MEV Capital, an asset management firm focused on decentralized finance (DeFi), is offering a way to protect traders using platforms like Uniswap from suffering impairment loss.
A steady stream of innovation, often emulating the way traditional finance works, is being brought to DeFi to make the space more palatable to institutional investors. Impairment loss occurs when a drop in token prices impacts assets in a liquidity pool.
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, explained MEV Capital chief investment officer Laurent Bourquin.
“It’s kind of trendy nowadays to do Uniswap v3 impermanent loss hedge,” said Bourquin in an interview.
“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,” Bourquin added.
