Using on-chain Automation to Hedge Risk

Black swan events are, by definition, unpredictable. They can happen at a moment's notice and leave investors completely unprepared. In these situations, only investors who can react quickly can properly reallocate their assets to avoid potential downsides. Additionally, the ability to react quickly during such events can oftentimes enable investors to take advantage of unique market opportunities.  

But what about ordinary investors? Those who are not able to dedicate all of their time to monitoring the market generally feel helpless to these black swan type events. However, thanks to smart contracts and the latest DeFi innovations, that no longer needs to be the case.  

The solution to this problem is Reactive liquidity. Normally, DeFi investors hold a static portfolio of assets where each position remains the same until it is manually adjusted. This creates a massive amount of overhead for investors as they need to continually monitor their positions. Furthermore, unlike traditional markets, crypto trades 24/7 which makes constant monitoring nearly impossible to do manually. 

By utilizing Reactive Liquidity, investors can have each of their positions automatically react to market movements. Sending their funds when it’s needed to where it is needed.  

This is made possible by Mero, the protocol behind Reactive Liquidity. Mero works similarly to other DeFi protocols where users can deposit funds into a liquidity pool to earn yield. However, what makes Mero different is that after providing liquidity, users can then set customizable market triggers to their liquidity called Actions.  

Once a liquidity provider registers an Action, a network of bots will start monitoring their positions. At the moment user-defined conditions are met, the Mero protocol will automatically shift liquidity on behalf of the user to where it is needed.  

This means that when a period of high volatility, such as a black swan event, arises, investors who use Mero can have their positions automatically react as needed. 

The Mero protocol currently supports Actions for collateral top-ups and debt repayments. Both of which support loans on protocols like Aave and Compound. This enables borrowers to have their positions automatically shift when needed to avoid potential liquidations and maintain the health of their loans. To learn more about Mero and Reactive Liquidity join the Mero community on Discord.

This post is commissioned by Mero and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results.