AIPs are automated investment products, a one-button solution for investors that represents an automated trading strategy.
There are many types of AIPs (Automated Investment Products) that can be created in DeFi. In general, each AIP is a one-button solution for users to invest in some strategy. These AIPs are made based on some market opportunity or demand and investors can profit from them. Some strategies have market risks, such as DOVs, and some of them do not depend on market sentiment.
The Basis Trading strategy includes two differently directed positions.
Users invest their money in the Vault, which buys assets on the spot market and sells the same amount on the Perpetual Futures market. In this case, the investors will have the same value of the position if the market moves in any direction, so this strategy is called delta-neutral.
In this strategy, returns are generated through funding rates. If the funding is positive, the vault will generate some profit without any market risk. But if the funding is negative, the Vault will have some losses.
Liquidity providing was popularized with the creation of AMM. It is very easy for users to lend assets to the liquidity pool and start making profits by earning swap fees. But the downside is the impermanent losses that users experience when the price of an asset changes.
In the case of the order book, things get more complicated. Usually, market makers are advanced market players with complex software and extensive experience, and they use their own or borrowed funds for market making. In this case, ordinary users cannot participate in providing liquidity. This violates the decentralization principles of DeFi and can be overcome by introducing Vaults. In this case, users provide liquidity to the Vault, which directs that liquidity to the market maker operating in the respective trading pair. That means liquidity providers will receive income from rebates and spread (the difference between the prices of buy and sell orders).