How Do Liquidity Providers Hedge against Impermanent Loss When Participating in Volatile Asset Pools?

Liquidity providers can hedge against impermanent loss through several strategies. One common method is to provide liquidity for correlated asset pairs, such as two stablecoins, which minimizes price divergence.

Another approach is to use options or futures contracts to short the more volatile asset in the pair, offsetting potential losses from price changes. Additionally, some protocols offer insurance products or single-sided liquidity provisioning to mitigate impermanent loss risk for liquidity providers.