Does Proxy Hedging Fully Eliminate the Need for Delta Hedging on the Underlying Asset? ⎊ Path

Does Proxy Hedging Fully Eliminate the Need for Delta Hedging on the Underlying Asset?

No, proxy hedging does not fully eliminate the need for delta hedging on the underlying asset. It only mitigates the directional risk to the extent of the correlation.

The residual risk (basis risk) still requires the market maker to maintain a delta hedge on the illiquid underlying, even if the size and frequency of rebalancing are reduced.

Does the Proxy Pattern Affect the Cost of Contract Deployment?

What Is the Impact of Asset Correlation on the Magnitude of Impermanent Loss in a Multi-Asset Liquidity Pool?

Does PoA Fully Eliminate the Risk of a Sybil Attack?

How Does the Correlation between Collateral and the Underlying Derivative Affect the Haircut?

How Can a Market Maker Quantify the Correlation between an Altcoin and BTC for Hedging Purposes?

Does Basis Risk Increase or Decrease with the Correlation between the Derivative and Its Underlying Asset?

Does the PoA Model Fully Eliminate the ‘Nothing-at-Stake’ Problem?

What Is the Impact of Correlation between Assets on Portfolio Margin Calculations?

Glossar

Proxy Hedging

Hedging ⎊ Proxy hedging involves using a liquid derivative, typically on Bitcoin, to mitigate price risk exposure in a less liquid digital asset.