Can Hedging Strategies Using Financial Derivatives Effectively Neutralize Impermanent Loss?

Yes, hedging with financial derivatives can mitigate impermanent loss. One common strategy is to short a perpetual future contract for the volatile asset in the liquidity pool.

This creates a position that gains value if the asset's price drops, offsetting the impermanent loss. Another method involves using options, such as buying a put option to protect against a price decrease.

However, these strategies are complex, require active management, and introduce new costs like funding rates or premiums, which can erode profits.