Staking with a hedge: yield without price risk
Staking and exchange earn products pay interest for leaving a coin with them. The catch is that 10% a year is worth nothing if the coin loses 40% in the meantime. A hedge fixes that: a futures short of the same size removes the price risk and leaves only the yield. Here is how it works and how to work out what you actually keep.
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The problem with plain staking
A staking rate is paid in coins. Put 100 coins in at 12% a year and you will have 112 coins a year later. But if the coin's price falls 30% over that year, you lose about 22% in dollars despite the interest. High rates often come precisely with coins whose price swings hard.
How the hedge works
Buy the coin and stake it or put it into earn
This is the long leg: it pays interest and moves with the market.
Short the perpetual for the same amount
The short gains when the coin falls and loses when it rises. Together with spot, price cancels out.
Collect the interest
Interest arrives in coins. To keep the hedge complete, the short is topped up by the accrued amount from time to time.
Count the short's funding
With a positive rate the short also receives funding. With a negative one it pays, and that comes off the yield.
Working out the net yield
Net yield = staking rate + the short's funding (with its sign) − entry and exit fees. Funding is annualised just like the staking rate so the figures can be added. How to annualise funding is covered in the funding rate explainer.
| Staking rate | Short funding, annualised | Net yield (before fees) |
|---|---|---|
| 8% | +11% (rate +0.01% / 8h) | ≈ 19% |
| 8% | 0% | ≈ 8% |
| 8% | −11% (rate −0.01% / 8h) | ≈ −3% |
| 20% | −5% | ≈ 15% |
Negative funding can wipe out the staking income entirely, so watch it as closely as the rate itself.
Example on $1,000
A coin trades at $2. Buy 500 coins and put them in flexible earn at 10% a year. Short 500 contracts at 2x leverage, $500 margin. Funding averages +0.005% per 8 hours (about 5.5% a year). Hold for 3 months while the price falls to $1.60.
| Staking interest: 10% × 3/12 | +$25.00 |
| Short funding: 5.5% × 3/12 | +$13.75 |
| Spot: 500 coins $2 → $1.60 | −$200.00 |
| Short: 500 contracts $2 → $1.60 | +$200.00 |
| Fees: entry and exit | −$3.00 |
| Result | ≈ +$35.75 |
Without the hedge the same staking would have made about −$175: the interest could not cover the price drop. With the hedge a 20% fall barely touched the result.
Where the yield comes from
- Exchange staking - simplest: the coin stays on the same exchange where you open the short.
- Flexible earn - withdrawable at any time, convenient for a hedge.
- Locked earn - higher rates, but the coin cannot be taken out before the term ends. If you have to close the short urgently, the spot stays locked.
- DeFi pools - rates can be higher, but smart-contract and network risks are added.
Risks
- Negative funding eats the income: in a falling market rates often turn negative.
- Short liquidation. In a sharp rally the short loses money on the futures account while the coin that offsets it sits in staking. Spare margin is a must.
- Locked coins. Locked staking and withdrawal delays stop you exiting quickly.
- Changing staking rates. Exchanges change rates, and a high rate often applies only to a small amount.
- Platform risk: frozen withdrawals, an exchange collapse or a hacked DeFi protocol.
The staking scanner combines staking and earn rates across exchanges with the short's funding on the same coin and shows the net yield of the hedged position. A public version is on the staking page.
Glossary
- Staking - locking coins on a network or an exchange for a reward.
- Earn product - an interest-bearing deposit at an exchange: flexible (withdraw any time) or locked (for a term).
- APR / APY - the annual rate without and with compounding.
- Hedge - an opposite position that removes price risk.
- Funding - the payment between longs and shorts of a perpetual future.
Hedged staking FAQ
Why hedge staking?
So the interest is not wiped out by the coin's price falling. Without a hedge staking income depends on the price; with one, only the interest and funding remain.
How much can hedged staking earn?
Net yield = staking rate + short funding − fees. In calm periods it is usually a few percent a year; with high positive funding, more.
What if funding turns negative?
The short starts paying and the net yield drops or turns negative. Then the position should be reviewed or closed.
Can locked staking be hedged?
It can, but it is risky: the coin cannot be taken out before the term ends, so if the short has to close, the spot stays locked. Flexible products are used more often.
Should I grow the short as interest accrues?
Yes, if you want the hedge complete. Accrued coins also move in price, and without a bigger short part of the position is unprotected.
Is this a delta-neutral strategy?
Yes, one of its forms. The principle is explained in the delta-neutral strategy article.
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