Impermanent loss hedging involves strategies designed to reduce the risk of temporary value divergence experienced by liquidity providers in automated market makers. This loss occurs when the price ratio of assets in a liquidity pool changes after deposit. Hedging techniques typically employ external financial instruments, such as options or futures, to offset this potential depreciation. It seeks to protect capital from market volatility.
Context
Impermanent loss hedging is a recurring topic in decentralized finance news, especially as liquidity provision remains a core activity. New protocols and financial products are continuously introduced to provide more efficient hedging mechanisms for liquidity providers. The effectiveness of these strategies directly impacts the profitability and sustainability of many DeFi applications.
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