Risks & Disclaimers for Delta-Neutral LP Hedging

Important Notice

Hedge My LP is experimental DeFi software. Using Hedge My LP involves significant risks including the potential loss of all deposited funds. Delta-neutral hedging does not eliminate risk. Please read and understand these risks before using the protocol.

Smart Contract Risk

Hedge My LP smart contracts may contain bugs or vulnerabilities. The protocol interacts with multiple external contracts (GMX V2, Uniswap V3, and potentially Snuggle), each with their own smart contract risks. A vulnerability in any of these systems could result in loss of funds. No smart contract can be guaranteed to be free of exploits.

Hedging Risk

Delta-neutral hedging reduces but does NOT eliminate price risk. The hedge is not continuous — there is always some lag between price movements and hedge adjustments. During volatile periods, this lag can result in significant unhedged exposure.

The GMX short position may be liquidated if price moves sharply against it before the hedge can be adjusted. Liquidation would leave your LP position fully exposed to directional risk.

Funding Rate Risk

Maintaining a short position on GMX requires paying funding rates. In bullish markets, funding rates for short positions can be substantial — potentially 20-50% annualized or more. These costs directly reduce your net yield and can exceed the LP fees earned.

There is no guarantee that LP fee income will exceed hedging costs. In sustained bull markets, a hedged position may underperform simply holding the underlying assets.

Market Risk

Cryptocurrency markets are highly volatile. While delta-neutral hedging aims to reduce directional exposure, extreme market events (flash crashes, exchange outages, oracle failures) can cause significant losses. The collateral deposited for GMX margin can be lost entirely in extreme scenarios.

Impermanent Loss

Your underlying LP position is still subject to impermanent loss. The GMX short hedges directional price risk but does not directly offset IL. In concentrated liquidity positions with tight ranges, IL can be significant during volatile periods. When used with Snuggle, IL is reduced through automated rebalancing, but not eliminated.

No Guaranteed Returns

Historical backtests, projected yields, and performance figures are based on past data and specific assumptions. Past performance does not indicate future results. Actual returns may be significantly lower than projected, including negative returns. Fee APRs, funding rates, and market conditions fluctuate unpredictably.

GMX Platform Risk

Hedge My LP relies on GMX V2 for perpetual short positions. GMX is a third-party protocol with its own risks including smart contract vulnerabilities, oracle manipulation, liquidity constraints, and governance changes. GMX keeper delays may affect order execution timing. Hedge My LP has no control over GMX's operation or availability.

Technical Risks

  • • GMX order execution depends on keeper availability and network conditions
  • • Network congestion on Arbitrum may delay hedge adjustments
  • • Oracle or price feed issues could cause incorrect hedge sizing
  • • Protocol upgrades to GMX, Uniswap, or Arbitrum may change behavior
  • • Third-party dependencies introduce compounded risk
  • • Delta calculation inaccuracies could result in over- or under-hedging

Regulatory Risk

DeFi protocols and perpetual futures face uncertain regulatory environments globally. Regulatory changes could affect the protocol's operation, GMX's availability, your ability to use these services, or the value of your positions. Users are responsible for understanding and complying with applicable laws in their jurisdiction.

Not Financial Advice

Nothing on this site constitutes financial, investment, legal, or tax advice. All content is for informational purposes only. You are solely responsible for your own investment decisions.

Consider consulting a qualified financial advisor before using DeFi protocols or making investment decisions. Do your own research (DYOR) and only invest what you can afford to lose.

Summary of Key Risks

  • • Loss of funds — You could lose some or all of your deposited collateral and LP position value
  • • Hedging is not perfect — Lag, liquidation, and execution risk mean exposure is reduced, not eliminated
  • • Funding rates can exceed fees — Net yield can be negative, especially in bull markets
  • • No guaranteed returns — Past performance does not predict future results
  • • Smart contract risk — Bugs or exploits in Hedge My LP, GMX, or Uniswap are possible
  • • This is not financial advice — DYOR and consult professionals

By using Hedge My LP, you acknowledge that you have read, understood, and accepted these risks. You agree that you are using the protocol at your own risk and that the Hedge My LP team is not liable for any losses you may incur.

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