What is Hedget (HGET)? If you are reading this article then I assume that you have heard about DeFi. DeFi also known as decentralized applications has garnered quite the attention during the summer of 2020. DeFi applications have been growing rapidly and the user base and trading volumes have been skyrocketing. As of July 2020, the total value of assets that store value in DeFi surpasses $1.5 billion USD, a growth of 140% since the start of the calendar year.

Now that is quite impressive especially given what happened back in March. With the DeFi systems, it offers users with more flexibility and better leverage their crypto capital. Hedget represents another DeFi platform that hopes to provide more decentralized services to the public. Hedget is a decentralized platform that is used for options trading. The platform allows users to buy and sell option products by providing a collateral in the form of cryptocurrency (both stablecoin and traditional cryptocurrencies). So this allows users to hedge the risk of crypto holdings and their debt positions on other lending protocols like Compound and Aave.

What is Options Trading?

The design of options is simple, it gives the user the rights to buy and sell an asset at a future date at a specified price. Option products consist of a type (put or call), a strike price, and an expiry date. With call options, the holders have the ability to buy an asset at the strike price at a future date, the opposite is true for a put option. Options are quite a special type of derivative product due to the price of the options that determine from both the price and fluctuation of an underlying asset.

How do options work with Hedget?

Hedget will allow users to create and trade options on the platform. Every time an option product is created, the system will generate a token to represent the option. The platform will only allow best-fit combinations of maturity dates and strike prices to ensure the optimal liquidity of options. The platform will also provide decentralized exchange components for trading tokens which will represent options. The pricing options will be with stablecoins such as USDC, DAI, BUSD.

There are a few key elements for creating the option, these include:

The Underlying Asset Being Tracked:

The first version of Hedget will focus on ETH as the underlying asset. The platform will later expand and support ERC-20 tokens and other tokens on the blockchain.

Option Type (Call or Put):

The option type is one of the most crucial elements. This helps to determine if a user is buying a put or a call option. Moreover, new option series will also be added when the current trading price is below or above the lowest strike prices.

Maturity Dates:

Maturity date refers to the time when options could be exercised. In the very first version of Hedget, the maturity dates for the options are set for every Friday at 8:00 UTC+5.

Diving Deeper, Hedget Option Mechanics

Collateral Requirements:

In order for the option to be executed on the platform, users must deposit a collateral when creating different option products. So in the first version of the platform, 100% collateral will be required. Let’s go through an example, let’s say a user writes a call option for 5 ETH, he will then need to write up 5 ETH as a collateral. If he writes up a put option, he will then need to put in USDC as a collateral.

Settlement (Cash and Physical):

In the case of a physical settlement, if the option holder chooses to exercise his options at the maturity date, the counterparty will exchange the underlying asset for a cash asset. Say for example an ETH call option is exercised, the writer will then swap their ETH for the holder’s USDC. Another available form of settlement is the cash settlement. Cash settlement is a much more effective alternative. With cash settlement, the writer will be able to transfer the profit amount to the holder. And since cash settlement can be done internally, it will also have reduced fees.

The Design of the Hedget

The design of the Hedget protocol is simple. It is important to note here that the Hedget platform will continue to evolve over time. The platform will add features that brings it closer to its goal of providing risk mitigating protocols for decentralized finance. The description below’s focus is on solely the first version of the platform.

The 3 Key Structures of Hedget:

ESC: Ethereum smart contract that will handle ETH and ERC-20 tokens deposits and withdrawals and implements physical settlement.

CTD: Chromia-based blockchain (dApp) which will handle traders, track ownership of contracts, and facilitate the necessary communication to perform a settlement through Ethereum contracts.

CSW: Client-side wallet and trading user interface will take commands from users and carry them out using smart contracts and Chromia dApp.

The Features of the Protocol:

In order to remove the need to trust third parties, they require following design constraints:

  • Token storage is non-custodial; only a user can withdraw their funds
  • Funds move in accounts only when a trade happens or exercising an option
  • Protocol is free from counterparty risks since it is impossible to algorithmically assess credit worthiness. They require full collateralization for option sellers
  • Constraints which control user’s funds implement directly on smart contracts to ensure safety
  • Purchasing options can be re-sold at any time

The Hedge Token (HGET)

So what is Hedget (HGET)? The Hedge Token or “$HGET” is a native utility and governance token of the Hedget platform. They will issue the HGET token Ethereum network as an ERC-20 contract with representation on the Chromia sidechain. The token has two major functionalities:

  1. Governance token of the HGET DAO to help setup transaction fees, asset reserves, and general functions and features of the platform.
  2. Will help to prevent spamming of orders which may lead to API overloads and orderbook manipulations (in order to prevent this issue, some amount of HGET tokens will be staked, the greater the activity, the higher the staking requirement)

The Distribution of the Token:

They will mint total of 10M HGET tokens at the launch of the network.

  • Fixed Supply: 10% for team and advisors (unlocked on monthly basis during 2 years)
  • Private Sale: 8.7%
  • Public Sale: 4.23%
  • Liquidity Mining: 50%
  • DEXes Liquidity and Trading: 7%
  • Locked in Reserve Fund: 20% (until 2 years when platform is live, usage will be determined by Hedget DAO)

What are the fees?

  • Taker Fee: 0.04% of underlying assets
  • Maker Fee: -0.02% of underlying assets (rebate fee part of liquidity mining)
  • 0.02% difference between Taker and Maker fees will go to special Reserve and will be locked for 2 years and governed by DAO
  • Settlement fee 0.02% +ETH fees (if settled on Ethereum) paid by option buyer
  • In the first 3-4 years, 0.02% of the settlement fees will be paid by the systems liquidity mining pool, hence rewarding option writers, and reducing the total fees for option buyers

Conclusion

Hedget has a strong potential in the decentralized finance world. The platform’s use is as a decentralized price hedge, a protection against liquidation for lending protocols, and leveraged trading. So the platform will definitely be a part of the DeFi revolution and act as a crucial tool for achieving mass adoption for decentralized finance services.

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