Untangled Loop enables delta-neutral vault strategies on Stellar by combining lending (Blend) and spot trading (Aquarius) to capture basis spreads between staking rewards and borrowing costs, with empirical analysis showing maximum vault capacity of ~500,000 XLM and execution limits of 50,000/day based on liquidity constraints.
Untangled Loop is a stateless, non-custodial strategy adapter protocol for synthetic perpetual futures on Stellar that allows users to create long or short positions through atomic transactions combining borrowing and swaps. The delta-neutral vault strategy pairs a spot long position in yield-bearing XLM (yXLM) with a synthetic short position to eliminate price volatility while capturing basis spreads between staking rewards and borrowing costs. The paper provides mathematical frameworks and empirical analysis of historical pool data from October-December, revealing a strong negative correlation (-0.94) between liquidity injection and yield dilution. Key findings establish maximum vault capacity at approximately 500,000 XLM with execution velocity limits of 50,000 XLM per day, derived from real-world liquidity constraints and risk modeling for slippage and liquidation thresholds.
