🛡️ Advanced GMX Hedging Strategy: Protecting Your LPs

David Zimmerman

23d • Crypto Market Content

How to hedge $130K in LPs with just $4K in collateral while earning yield on both sides.

🎯 The Core Strategy

Short ETH deltas for downside protection while maintaining LP positions.

Key rule: Keep your hedge collateral below 10% of your LP value.

Why? If you get liquidated, you should be able to earn back the lost collateral in fees within a week.

📊 The Math That Matters

Example Setup: • LP Value: $130K • Hedge Collateral: $4K (3% of LP value) • Daily LP Fees: ~$600 • Recovery Time: ~7 days if liquidated

Risk Assessment:

LP liquidation range: ~4,500 ETH
Short liquidation: 4,573 ETH
Comfortable risk window ✅

⚡ Why GMX Futures Are Different

Non-linear positions = Dynamic hedging

📈 When ETH pumps:

LPs become less long
Hedge loses more (but manageable)

📉 When ETH dumps:

LPs become more long
Hedge becomes MORE short (position size grows)

This creates a natural rebalancing effect.

💰 Earning on Both Sides

Multiple income streams: • Long side: LP fees + yield • Short side: 18-50% funding rates (paid in USDC) • Result: Delta-neutral position earning yield

🔍 Risk Management Rules

Keep hedge collateral minimal (use high leverage)
Monitor liquidation levels vs LP ranges
Only risk what you can earn back quickly
Manage deltas, not individual positions

📈 Market Outlook Considerations

Macro (12+ months): Bullish

Weakening labor market
AI companies crushing it
Long-term uptrend intact

Micro (next few weeks): Cautious

ETH up 3x in recent months
Expecting some correction
Perfect time for hedging

🎯 Bottom Line

This isn't about predicting direction - it's about earning yield while staying protected.

You're essentially getting paid to hedge your risk while maintaining exposure to LP fees.

Are you using any hedging strategies for your LP positions? Share your approach below! 👇

5:13

2 comments

DeFi University

skool.com/defiuniversity

Master DeFi from beginner to advanced. Security-first curriculum, live mentorship, gamified learning. Join us and build DeFi expertise safely.

Leaderboard (30-day)

+41

+32

+18

+11