Automated Hedging Bot

Experienced yield farmers may encounter the situation that though the yield farming rewards are accumulated incessantly, the value of the yield farming position keep dropping due to the price movement of the pair of farming tokens.

To the yield farmers who have originally been hodling both farming tokens (i.e. token-based thinkers), the depreciation of the farming position is mainly due to impermanent loss in terms to number of tokens.

To the yield farmers who place farms in stablecoins (i.e. USD-based thinkers), they are more focused on the return in terms of fiat value. Therefore, the value loss of their farming position is caused by price effect, along with the price drop of the farmed non-stable tokens.

Price effect refers to the net equity value change due to changes in asset prices in the liquidity pool, compared to your principal. It might be positive or negative, depending on token price fluctuations and trading fee rewards in the pool.

Impermanent loss refers to the "loss" when you deposited your assets to a liquidity pool to get a share in the pool (LP-tokens) followed by tokens' price change, compared with simply holding the assets on hand. It is the result of fluctuations in the underlying value of the assets being swapped, and happens whenever the relative price of the tokens changed. It is always negative.

Please note that price effect is focusing on ACTUAL price change while impermanent loss is focusing on RELATIVE price change. Thus, it’s possible to achieve 0 impermanent loss but high price effect for the liquidity provision.

Our Automated Hedging Bot help farmer to hedge the price effects as well as impermanent losses from time to time. Our bot will determine the best timing to rebalance your farming position so as to minimize the potential drawdown, retaining more yields gained as real profits rather than the compensations of the potential losses.

The bot does all the maths and transactions at the backend and rebalances the strategy to delta-zero (to match the amounts of non-stable token held with non-stable token borrowed) with the benefits of:

  1. Time-saving of users on calculation, simulation and multiple operations.

  2. Rebalancing the amount based on "Net" delta value, so it minimizes the transactional cost as well as slippage.

  3. 24/7 continuous monitoring so user could be hassle-free

The purpose of automated hedging algorithm

Rebalance the position only when it meets the following requirements:

  1. The price trend of the non-stable coin is going through tremendous changes

  2. The accumulated interest of one of the assets is too high and affect the delta too much

  3. The leverage level is too high or low to achieve the best risk-weighted rewards

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