Scared of Volatility in the Crypto Market? Find out How Collar Protocol Can Increase Your Risk-Hedging Strategy
Trading cryptocurrencies is mostly risky!
In the sense that you are battling with the high volatilities in the market, as well as the Fear, Uncertainty, and Doubt (FUD) created in the market.
Yet, it is not impossible to keep an eye on the market and get the most out of it. You can do this when you get a hang of things, especially how to leverage Collar Protocol to increase your risk game.
In this article, you will learn more about what the Collar Protocol is all about, how it can help you manage risks in the crypto market, and the additional opportunities it creates for stablecoins.
What is Collar Protocol?
The Collar Protocol is a “decentralized insurance for stablecoins.” It is no longer news that stablecoins are effective crypto assets for hedging against the volatility in the market. For one, you can convert your crypto holdings to stablecoins, including Tether USD (USDT). This way, you will have your crypto assets in an equivalent of the United States Dollars (USD).
Considering the relevance of stablecoins in the schemes of things as it pertains to regulating risks exposure in crypto — it makes sense to have a solid framework in place to make it work better.
This isn’t always obtainable because, under the current setting, it is quite hard for stablecoins to double effectively as “risk hedgers.” This is because of the complicated processes involved in the exchange of other crypto assets into stablecoins. This does not only warrant your changing positions. It could also mean being overly exposed to market volatility.
What Can Collar Protocol Do About It?
The challenges in the conversion of other crypto assets to stablecoins can be hedged when an effective strategy is developed. One of the most effective strategies is to leverage Collar Protocol.
As a decentralized protocol, Collar Protocol helps you to maintain the position you were holding in the market. At the same time, you can leverage the protocol to keep a firm hold on your crypto assets.
The Wide Range of Solutions
Here are some of the benefits or advantages of using Collar Protocol:
- Assets are not Frozen
One of the benefits of using Collar Protocol is that there are limited risks of getting your crypto assets frozen. This is one of the loopholes in traditional crypto ecosystems where the users tend to risk of losing their assets to liquidations.
On the contrary, risk hedging and management get better with the introduction of the zero-asset freezing policy on Collar Protocol. With this in place, the lenders of crypto assets needn’t withdraw their assets in the face of over-utilization in the liquidity pools.
2. Liquidation is not Possible
It is quite impossible to lose access to your crypto assets on Collar Protocol. This is because of two reasons.
The first reason is that Collar Protocol doesn’t require the users or participants in its liquidity pool to trade their assets for another. Instead, these participants are allowed to give out their currency crypto asset(s) as collateral so they can access the other crypto asset(s) they need for the staking activities. Thus, you can still retain ownership of your existing crypto assets or positions, provided you don’t default on the loan(s) you took.
The second reason is that the collateral or the crypto assets you gave out as collateral are safely stored. Thus, you can immediately have access to the assets when you need them.
3. No Oracle
Collar Protocol is one of the decentralized liquidity pools that don’t rely on Oracles. One of the major reasons for this is that the protocol doesn’t rely on or source price feeds.
4. The Rates Don’t Swing
Borrowing crypto assets is nice because it helps you to enter trades and make important crypto investments, even if you don’t have the assets at the moment.
However, you might end up paying more because some lenders and even liquidity pools, tend to take advantage of that to charge more for the loans.
Don’t worry about that because Collar Protocol has tackled it. With this protocol, you are confident that the rates won’t swing. With the fixed interest rates, there is no need to bother about fluctuating interest rates that will have you paying lower today and higher tomorrow.
Final Words: Start Your Crypto Risk Hedging with Collar Protocol
Collar Protocol holds the key to a successful cryptocurrency risk hedging strategy. With the resolution of the differences in stablecoin pegging and the fixed interest rates, Collar Protocol has made cryptocurrency lending and borrowing transparent and accessible for everyone.
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