Hedging Impermanent Loss with Power Perpetuals

  • T: the funding period. T=1week in our implementation.
  • h=r+𝜎²/2
  • r: the risk-free interest rate
  • 𝜎: the volatility

Impermanent Loss from the Greeks Perspective

Hedging IL with Powers and Futures

  • Providing 1ETH+4000USDC to the ETH-USDC pair
  • Long 0.0000613 units of ETH^2 (equals to 0.0613 units of mETH^2)
  • Short 1.5 units of ETHUSD futures

Cost vs Income

Other Examples

  • Note 1: The extra CAKE reward by Pancakeswap has not been taken into account in this analysis.
  • Note 2: In practice, the transaction volume on CPMM and the volatility are positively correlated. In a more volatile market condition, even though you are paying a higher funding fee for the powers, most likely you would also earn more income from the CPMM due to a higher trading volume. In other words, the strategy would still very likely be profitable in such scenarios.



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Deri Protocol

Deri Protocol

Deri Protocol = (Perpetual Futures + Everlasting Options) x Decentralized.