How Can a Futures Contract Be Used to Hedge the Price Risk of One Asset in an LP? ▴ Learn

How Can a Futures Contract Be Used to Hedge the Price Risk of One Asset in an LP?

If a Liquidity Provider (LP) is concerned about a price drop in one of the two assets in their pool, they can short that specific asset using a futures contract. The gain from the short futures position will offset the loss in the LP asset's value, effectively creating a price hedge on that component of the pool.

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