from Daily Degen News or build a simple spreadsheet model using historical volatility data (sigma).

Detailed Instructions

Synthetic assets (e.g., sUSD, sBTC) and perpetual futures rely entirely on oracle price feeds for valuation and liquidation. A faulty oracle is a single point of failure. Simultaneously, you must assess the peg stability mechanism of the synthetic asset.

• Sub-step 1: Oracle Redundancy and Latency: Identify the oracle used. For example, Synthetix uses Chainlink for many feeds. Check the Aggregator address (e.g., 0x5f4eC3Df9cbd43714FE2740f5E3616155c5b8419 for ETH/USD on mainnet) and see if there are fallback oracles. Monitor for latency; a stale price can be exploited.
• Sub-step 2: Test Peg Arbitrage: Understand the mechanism that maintains the peg. For sUSD, it's primarily through debt pool incentives and a minting/burning mechanism. You can simulate a peg deviation scenario by checking the sUSD price on DEXs versus the oracle price and calculating the arbitrage opportunity.
• Sub-step 3: Monitor Governance Parameters: Review governance proposals that could alter oracle configurations, staking rewards, or collateralization ratios (C-ratio) for synthetic debt positions. A change in the C-ratio from 400% to 500% would require stakers to add more collateral.

Tip: Set up alerts for on-chain events related to oracle updates using a service like Tenderly or The Graph.

Detailed Instructions

Proactive risk management requires real-time monitoring and defensive actions. This step involves setting up alerts and executing hedging transactions to mitigate downside exposure.

• Sub-step 1: Set Up Position Alerts: Use a portfolio tracker like DeBank or Zapper to monitor your health factor (for lending) or collateral ratio (for synthetics). For programmatic alerts, you can write a script that queries on-chain data. For example, a script checking a user's health factor on Aave:

javascriptCopy
const aaveProtocolDataProvider = new ethers.Contract(
  '0x057835Ad21a177dbdd3090bB1CAE03EaCF78Fc6d',
  ['function getUserReserveData(address asset, address user) view returns (uint256 currentATokenBalance, uint256 currentStableDebt, uint256 currentVariableDebt, uint256 principalStableDebt, uint256 scaledVariableDebt, uint256 stableBorrowRate, uint256 liquidityRate, uint40 stableRateLastUpdated, bool usageAsCollateralEnabled)'],
  provider
);
// Calculate health factor from returned data

• Sub-step 2: Execute Delta Hedging: If you have a large exposure to synthetic ETH (sETH), you might hedge by taking an opposite position in spot ETH futures on a centralized exchange or using options protocols like Hegic or Dopex.
• Sub-step 3: Plan Exit Liquidity: Always have a plan for exiting positions during high gas times or network congestion. Use gas price oracles (e.g., Etherscan's Gas Tracker) and consider setting higher gas premiums for critical transactions.

Tip: Consider using decentralized insurance protocols like Nexus Mutual or Unslashed Finance to purchase coverage for smart contract failure, though this is a cost-benefit analysis.