Over the past few months, the Autonomy team has been hard at work on different tools and applications that showcase the protocol’s use cases. From stop-losses on DEXes to an entirely new game genre coming soon, automation is unlocking a diverse range of new decentralized applications that were previously unheard of in Web3.
We’d like to introduce a new tool that goes beyond degens and gamers and helps more conservative participants in the Web3 economy. AutoHedge is a decentralized application for liquidity providers who look to maximize their profit potential while effectively hedging against volatility in a seamless, easy-to-use way. It leverages the Autonomy protocol to create positions that are delta-neutral.
For example you can LP on the ETH-DAI pair on Uniswap with $100, and no matter what happens to the price of ETH, your position’s value will never go above or below $100. More so, over time you’ll accumulate the trading fees on top.
For existing LPers, LPing in a bull market is fine because, even with impermanent loss (IL), their position still grows in value even without the trading fees. But in a bear market, the loss in value of the position from price decreases of the tokens could be more than the fees, and therefore they lose money overall.
Institutional investors sit on large pools of idle funds that could be put to work in the DeFi markets and provide game-changing amounts of liquidity, but regulations and internal policies don’t allow them to be exposed to the price volatility risk that's inherent to holding volatile assets like ETH. Since most DEX volume is not in stablecoin-stablecoin pairs, that means they’re missing out on most of the profit and better yield opportunities that exist. Likewise, the markets are missing out on more liquidity.
A way to provide the security that more risk-averse investors seek to participate in the DeFi markets is to design a mechanism that creates delta-neutrality. In simple terms, an investment strategy is delta neutral when the dollar value of the position doesn’t change over time.
While this has been impossible to achieve in DeFi, Autonomy’s smart contract automation layer is able to support such a mechanism. This means that even positions taken on volatile assets would always retain their same dollar value and accrue trading fees on top over time.
All this can happen with one click using AutoHedge. Assume you want to participate in an ETH-DAI liquidity pool on Uniswap with $8,000 in DAI. 4,000 would be swapped to ETH at a price of $2,000 for a total of 2 ETH and 4,000 DAI.
The AH LP token has some interesting properties:
Altogether, this provides all the risk mitigation of a delta-neutral investment strategy while participating in the opportunities of the DeFi markets without the common threats associated with them. The possibilities created by AutoHedge can even solve overall market problems like riskless liquidity provision for new and illiquid assets.
Try AutoHedge for yourself!