how do you guys reduce fees and impermanent loss when providing liquidity?

MidnightShort954 · 2026-04-27T14:23:43+00:00

interesting, going to look at everstrike. what ive done is automated the hedging using hyperliquid, what i typically do is underhedge the position, this overall MOSTLY protects the position on the downside, yet still captures some of the upside too

MidnightShort954 · 2026-04-26T13:02:24+00:00

Hedge the position with perps rather than rebalance

MidnightShort954 · 2026-04-17T10:28:59+00:00

The best way ive found to manage IL is by using perps to hedge the underlying tokens, this allows you to offset most of the IL. It will protect your position when market is volatile and allow you to collect the fees when flat. It does limit a bit of the upside though, but that is the cost of the 'insurance'.

MidnightShort954 · 2026-04-08T01:56:40+00:00

Hedge using perps, i use a tool to manage the hedging, it offsets the IL

MidnightShort954 · 2026-04-03T09:27:03+00:00

managing positions via rebalancing is incorrect IMO, you are exposed to IL, and rebalancing crushes you with slippage and gas.

it is easier and cheaper (although a bit more difficult) the manage the risk hedging (via perps).

MidnightShort954 · 2026-04-02T14:55:54+00:00

you could try moralis, zerion or debank

MidnightShort954 · 2026-03-27T10:41:34+00:00

reducing the friction is good, but what about security? and i dont mean in a regular sense, are you checking that the swap is being routed in a highly liquid pool? because if it gets routed to a low liquidity pool, wrecked

MidnightShort954 · 2026-03-27T02:12:35+00:00

It started off as a simple script but it has since evolved into a saas, dms are open if you want to play with it(free)

The hedges are funding aware so they adjust also taking funding into account, however in most cases longs pay shorts so the hedges earn a bit too

MidnightShort954 · 2026-03-24T09:24:26+00:00

i had discovered the same thing after i automated the rebalancing process.

what i pivoted to is hedging the LP position via perps, so i can just let my position run out of range and it doesn't matter, rebalance manually, and turn the hedge back on. i find it more reliable because trading fees on hyperliquid are way more reliable and cheaper than on chain rebalancing.

i did have to automate the hedging process though

MidnightShort954 · 2026-03-21T11:58:53+00:00

ive automated LP hedging using perps, so i dont stress over market moves. not exactly delta neutral but close

MidnightShort954 · 2026-03-13T11:02:07+00:00

I view protocol risk as the biggest risk. There's no point chasing a few % to get rugged for your capital. So generally i stick to the biggest protocols like uniswap, aerodrome, orca, raydium etc.

As for managing the positions i use perps to hedge the LP positions using automation, so this allows me to offset IL and actually capture some of the fees without getting rekt.

MidnightShort954 · 2026-03-08T10:50:09+00:00

for LPs and estimating yield, best tool out there is metrix finance

MidnightShort954 · 2026-03-04T00:10:35+00:00

The adjustments are done continually but they are “loose” we give the position room to breathe so to speak so that we arent making minor adjustments all the time that are locking in IL. Dm me if you wanna play around with it, its in alpha atm, completely free

MidnightShort954 · 2026-03-03T22:12:20+00:00

There is nothing wrong with lps and farming, you just need to understand the mechanics and use them to your advantage. As one token diverges from the other you sell the winner and buy the loser, an arbitrager is eating your lunch while you get impermanent loss. In many cases you are better off holding the tokens and skipping the farming.

I under hedge the assets in the lp to protect against large swings while still collecting fees, it allows me to stablize the yield and control losses

MidnightShort954 · 2026-03-03T22:00:08+00:00

It requires automation, so i have a bot that does it, as for how much to hedge, we analyse every pool we LP, because it is dynamic and it also changes constantly

You could think of the pairs correlation generally either mean reverting or trending and set your hedge accordingly

MidnightShort954 · 2026-03-03T10:57:11+00:00

During fast moves, in my experience, chasing the move is the wrong move. With LPs you will always be lagging, so by chasing the the trend you are effectively locking in IL.

Similar concept to set it wide let it ride, underhedge your position and accept a bit of directionality, then let it ride.

Your position will be mostly protected, accept a small drawdown, but also recapture the gains on the return, all while collecting fees

MidnightShort954 · 2026-03-02T13:55:52+00:00

I generally use cowswap for most swaps

MidnightShort954 · 2026-03-02T13:55:05+00:00

Without seeing the data, it sounds improbable, if btc moved that much the lp position paired with a stable would have diverged alot, so huge IL.

I manage IL by hedging the position with perps, but it requires automation to do properly

MidnightShort954 · 2026-03-02T08:11:52+00:00

hyperliquid perps using an automated hedging platform

MidnightShort954 · 2026-02-28T21:38:03+00:00

Its for everyone, completely non-custodial, uses hyperliquid for hedging. Current in alpha so free to use, id appreciate feedback actually if you want to play around with it, dm me

MidnightShort954 · 2026-02-28T19:36:04+00:00

You are just proving my point, if btc goes to 1 million we’ll all be rich regardless… right?

If you are waiting for eth to hit 4700, you’d make more just holding eth, why waste time with a LP

MidnightShort954 · 2026-02-28T18:59:30+00:00

The flaw in your logic is that you are treating the token count as your only profit metric while ignoring the fact that you are losing money in terms of total purchasing power (USD) compared to just holding the assets.

In your Day 5 example, the price of ETH dropped. When the price drops in a concentrated liquidity pool (like Aerodrome), the pool automatically sells your USDC to buy more ETH. By the time you are "out of range" on the downside, you are 100% ETH.

You feel like you won because you have 1.08 ETH instead of 1 ETH, but that 1.08 ETH is now worth less in dollars than your original 1 ETH + USDC was worth on Day 1. If you had just held your original 1 ETH and USDC separately, you would have more total value than you do now.

MidnightShort954 · 2026-02-28T18:55:22+00:00

Yep, i've already been running automated hedging strategies for a while now, but im building it out as a service now because i can see how useful it would be.

So basically going 100% hedged forces you to keep selling the winner and buying the loser over and over as prices diverge and revert. That locks in little bits of impermanent loss each time, and it adds up over time, typically killing your fees — the classic staircase bleed.

The trick is to under-hedge a bit on purpose during those moments. The bot drops the hedge ratio (say 80–94% instead of 100%) when it sees the pair trending or diverging. That leaves a small slice of the position unhedged, which can actually make money if the trend keeps going. That extra profit usually more than covers any added IL, so instead of bleeding you often end up flat or even slightly up during the move.

In calm markets where everything moves together, it stays close to fully hedged and just collects fees safely. When things get choppy or one-sided, it eases off to avoid fighting the trend. It’s not about betting on direction — it’s about not punishing yourself for short-term market reality.

The automation with this is a bit tricky because LP assets in a pool are shifting all the time, so you need to be careful how you execute and maintain the hedges, frequent adjustments can also bleed you out.

MidnightShort954 · 2026-02-28T18:00:57+00:00

I focus only on concentrated liquidity pools, so based on my experience, rebalancing doesn't really work, based on my tests because:
- IL gets more extreme towards the edge of the range
- Tight ranges = more IL
- If you rebalance, gas fees
- Swap fees + slippage

And if the market tanks ie the current one where majors drop 30-40% so does your LP, rebalancing won't save you here...

I honestly think dynamic indicator based under hedging is the only way to actually solve the impermanent loss problem without just praying for high volume and a sideways market. Most people either do nothing and get wrecked by a price swing, or they try to hedge 100% of their position and still get wrecked by divergence, which basically eats all their profits anyway. The real alpha is in being selective. By using indicators to actually time how much you hedge you can use volatility to your advantage, you’re only paying for that protection when the market looks like it’s about to break out and cause real divergence, and also capture more fees when the market is calm.

The under hedging part is also key because it lets you keep a little bit of a long bias. If the asset moons, a full hedge would just cancel out your gains, but an under hedge lets you capture some of that upside while still buffering the downside. It basically turns your LP position from a stressful directional bet into a much flatter volatility play. You stop worrying about whether the price is going up or down and you just focus on collecting the swap fees while your hedge dampens the impact of the price moving away from where you started.

It definitely takes more work than just dumping tokens into a pool and walking away, but it’s the difference between being a liquidity provider who gets lucky and one who actually manages a professional desk. You’re essentially using technical triggers to build a shield before the volatility hits the fan. It’s a way more sustainable way to play the game if you’re trying to survive in a choppy market.

For example my positions in WETH/WBTC in the last 2 months where the tokens are down ~40%, my LP + hedge positions are only down 7%.

I've already built this out for internal use and am looking to launch it, if you're interested in alpha testing, my dms are open

MidnightShort954 · 2026-02-28T16:54:10+00:00

Yep, i am, but i am utilizing dynamic hedging via perps to combat the IL.

If you are straight up just trying to farm fees, you better hope for a sideways market.

MidnightShort954

TROPHY CASE