Basic Hedging Strategy for Liquidity Providers

I wanna share a simple way to hedge as a liquidity provider. So here’s the deal: I put some bitcoins into a liquidity pool at a certain value in USD. If the price goes up, I have more USD, but each bitcoin is worth more, meaning I’d get fewer bitcoins if I convert back. If it drops, I end up with more bitcoins, but they’re cheaper, so my USD decreases. I prefer to keep my bitcoin instead of stressing over USD, especially in a bull market. My strategy is... 1. O.

I see a flaw in your strategy in step 2. It seems a bit reactive, following the market instead of taking a proactive approach. A real hedge should protect against market misjudgment, so trying to time the market can lead to bad choices, especially with long contracts. Wouldn’t it be smarter to open a long position right after deploying the LP?

Yeah, I get the point, but that makes it complicated. The calculations depend on the price where I close the LP. It’s a solid idea but lacks flexibility. I usually open short-range LPs one at a time, and when they drop, I hold my BTC and use the extra USD to long BTC. I mean, in the end, it works out the same. Not really guaranteed to be neutral though...at least not in a straightforward way.

Oh man, wish I had thought of this when I was more active! I stuck to stablecoins and junk tokens because I held onto them for ages, only to miss out when BTC kept climbing. I found LPs helpful mainly for stablecoin pairs, but then I realized I should have just held them long-term instead. Commissions didn’t even make sense in a bull market!