For Liquidity Providers
AMM liquidity providers can open NIL contracts as Buyers to hedge out IL risk on their LP positions. By opening a NIL contract with a Token A strike price equal to the price of Token A when they had initially entered the AMM liquidity pool, they can perfectly hedge out any impermanent loss that would be incurred from their LP position.
This is highly valuable because AMM liquidity providers can collect trading fees and yield farming rewards without needing to worry about realizing any impermanent loss.
Instead of guessing whether fees and rewards will make up for IL, LPs can make a straightforward comparison between the annualized returns from providing liquidity to the costs of IL protection.
Last modified 7mo ago