Extrafinance
Extrafinance balances initial ETH exposure with two 3x farming positions
Extrafinance hedges initial ETH exposure with two complementary 3x ETH-USDC farming positions. One borrows USDC and has long ETH exposure; the other borrows ETH and has short exposure. Their principal allocations differ because borrowing changes each leg's net ETH holding. In the documented 50/50 liquidity model, 25% of the starting principal funds the long leg, and 75% funds the short leg. That initial balance leaves borrowing costs and each position's liquidation risk intact.
USDC and ETH borrowing give the legs different jobs
USDC borrowing creates long ETH exposure, while sufficient ETH borrowing creates short exposure within the same farming structure. A vault combines the supplied principal with borrowed assets and provides liquidity to the selected pair. Liquidity-provider (LP) tokens represent that liquidity. In the 50/50 model, half the initial LP value belongs to ETH, and half belongs to USDC. These are equal values, not equal token quantities. A USDC-borrowing leg owes USDC while holding ETH through its LP position.
The ETH-borrowing leg also owns ETH through its liquidity position. Its short exposure comes from owing more ETH than that position holds. Both legs provide liquidity and participate in farming, but their debt assets give them opposing price exposure. Comparing the LP balances alone misses that distinction.
The 3x allocation follows debt-adjusted exposure
A 3x farm combines principal with borrowing worth twice that principal at opening, before costs. Leverage describes gross position value relative to equity, which is the value left after subtracting debt. The borrowed asset determines how much of the LP's ETH exposure survives after accounting for the loan.
The documented 3x hedge allocates three times as much initial principal to its ETH-borrowing leg as to its USDC-borrowing leg. Unequal principal compensates for unequal net exposure per unit of principal. The allocation follows this particular borrowing mix and equal-value liquidity model; it isn't a universal portfolio ratio.
Can the same allocation hedge a different leverage setting?
A different leverage setting can require a different allocation because it changes debt relative to LP ownership. The 25% and 75% split comes from the example's 3x, 50/50 setup. When a farm permits another setting, the required balance needs a fresh debt-adjusted calculation. Keeping the same allocation while changing borrowing can leave a directional position.
Borrowing ETH creates a short leg only when the ETH debt exceeds the ETH that the LP holds. Equal principal amounts also leave a mismatch in the documented pairing.
Checking the documented allocation across both legs
The documented illustration starts with 400 USDC and divides it between USDC borrowing and ETH borrowing. It assigns 100 USDC of principal to the long leg and 300 USDC to the short leg. Both use 3x leverage. Dollar values here assume USDC at dollar parity and an initial equal-value ETH-USDC liquidity position.
The long leg adds 200 borrowed USDC to its 100 USDC principal, giving it $300 of gross LP value. Half represents $150 worth of ETH. Its loan contains no ETH, so that holding contributes $150 of positive initial ETH exposure. The other half of its liquidity holds USDC.
The short leg combines 300 USDC of principal with $600 worth of borrowed ETH, producing $900 of gross LP value. Its ETH holding represents $450, against an ETH liability worth $600 at opening. The $150 difference creates negative initial ETH exposure. That debt remains denominated in ETH; $600 describes its opening valuation.
Together, the positions hold $600 worth of ETH and owe $600 worth of ETH at the same opening price. Their initial net ETH exposure therefore cancels. Combined gross LP value is $1 200, while borrowing accounts for $800. The remaining $400 represents initial equity in this simplified model, before execution costs, accrued interest, and subsequent price changes.
If either borrowing path is unavailable, the illustrated hedge can't be completed. Opening only the supported leg leaves directional ETH exposure.
- Confirm that the selected farm matches the model's 50/50 ETH-USDC liquidity structure.
- Check that both USDC and ETH borrowing fit available liquidity and the vault's borrowing limits.
- Check that the 25% and 75% principal allocation accompanies 3x leverage on both legs.
- Compare ETH ownership and ETH debt at the same price, rather than matching gross LP values.
- After opening, confirm both processed positions in My Positions and check their actual borrowing amounts.
Vault compatibility determines whether both legs can open
The two-leg hedge needs farm support for the required assets and leverage, alongside enough borrowing capacity for both positions.
Each farming vault belongs to a particular liquidity pair. Its configuration limits leverage and borrowing, alongside the liquidity available from the lending pools. The pairing therefore needs compatible farm settings for both legs. A pool that permits the long leg doesn't automatically have capacity for the larger ETH-borrowing leg.
A farming vault's borrowing cap can prevent new positions even when the lending pool still has available assets. This separates the supply of lendable tokens from the amount that a particular farm may borrow. Reading only the lending pool balance can miss the restriction that blocks the second leg.
Maximum leverage reflects the underlying pool's liquidity and asset price stability. The loan mix and leverage must fit the selected farm's current configuration. Those live settings govern availability; matching opposing ETH exposures remains the calculation that establishes initial neutrality.
LP ownership and ETH debt move differently
Initial neutrality describes the opening balance; pool trading and accrued interest can change the quantities that it compares. An LP position's underlying token amounts respond to trading and relative prices. An ETH loan continues to require ETH repayment, with interest adding to the obligation. The dollar value of that debt moves with ETH's price. Consequently, the relationship between ETH held through liquidity and ETH owed can drift after opening. The starting allocation doesn't keep those quantities permanently equal.
Farming rewards also affect the asset side when the protocol converts and reinvests them into LP tokens. More LP ownership adds exposure to the pair's underlying assets. That change can differ from the growth of the loans. Reviewing the current hedge therefore requires current position and debt amounts, including reinvestment and interest.
Borrowing costs consume the hedged farm's income
Both legs owe borrowing interest, even while their initial ETH exposures offset each other. Each loan's asset, amount, rate, and duration contribute to its cost. Farming income comes from the larger liquidity positions, while the borrowing expense follows the debt. Neutral initial price exposure doesn't create a positive spread between farming rewards and borrowing rates.
Execution also separates the simplified arithmetic from an actual position. Converting supplied and borrowed assets into the pool's required proportions can incur trading fees and price impact. Those effects can change the LP value that the farm receives. The simulation helps describe estimated profit and loss under the selected setup; the processed positions establish the actual starting holdings and debt.
Liquidation remains specific to each farming position
Each leg has its own debt-to-value ratio, so a balanced initial ETH exposure doesn't remove its liquidation constraint. The ratio compares that position's debt value with its farming position value. A configured threshold determines when liquidation applies. A USDC liability and an ETH liability respond differently to ETH price changes, making the two legs' liquidation exposure different even within the same pair.
Pool-specific risk settings can impose an earlier liquidation threshold on emerging assets. The 3x illustration supplies no universal liquidation price for the paired hedge.
Safe Liquidation 2.0 can partially liquidate a triggered position and use proceeds, after the liquidation bounty, to repay debt. The portion depends on applicable liquidation rules and liquidity. Further price movements can trigger additional liquidation, and severe movements can exhaust remaining assets. Reducing one leg can change the hedge's balance, so the original allocation doesn't establish its new exposure.
Closing one leg removes part of the hedge
Closing or reducing one position changes the offset that the other position relied on. Removing the long leg leaves the short leg's debt-adjusted ETH exposure; removing the short leg leaves the long exposure. Partial closure can also upset the allocation when the reductions differ. Fully closing a leg repays that leg's debt, and a completed exit from that position doesn't establish closure of the other leg. Closing eligibility and the remaining position's debt still matter during an incomplete paired exit.
The assets received at exit determine the remaining exposure
Debt repayment and the chosen closing option determine which assets remain after a farming exit. The Minimize Trading option swaps the amounts needed for repayment and returns the remaining assets. Choosing conversion into a selected asset changes the returned asset mix after paying the debt. This choice affects the holdings outside the farm, even after the leveraged position ends.
Ending both farming positions therefore doesn't necessarily end all ETH exposure. Receiving ETH leaves an ETH holding outside the original hedge. Receiving USDC changes that exposure and the denomination of the remaining equity. The relevant consequence is the asset balance after repayment and conversion, together with any farming leg that remains open. A closed position and a neutral portfolio describe different states.
Extrafinance FAQs
Do the hedge's long and short legs require separate futures trades?
The documented hedge creates opposing ETH exposures through farm liquidity and vault debt. Its short leg owes more ETH than it holds through its LP position. The long and short labels describe that asset-and-liability relationship; the illustrated pairing doesn't require an additional futures trade.
What prevents my wallet from borrowing directly for the two farm positions?
The farming lending pool restricts borrowing and repayment to whitelisted vault contracts created through VaultFactory. A wallet supplies principal to a farming position, and the approved vault handles its borrowing. The two-leg hedge follows that contract access model; it isn't a pair of unrestricted wallet loans.
Does a pause on new leverage mean that the hedge's farming pool has been delisted?
A temporary pause on opening leveraged positions doesn't itself delist the farming pool. The protocol may disable new leverage when the liquidity that it supplies exceeds a configured share of the underlying pool. Such a restriction can prevent completing the hedge even while the pool remains listed.
How does price protection affect a two-leg farming hedge?
Price protection addresses abnormal price fluctuations and potential manipulation affecting farming positions. The contracts use time-weighted average prices, and the protocol also integrates Chainlink price feeds. These mechanisms concern price inputs. They don't allocate principal between the two legs or match their ETH ownership against their ETH debt.
Who can change the liquidation threshold for either hedge leg?
Authorized multisignature signers approve protocol configuration changes, including liquidation thresholds. Configuration upgrades also follow a governance process with review and approval. A threshold belongs to the farm's risk settings. Pairing two positions doesn't freeze those settings for the hedge's lifetime, so the example's leverage shouldn't imply permanent liquidation parameters.
Is USDC price risk neutralized by the ETH hedge?
A balanced ETH hedge leaves USDC's dollar value as a separate risk, because matching ETH ownership against ETH debt doesn't create an offsetting position for USDC if the stablecoin moves away from the dollar value that the illustration assumes.
When can I close a newly opened hedging position?
The farming close flow specifies at least a five-minute holding period for a newly opened position. That interval applies to each newly opened leg. It concerns closing eligibility; opening the complementary leg doesn't make a fresh position immediately eligible for exit.
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