In Horizon Protocol, your Debt Balance fluctuates as a percentage of the Global Debt Pool. To properly hedge the Global Debt Pool, it is recommended to hold zAssets that mirror its composition.
What is Debt Hedging?
Debt hedging involves mitigating the risk of price movements affecting your asset(s). In the context of your Horizon Protocol portfolio, the value of the Global Debt Pool fluctuates due to changes in asset prices, which can impact your debt.
For instance, imagine the Global Debt Pool comprises 30% zBNB and 70% zUSD, and the price of zBNB rises. If your portfolio consists entirely of zUSD, your Debt Balance will increase, requiring extra zUSD to cover the difference.
Conversely, if the Global Debt Pool has 30% zBNB and 70% zUSD, and the price of zBNB falls while your portfolio holds 100% zUSD, your Debt Balance will decrease, resulting in an excess of zUSD, more than needed to repay your debt.
To counteract this risk, the recommended approach is to mirror the composition of zAssets in the Global Debt Portfolio. This helps ensure that the price fluctuations between the Global Debt Pool and your zAssets remain relatively consistent.
How to Hedge your Debt in Horizon Protocol
Horizon Protocol features an Account page that provides users with a clear overview of their portfolio's status. Among the valuable data displayed on this page are options to hedge your debt by mirroring the global portfolio. It offers users suggested hedge examples to help them maintain a healthy ratio when zAssets fluctuate in price.