Project Insight: Hedget Protocol

Cryptocurrencies will play a significant role in the future world economy, but they can be very volatile and risky investments thanks to a variety of factors. Hedget introduces decentralised options to secure your positions against unexpected price movements, with traditional-sounding terms like Call, Put, and options trading being available. The flexibility that these options offer investors is certainly appealing, making Hedget a unique protocol that focuses on keeping investor money safe.

By
Ahamdi Abarikwu
on
April 23, 2021
Category:
BSC News


What Is Hedget Protocol?

Hedget is a decentralised protocol that protects users from the volatility in the price of crypto assets by hedging its price. To do this hedging function, the protocol makes use of options trading. A user needs to provide proportional collateral to be able to trade options.


Introduction

The crypto market is currently witnessing a boom in the decentralised finance (DeFi) sector. Developers are creating decentralized applications (dApps) almost at a feverish rate. Subsequently, DeFi has gone through a geometric growth in market capitalisation and the number of users. Decentralisation is gradually becoming the new normal as more and more people ditch traditional centralised financial systems for decentralised ones.

Despite the bullish trend of DeFi in recent times, many people struggle to cope with crypto's most significant drawback: price volatility. 

An example: if you built a product on the value of an asset, A. If the price of A plunges downward, the value of your product will follow in the same negative direction.

Ethereum was the first blockchain to support Smart contracts in the form needed by dApps. It was therefore natural that most DeFi apps were developed on the Ethereum blockchain. Also, Ethereum is popularly chosen as the collateral asset by many dApp developers. It thus implies that should Ethereum experience a loss in value, anything dependent on it will also lose value. This scenario played out in early 2020 when Ethereum lost almost one half of its value. The result was that many users who held ETH positions got liquidated. These are the sort of risks DeFi users had to contend with until Hedget Protocol came on board to help in mitigating the risks associated with fluctuations in the price of cryptos.


Options In Hedget Explained

Options is a kind of market trade in which a prediction of the future price of an asset is made. The prediction is not necessarily random but specific to a particular date (expiry date) and price (strike price). 

Source: Twitter

When you take out an option, you specify the nature of your prediction, and you are given the right to buy or sell the underlying asset in the future at a specified price. You can choose to either exercise that right or not. If you speculate the price of the underlying asset to go up, it is a Call option. On the other hand, it is a Put option if you speculate that the price will go down. Whichever option you choose, you pay a small fee to buy that option. This fee is not refunded irrespective of whether the option goes in your favour or not.

  • Call Option

The call option projects that the price of an asset in the future will be worth more than the strike price. If it plays out in that way, the user can buy the asset cheaper at a future time. 

For example, let us say you bought a call option for 5 ETH on March 4th, 2021, that will mature on April 4th, at a strike price of $1,500. Assuming that on April 3, 1 ETH is trading for $2,100. It implies that your option at that point is in profit. Then you can deposit the required collateral that will activate the option ($7,500). Upon maturity, you trade the option and receive 5 ETH that now has a total value of about $10,500.

  • Put Option

Put options are a hedge against a fall in the price of an asset. It guarantees that you will sell the asset at a fixed price in the future even if the actual price at that time is below the fixed price. 

Let us again illustrate with an example. Assuming that I buy a Put option for 3 ETH on March 4th, 2021, at a strike price of $1,500 and a maturity date of April 4th. Around April 3rd, the price of ETH drops to, say, $1,100. At this time, my Put option is in a position of profit. So I deposited my 3 ETH to activate the option. Upon the option's maturity on April 4th, I closed the trade and sold the 3 ETH for a total of $4,500 rather than its current value of $3,300. Here is a guide on how to use the Hedget platform

A user who wants to create an options product must back it with 100% of its worth as collateral. This measure is to ensure the certainty of exercising the option. For instance, if you create a call option for 2 ETH, you will commit 2 ETH as collateral for it to be valid.

Source: Hedget

Hedget mints a token to represent each option product whenever a user creates it. The Hedget platform provides a decentralised exchange component for trading these representative tokens.

Features Of Hedget protocol

1. It is non-custodial

A user's tokens are not stored in the protocol. 

2. No middlemen

No third party is involved, and withdrawal of funds can only be executed by the user.

3. Full Collateralization

In a fully decentralised environment like Hedget implements, there is no way to verify each user's creditworthiness. To insure against human risk, every options seller will provide full collateral. 

4. Flexibility

Hedget makes options convenient for users. Users can sell off their options anytime without having to wait till the maturity date.

Hedget Tokenomics

The native utility token of the Hedget Protocol is called the Hedget Token (HGET). It is the governance token for the protocol and has a total supply of 10,000,000. HGET is an ERC-20 token.

To be able to create and trade options, you will need to stake some HGET. Holding the token also confers one with voting rights. Holders can vote for changes in system design and allocation of reserve tokens etc. Liquidity providers earn HGET when they provide liquidity to the Hedget protocol.

Source: Hedget

HGET Distribution 

The supply of HGET is fixed at a maximum of 10,000,000. The distribution allocation, as percentages of the total supply, is as follows, 

Advisors and Team: 10%

Private Sales: 13%

Liquidity Mining: 50%

Stake Drop: 7%

Reserve Fund:20%


Closing Thoughts

The number of people adopting decentralised financial services is growing with each new day. However, one main issue limiting the experience of crypto users is price volatility. The Hedget Protocol makes for a flexible options trading system that innovates user investment safety. Whether you want to shield your crypto holdings from volatility or engage in leveraged trading, you can hedge your assets with Hedget.

For more information about Hedget Protocol, visit their media links below

Website

Medium

Twitter

Telegram

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Ahamdi Abarikwu

Ahamdi Abarikwu is an Electrical Engineer and a lover of anything crypto. He is also an avid writer, proofreader and editor. He loves to play Scrabble in his spare time.

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