Hedging Strategy

Why is the hedging strategy needed?

Due to the aggregation of v3’s range liquidity, you may suffer greater impermanent loss,when the price, in its random fluctuation, is outside of the set price range.

As the price fluctuates, if the trading price exceeds the set range gradually, impermanent price will increase, and one token will be gradually converted to the other token in the trading pair.

If the price of your position is outside of the set price range, your position will generate market-making fee.

In this case, GP needs to hedge the position dynamically to adjust the set price range based on the price fluctuation. As gas fee is required each time the position price range is adjusted on Ethereum, GP needs to control the frequency of adjustment, and consider the timing of balancing v3 market making fee / real-time price fluctuation / impermanent loss and GAS cost.

How to hedge in Multiple Protocol?

When hedging in Uniswap v3, you need to remove the position liquidity before creating a new position.

When hedging in Multiple Protocol, you can reconfigure the set range of each position at will, and the reconfigured position will retain the historical performance data.

Reconfigure the position based on the following principles:

1.GPs can hedge the current position each time they reconfigure the position.

2.The position service fee will be the priority subsidy of impermanent loss.

Multiple Protocol provides chart tools (namely Performance, Position Report, and Risk Management) that show detailed data required by hedging strategies for GPs to analyze.

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