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DeFi-Focused Asset Manager MEV Capital Offers Uniswap Hedging Strategy
The firm uses options contracts issued by crypto derivatives specialist OrBit Markets to hedge liquidity providers’ positions.
By Ian Allison
Updated May 9, 2023, 4:10 a.m. Published Mar 15, 2023, 1:00 p.m.
MEV Capital, an asset-management firm focused on decentralized finance, is offering a way to protect traders using DeFi platforms like Uniswap from suffering impairment losses.
A steady stream of innovation, often emulating the way traditional finance works, is being brought to DeFi to make the sector more palatable to institutional investors. An impairment loss occurs when a drop in token prices affects the assets in a liquidity pool.
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MEV Capital uses options contracts issued by crypto derivatives specialist OrBit Markets to hedge liquidity providers’ positions and prevent losses in Uniswap (v3) liquidity pools.
At maturity, the options contract is settled over-the-counter with either MEV Capital covering the balance if the liquidity providers' (LP) position has increased in value, or the options desk settling the difference with MEV if the LP position is worth less than the hedged amount, Laurent Bourquin, chief investment officer at MEV Capital, explained.
“It's kind of trendy nowadays to do Uniswap v3 impermanent loss hedge,” Bourquin said.
“We have hired quants to make sure the options we buy fully hedge our LP position. Everything is on-chain and public. We are using only one protocol that we trust and the yield is paid in USDC and ethereum,” he added.
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