If you hold the underlying (a graded card, an NFT from the collection), you can hedge its downside without selling it: post SOL collateral, draw synth from the treasury reserve at the index, and sell the synth. If the market falls, your short profit offsets the loss on the physical asset. You keep the asset, its provenance, and any holder benefits. Shorts are also the supply side of the whole system: every circulating CDP-drawn token is backed by a short’s collateral. See Shorts for the mechanics.

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Opening a short

The market must be Live and not frozen. Your collateral must cover the drawn debt at the initial collateral ratio (initial_cr_bps, for example 150%):
Then sell the drawn synth on the AMM. The SOL you receive is your hedge proceeds; your position’s debt remains 500,000 tokens.

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A worked example

Index: 100 SOL per unit. You hold a card worth about 100 SOL and want to hedge all of it.
  • Mint 1,000,000 tokens (one unit, 1e12 base units). Debt value = 100 SOL.
  • At 150% initial CR you must post at least 150 SOL. Say you post 150 SOL.
  • You sell the synth for roughly 100 SOL (minus fees and slippage).
  • Maintenance CR is 120%, so you are liquidatable when 150 / index < 1.2, that is when the index rises above 125 SOL.
If the floor drops to 70 SOL: your card lost about 30 SOL of value, but you can buy back 1,000,000 tokens for about 70 SOL, repay, and keep the roughly 30 SOL difference. The hedge worked. If the floor rips to 130 SOL: your card gained 30 SOL, but your short is underwater and past maintenance. Either you topped up collateral on the way up, or a liquidator closed you out and your collateral paid for it. Hedges cap your upside; that is what a hedge is.

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Managing the position

Watch your CR as the index moves. The index used everywhere is the smoothed index_twap, not raw pushes, so you have some time to react to spikes, but not unlimited time.

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Funding while short

Your debt is stored funding-scaled, so funding applies continuously without touching your account:
  • Token above index (positive premium): funding pays shorts. Your debt shrinks slowly. You are being paid to hold the tether side.
  • Token below index (negative premium): funding charges shorts. Your debt grows slowly, nudging you to buy cheap tokens back and repay, which is exactly the arbitrage that lifts the price.
Rates are clamped per day (max_funding_bps_per_day), so funding is a drift, never a shock.

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Closing out

1

Buy back the synth

Acquire tokens equal to your current debt. Current debt = debt_scaled * funding_index / 1e12, read from your position and the market.
2

Repay

repayBurn(currentDebt) returns the tokens to the reserve and zeroes the debt.
3

Withdraw and close

withdrawCollateral(all) returns your SOL, then closePosition() reclaims the account rent.
Liquidation is real: if the index rises enough that your CR falls below maintenance, anyone can liquidate you, and the liquidator’s bonus comes out of your collateral. Size the hedge and your buffer so a normal rally does not liquidate you. See Liquidations.