Hedging
Hedging in XCCY allows users and the protocol to reduce exposure to interest rate fluctuations while maintaining fixed-rate positions.
Core Concept
Every fixed deposit, loan, or swap carries rate sensitivity.
Hedging offsets potential losses from floating rate movements using swaps or structured positions.
Hedging ensures that fixed yields are delivered predictably, even if market rates move sharply.
How It Works
User-Level Hedging
Users can hedge floating-rate exposure on positions they want to keep neutral.
Hedging can be automatic (via the protocol’s internal swaps) or manual for advanced users.
Protocol-Level Hedging
The protocol routes collateral through XCCY IRS markets to offset unmatched exposures.
Idle or surplus collateral may be allocated into XLP strategies, generating yield while remaining delta-neutral.
Open Orders and Hedging
Hedging considers worst-case execution of pending orders, one side at a time.
Ensures that collateral always covers potential exposure without locking unnecessary capital.
Benefits
Predictable returns for fixed deposits and loans
Reduced liquidation risk for leveraged positions
Capital efficiency through netting and delta-neutral strategies
Flexibility for advanced traders to manage rate views
Key Takeaways
Hedging transforms variable-rate risk into predictable outcomes.
Users don’t need to understand swaps to benefit — the protocol manages complexity internally.
Hedging works at both the account and protocol level, keeping exposure safe and capital efficient.
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