Rudy DeFi Insight — How to hedge Impermanent Loss?

What is impermanent loss?

Losses to liquidity providers due to price variation chart
Figure 1: Impermanent loss due to price variation (source: https://bit.ly/3lmaUjB)

Power perpetuals and Squeeth

Squeeth payout function chart
Figure 2: Squeeth payout (source: https://bit.ly/3MwFx1Y)
Opyn total value locked chart on DeFi Lama
Figure 3: Opyn DefiLlama entry (source: https://defillama.com/protocol/opyn)

How to hedge impermanent loss

USDC/ETH Uniswap V3 Liquidity Position schreenshot
Figure 4: USDC/ETH Uniswap V3 LP (source: https://bit.ly/3LlN2HC)
Virtual liquidity formula
Delta function formula
Gamma function formula
The delta and gamma of the Squeeth power perpetual formula
Gamma
  • Buy 0.0012 Squeeth (half the option gamma since Squeeth gamma is 2) to hedge the gamma from the Uniswap V3 position
  • Sell 10.59 ETH perpetual futures to hedge the delta from Squeeth
  • Sell 1.448 ETH perpetual futures to hedge the delta from the Uniswap V3 position
Impact of ETH price change on the net profit and loss spreadsheet
Figure 5: Impact of ETH price change on the net profit and loss (https://bit.ly/3LlN2HC)
Impact of ETH price change on the net profit and loss chart
Figure 6: Impact of ETH price change on the net profit and loss (https://bit.ly/3LlN2HC)

The classification of Squeeth according to the ITC

ITSA tokenbase entry for Squeeth
Figure 7: The Squeeth Tokenbase entry (Source: https://itin.itsa.global/JN3FMVM54)

The International Token Standardization Association (ITSA) e.V.

  • The International Token Identification Number (ITIN) is a 9-digit alphanumeric technical identifier for both fungible and non-fungible DLT-based tokens. Thanks to its underlying Uniform Token Locator (UTL), ITIN presents a unique and fork-resilient identification of tokens. The ITIN also allows for the connecting and matching of other media and data to the token, such as legal contracts or price data, and increases safety and operational transparency when handling these tokens.
  • The International Token Classification (ITC) is a multi-dimensional, expandable framework for the classification of tokens. Current dimensions include technological, economic, legal, and regulatory dimensions with multiple sub-dimensions. By mid-2021, there will be at least two new dimensions added, including a tax dimension. So far, our classification framework has been applied to 99% of the token market according to market capitalization of classified tokens.
  • ITSA’s Tokenbase currently holds data on over 21000 tokens. Tokenbase is a holistic database for the analysis of tokens and combines our identification and classification data with market and blockchain data from external providers. Third-party data of several partners is already integrated, and API access is also in development.

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The International Token Standardization Association (ITSA) is a not for profit organization working on holistic market standards for the global token economy.

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International Token Standardization Association

International Token Standardization Association

The International Token Standardization Association (ITSA) is a not for profit organization working on holistic market standards for the global token economy.

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