In What Way Do Derivatives like Perpetual Swaps Relate to Liquidity Pool Risks?

Perpetual swaps, which are derivatives that track the price of an underlying asset without an expiration date, can be used to hedge the directional price risk of assets held in a liquidity pool. An LP can use a perpetual swap to short the asset that is expected to appreciate, thus offsetting the impermanent loss caused by the price divergence.

By maintaining a delta-neutral position through derivatives, the LP aims to profit primarily from the trading fees while mitigating the capital loss from impermanent loss.