# Delta Hedging

Every time a trader buys or sells an Impermanent Gain Options, the liquidity in the Earn Vaults is rebalanced to ensure that the delta exposure of the Vault is the same as that of a DEX LP.

This ensures Smilee has always the correct delta exposure to the reference tokens to:

* Cover Impermanent Gain payoffs even in scenarios where traders make large profits, while minimizing risks for LPs.
* Ensure Liquidity Providers get the same payoff of a DEX LP or better, before slippage.
* Minimize the risks of a protocol shortfall.
* Allow for the introduction of a secondary market for Impermanent Gain where users can buy Impermanent Gain and sell it back to the AMM (see [synthetic-amm](https://smilee-finance.gitbook.io/arbitrum-docs/protocol-design/synthetic-amm "mention")).

The rebalancing is done swapping on DEXs while checking the swap price against an Oracle Price to avoid incurring in excessive slippage or market manipulation (see [#price-oracle](https://smilee-finance.gitbook.io/arbitrum-docs/oracles-and-risks#price-oracle "mention")).&#x20;

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Smilee uses **Uniswap v3** as DEX. Other DEXs will be added in future.
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You can find an in-depth description of the delta hedging mechanism [here](https://drive.google.com/file/d/1f0gCAV69CaH5GpqQtxK2wjScRNSEt5pr/view).
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