Hedging ETH/Stablecoin Pairs via Money Markets

Hey DeFi University Skool Community! 👋

David here, your speaker breaking down this video segment (37:59-43:09) on advanced LP strategies from our Portfolio Clinic live call earlier today.

📊 Strategy Overview

I explain how to create a positive net interest margin (NIM) for indefinite holds using:

Supply wstETH to money markets (earn more than borrow cost)
Borrow ETH against your collateral
Deploy into Uniswap LP (equidistant, 50/50 with stablecoin)

Key Benefits:

✅ Hedges downside - End up with more ETH if price drops, pocket difference post-repay

✅ IL protection on rebalances

✅ Net long exposure on upside due to over-collateralization

✅ Generates cash flow while managing volatility

🎯 Example from Video

Supply 3 ETH to Aave
Borrow 2 ETH (positive NIM if supply APY > borrow APY)
Swap 50% of borrowed ETH to stablecoin
Enter LP with 50/50 ratio

Outcome Scenarios:

Downside: Out-of-range position gives >2 ETH to repay = profit
Upside: LP deltas drop to 0, but you're long the supply-borrow delta (1 ETH net)
No rebalancing fear - Small IL hedge built-in

Jane's clarification: Yes, swap 50% borrowed ETH to stable for 50/50 LP entry

📈 Current Market Data

(As of July 23, 2025)

Asset Prices:

ETH: ~$3,562-$3,763 USD Down slightly from $3,749 close Volatile amid ETF flows
BTC: ~$118,000-$120,000 USD Trading around $117,994 After peaking at $120,026

Aave ETH Rates (Ethereum Mainnet):

Supply APY: ~2.79%
Borrow APY: Variable ~3.46%
Note: Recent surges to 10%+ on borrows due to mass unstaking/withdrawals

💡 Why This Strategy Shines in DeFi

This approach offers risk-managed leverage perfect for current conditions:

Positive NIM enables perpetual positions
IL hedges reduce downside pain in stable-paired LPs
Ideal for bull runs like ETH's current trajectory
Generate fees/cash flow without full exposure
Balanced alternative to spot holds in high volatility

💬 Let's Discuss!

Reply below or in chat with your thoughts on:

Arbitrage Setup

Have you tried supply-borrow-LP loops for positive NIM?
What APY thresholds work for indefinite holds?

IL Hedging

How effective in practice for downside protection?
Your rebalance strategies (e.g., 5% shifts)?

Risk/Reward

Prefer this over pure spot holding?
Impact if ETH rips to $4K?

Platform Selection

Is Aave your go-to, or using others?
How are current rates changing your plays?

Broader Strategy

Incorporating ETH/BTC pairing?
Managing risks in volatility like today's dips?

Excited for your insights—DYOR and hedge smart! 🚀

5:09

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