Delta Hedging

Every time a trader buys or sell an Impermanent Gain Options, the liquidity in the Earn Vaults is rebalanced to ensure the correct delta exposure to replicate the DEX LP Payoff.
This ensures Smilee has always the correct exposure to the reference tokens to:
  • Cover Impermanent Gain payoffs, no matter how much money traders earn and when they trade.
  • Ensure Liquidity Providers gets the same payoff of a DEX LP*
  • Ensure the protocol is not exposed to any shortfall.
The rebalance is done swapping on DEXs while checking against an Oracle Price to to avoid to incur in excessive slippage or market manipulation (seePrice Oracle).
Smilee uses Uniswap v3 as DEX. Other DEXs will be added in future.