NIL Protocol

For Market Neutral Funds

Crypto funds deploying market-neutral strategies 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.
Using an options portfolio to hedge out IL risk only serves as an approximate hedge, and gets less effective as token prices move away from the strike. Additionally, options liquidity is virtually non-existent for coins other than BTC and ETH, which leaves out many lucrative yield opportunities.
In contrast, NIL contracts offer a perfect hedge along the entire IL curve, and can accommodate many more token pairs. This allows market-neutral funds to much more effectively manage their risk and exploit new yield opportunities.
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.
ReturnBuyerLP=LPFees+LPRewards+ILVClaimableProtectionCostsReturn_{\:BuyerLP} \:= \:LP_{Fees} + \:LP_{Rewards}\:+\:ILV_{Claimable}\:\:–\:\:Protection_{Costs}
For a more detailed overview of the Buyer use case and user flows, please refer to Buyers.