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

1. 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

2. 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

3. 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