I am doing LP on the bear chain, LP of BERA and HONEY. The staked LP currently gives an APR of 93%, and the output is another token, iBGT. The staking APR for iBGT is annualized at 277.9%. If I want to avoid risk, should I short BERA, and how should I do that?
Your position structure
Your current position is roughly as follows:
Provided LP of BERA and HONEY (liquidity pair), and staked this LP pair, yielding iBGT annually (APR 93%)
Then you staked the output iBGT again, annualized at 277.9%
Among them:
HONEY is a stablecoin (assuming close to $1),
BERA is the gas token of this chain, with significant price fluctuation risk.
The risks you face
Since LP contains BERA, your position will be exposed to BERA's price fluctuations, especially:
If BERA drops → LP value decreases
If BERA rises → you may lose hedging profits (if shorting)
So your question focuses on: whether to hedge against the risk of BERA's price drop.
Situation suggestions
You just want to earn LP and iBGT rewards, without betting on BERA's price, you can short some BERA to hedge risks.
You are bullish on BERA, willing to bear volatility without shorting, to gain potential upside profits.
You are uncertain but want to control drawdown, shorting a certain proportion of BERA (Delta neutral) is a suitable strategy.
How to short BERA?
It depends on whether there are available shorting tools on the chain. Common methods are as follows:
1. Use derivatives protocols on the chain (such as Perpetual protocol)
If there are protocols on the chain like GMX / Gains / Level / Vertex that provide BERA perpetual contracts, you can open a short position.
The amount to short is calculated based on the value of BERA in the LP (in USD).
2. Borrow BERA from lending platforms and sell it
Borrow BERA on protocols like Aave / Radiant / Compound, and sell it for stablecoins like HONEY or USDC.
Buy it back when you need to close a position or repay in the future.
Disadvantages: Be aware of liquidation risks, borrowing rates, and collateral ratios.
How to calculate shorting volume (hedging position)
Assuming your LP structure is 50% BERA + 50% HONEY, then in the LP you are equivalent to a long position of half the value of BERA.
For example:
You invested $10,000 in LP, of which $5,000 is BERA (e.g., 1,000 BERA, $5/BERA).
Want to hedge BERA volatility → short $5,000 worth of BERA (1,000 BERA).
Thus, your net BERA exposure is zero, achieving Delta neutrality, earning only LP and iBGT rewards.
Additional suggestions
Regularly rebalance: If BERA's price fluctuates significantly, the value of your position will also change, and you need to adjust the shorting volume.
Consider the selling pressure of iBGT: although iBGT yields high, does it have real value? Is there enough liquidity to sell? This is an additional risk.
High APR ≠ stable earnings: Continuously assess whether the source of earnings is sustainable, and whether token releases will crash the market.
What if the price of iBGT is linked to the price of BERA, i.e., a fixed ratio?
Very good question, this has highlighted the inherent risk exposure of the strategy!
Assumption premise:
The price of iBGT is linked to BERA (for example, a fixed ratio of 1 iBGT = 1.5 BERA)
In other words:
iBGT is a derivative-like asset, a reward token, but its price is anchored or directly influenced by the price of BERA.
The 'revenue' you receive is essentially: earning derivatives of BERA.
So, if BERA drops, the iBGT in your hands will also depreciate simultaneously.
What will this result in?
You originally thought:
"I do LP (exposed to BERA long), then short BERA to hedge risk; iBGT is my reward, I stake it to continue earning."
But now the situation has changed:
The price of iBGT moves with BERA, meaning:
You are still implicitly holding a BERA long!
For example:
Assumption:
1 BERA = $3.67
You receive 15 iBGT each month.
The pricing rule for iBGT is: 1 iBGT = 0.1 BERA = $0.367.
If BERA drops by 50% → $1.835
Then the price of iBGT also becomes $0.1835.
Your 15 iBGT, originally worth $5.51, now only worth $2.75.
You originally thought that the stable 'reward yield' would be halved directly, but in reality, you didn't hedge at all!
From another perspective:
Although you superficially hedged the BERA long in the LP, the system rewards you with a 'mirror token' of BERA, and you are still exposed to BERA's movements:
Shorting BERA does hedge your exposure to BERA in LP,
But you are also going long on iBGT (= BERA) and continue to stake it, amplifying this risk!
So what now? Can the strategy still work?
If you can stably sell iBGT to realize it as stablecoins:
The iBGT you receive monthly is real cash flow, realizing profits in time.
Recommended strategy: sell the output immediately, do not hold or stake iBGT long-term.
If you cannot sell iBGT immediately:
Then you actually:
A superficially neutral strategy is actually a form of shorting BERA + going long BERA again (iBGT).
It has turned into a structure that 'hedges half the risk but still bears value fluctuations'.
Strategy optimization suggestions:
Realize profits by converting iBGT output to cash, avoiding iBGT depreciation.
Short slightly less BERA (e.g., 80% value) to retain some upside exposure, in case the overall value rises.
Only play LP, do not stake iBGT to reduce the risk of 'going long on iBGT (= BERA)'.
Multi-asset hedging combinations will turn BERA/iBGT farm profits into stablecoins for other more robust allocations.
I think this section can provide some insights for mining on the bear chain, as I am mining too!
