Max Protection Level
This is because when the price of Token A is expressed in terms of Token B (the base token), impermanent loss protection is capped to the downside, as Token A can never be worth <0 of Token B. However, impermanent loss protection is uncapped to the upside, as there is no upper limit to the price of Token A in terms of Token B.
NIL contracts cap the maximum ILV amount for each contract at 50% of the implied LP value, using the Token A strike price. This means that impermanent loss can be perfectly hedged using NIL contracts as long as Token A moves [-100%, +300%] against the strike price.
If Token A goes up more than 4x against Token B, then impermanent loss is no longer protected using that NIL contract because the collateral backing its ILV has been fully wiped out.
Last modified 9mo ago