Pesto is a DeFi protocol that enables users to create independent short and long positions in a single transaction. Varying degrees of exposure and hedging strategies are possible through Pesto, including leveraged positions.

Many protocols require starting liquidity pools from scratch, which results in fragmented, shallow liquidity. To solve this, Pesto aims to provide competitive DeFi capabilities, built on top of two of the most robust DeFi protocols, Aave and Uniswap. By leveraging existing liquidity, Pesto circumvents the need to initially fund liquidity pools and avoids contributing to liquidity fragmentation.

Pesto also introduces a new position primitive, called a spread short, which involves simultaneously longing and shorting two different assets in the same position. Opening similar positions on existing protocols requires twice the amount of collateral for the same exposure.

Each Pesto position is independent and has its own Aave account. This means that liquidation risk from one position does not affect other positions. Furthermore, the protocol keeps all funds backing users’ positions on Aave as collateral, lowering liquidation risk and earning interest for users.

Lastly, Pesto features a decentralized frontend incentive, where frontend operators receive a portion of the protocol fees. This increases protocol decentralization, lowers legal risks, and creates competition among frontend operators to enhance user experience.