Use Case - Hedging Borrowing Position

MetalSwap Use Cases [BLOG]3-2

MetalSwap is one of the dApps within the most use cases in the DeFi ecosystem. In a previous article, we explained how to use our Hedging Contracts to improve farming strategies in DeFi. In today's article, we want to explore another aspect of MetalSwap, specifically how the dApp could be used as a tool for protecting oneself in borrowing operations within decentralized finance.

MetalSwap Use Cases

The case study we will use to explore this aspect of MetalSwap is a use case released on the official blog, where the Hedging Contracts are employed to protect against a loan executed on Aave, the leading dApp in the lending and borrowing field. In this specific use case was demonstrated how to take a loan in stablecoin using ETH as collateral.

Given the high volatility of the underlying asset, there is a risk of liquidation, however, thanks to MetalSwap it’s possible to eliminate this risk by opening a short position within the dApp.

 Short position on MetalSwap dApp

Paying a Premium and Eliminating Volatility

Certainly, none of the users requesting an on-chain loan on Aave or similar dApps wants to be liquidated, as it would result in a significant loss of capital. MetalSwap addresses this issue by offering, for the first time in the history of DeFi, hedging contracts that nullify the volatility of a specific asset for a user-selected period.

For this strategy, it is necessary to open a short position within the dApp. If you are still unclear about how MetalSwap works, we invite you to read this guide on opening a short position.

The idea behind this strategy is that if the underlying asset, in this case ETH, loses value, then thanks to the gain derived from the position on MetalSwap it will be possible to add new collateral and push the liquidation price away.

The Lending & Borrowing Market

Analyzing DefiLlama in the "Categories” section reveals that the Lending category is second only to Liquid Staking dApps. Specifically, this type of decentralized application has over $18 billion in total value locked, with Justlend and Aave competing for the top position in terms of TVL, both hovering just below $6 billion.

DefiLlama Lending category

This is one of the most prosperous sectors in the entire DeFi space and offering a solution that reduces the risk of liquidation for users can truly make a difference in the industry.

MetalSwap Continues its Growth

Recently, MetalSwap introduced its brand-new Dune dashboard, providing users with the capability to scrutinize compelling statistics associated with the dApp. This includes insights into the count of active hedging positions and liquidity contributions through NFTs. In particular, our attention on the influx of new positions revealed a noticeable surge in November, with certain days recording over 45 newly opened positions.

Brand new Dune dashboard

Furthermore, MetalSwap, after the approval of MIP-5, is set to be launched on the Linea blockchain, a leading layer 2 in the Zero Knowledge Rollup sector. This further step forward will be accompanied by additional news to be revealed on 12-01-2023. Stay Tuned!

-The DeFi Foundation


✎ What is MetalSwap?

MetalSwap is a decentralized platform that allows Hedging Contract on financial markets with the aim of providing coverage to those who work with Digital Asset and an investment opportunity for those who contribute to increase the shared liquidity of the project. Allowing the protection for an increasing number of operators.

With Hedging Contract we enable hedge swap transactions through the use of Smart Contracts, AMM style.

It's great to Hedge the Risk of Price volatility with MetalSwap dApp !