Hedge Farming

Hedge farming is designed to short volatility, hedge price direction risks, and maximize fee earnings by balancing your position between two pooled assets. You borrow one asset, combine it with the other, and provide liquidity in Meteora DLMM to create a hedge farming position.

Key Parameters of Hedge Farming (SOL/USDC example):

1. Collateral & Leverage Ratio

   1. Determines total position size.

   2. Higher leverage increases liquidation risk.

2. Borrow Ratio

   1. Specifies borrowed asset.

   2. Adjust to balance your position.

3. Deposit Ratio

   1. Defines SOL/USDC ratio in your final position.

   2. A balanced ratio better hedges price volatility.

4. Price Range

   1. Sets the LP position price range.

   2. A symmetric price range is recommended to hedge risk.

Example

Assuming SOL price is $160:

• Deposit: 5 SOL (worth $800)

• Borrow: $800 USDC

• Price range: ±5% around current price

Position ($USD)	Price increase to 168 (+5%)	Price drop to 152 (-5%)
Total position value	800 + 5*164 = 1620 USD	5 + 800/156 = 10.128 SOL
Total Loan	5 SOL = 840	5 SOL
Net asset	780 USD	5.128SOL = 780 USD