MetalSwap is the leading dApp in the field of Hedging Contracts in DeFi and thanks to it, you can protect yourself against the volatility of many assets, including ETH, WBTC, PAXG, and OP.
Today, we continue the series of articles "Unveil MetalSwap" addressing a key practical topic for using the dApp, attempting to answer the question "What is a long position on MetalSwap?"
The hedging contract
As we understood in the article "What is a Hedging Contract", MetalSwap offers the possibility for anyone to open hedging or speculative positions on available assets within the dApp, using smart contracts on a decentralized blockchain.
To open a position, the user will need to decide on the target size, the amount of cover to deposit, the desired coverage time and pay the premium required to open the position.
Once the user has selected the asset to operate on, they must decide, based on the asset they hold, whether to open a long or short position.
Long position on MetalSwap
Let's take an example where a user needs to buy 1 ETH in a week but doesn't have all the liquidity available to complete the purchase today. Currently, the ETH price seems favourable to him and he is afraid the price may increase in the coming days. Thanks to MetalSwap, using a percentage of USDC as collateral, it's possible to open a long position and lock in the price for the predetermined time, in this case, one week.
If the price goes up, the user will be reimbursed by MetalSwap; if the price goes down, the user will lose some of the cover but he will be happy because the asset's price has decreased, making it cheaper to purchase. In both cases, volatility will have been nullified.
RISKOFF HEDGING CONTRACTS with MetalSwap dApp
Now, let's dive into more detail and understand how a long position works in practice:
- To open a long position on MetalSwap, you'll be required to use the stablecoin of reference as the target size and cover, specifically USDC on the Optimism network and USDT on the Ethereum network. Using 100% of the cover relative to the target size is primarily for insurance purposes; using a cover lower than the target size opens a leveraged position.
- The position is long when the price range has the white section (on Optimism) or the green section (on Ethereum) pointing towards an increase in the price of the volatile asset.
- When you decide to hedge on a long position, hedging swaps will pay you the profit in the underlying asset you have chosen to hedge on, as in the example provided, ETH.
- The premium for a long position is required in a stablecoin.
- The liquidity reward is always in XMT, regardless of whether it's a long or short position.
Real Use Cases of a long position on MetalSwap
The use cases for this type of financial instrument are infinite and the examples presented here are not meant to be exhaustive but only to showcase the potential of this tool. The team is continually exploring new use cases, which are repeatedly published within the blog.
- A first use case is the one we saw in the previous example, where a user needs to lock in the future price of an asset because they fear it might rise, reducing their purchasing power.
- Of course, tools like MetalSwap are also used for speculating in the markets, and thanks to our hedging contracts, it's possible to do so with leverage up to x10.
- Another use case is more closely related to the world of commodities, where merchants need to secure stable prices for contracts that are negotiated months before their execution. MetalSwap and its hedging contracts make this protection possible.
- Bitcoin miners often enter into future sales contracts using the current price at the time of closing the deal. Miners can open long positions to protect themselves from a potential increase in the price of BTC, which would result in missed profits due to the premature closure of the deal.
- The crypto market is highly volatile due to continuous news. Opening long positions on assets that we are accumulating for fear that news might cause their price to surge is a very interesting use case.
As mentioned, these are just some examples where MetalSwap's hedging contracts, used in their long version, can be beneficial to DeFi users and beyond.
If you've found other interesting use cases, please let us know in the official forum so that we can share them with the entire Swappers community.
-The DeFi Foundation
✎ What is MetalSwap?
MetalSwap is a decentralized platform that brings Hedging Contracts 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 MetalSwap we enable Hedging Contracts on the DeFi field, AMM style.
RISKOFF HEDGING CONTRACTS with MetalSwap dApp !