Decentralised options' protocol du jour

Part 1 - Hegic

Introduction

Everybody is focused on DeFi farming activity at the moment. It makes headlines all the time and new projects appear everyday with a new “innovative” idea. Farmers are quick to respond and do some degen farming, the riskier, the better. Everybody makes a quick profit and everybody is happy.

So far, there has been only a few issues in the new farming world, such as the one with Yam Finance for example, or the incident with Sushiswap when ChefNomi market sold its entire stake of SUSHI, making its price collapses, only to be rescued by SBF, FTX founder some hours later.

While it has already generated some drama, as highly volatile token prices have left a few bagholders along the road, there has not been any major incident involving a liquidity mining pool, where billions of USD are staked to farm the new famous governance token du jour.

How would you hedge such a tsunami/collapse of the DeFi world?

One word.

Options.

That’s why we will take a look at decentralised option protocols in that series of articles.

Today we discuss Hegic.

Hegic

Hegic claims to be the simplest non custodial option market protocol and is built on top of Ethereum. It has been founded by anon dev Molly Wintermute.

They did a IBCO token offering and will release their Mainnet v888 on October 10th.

Hegic provides the infrastructure to buy call and put options on ETH and soon on WBTC in a trustless way thanks to the Ethereum network.

You can also participate in liquidity pools and get paid for the liquidity deposited in Hegic contracts.

Yes Hegic has encountered several bugs in the past resulting in loss of funds but the founder has reimbursed every single cent to anybody impacted.

That’s why the risk is so big in unaudited smart contracts.

The Mainnet scheduled for October 10th is currently audited by Peckshield so you are taking a much lower risk than before if you provide liquidity or buy options via Hegic protocol once mainnet goes live.

Practically speaking, once mainnet is live, you can as a user of the Hegic protocol:

  • Buy put and call options on ETH.

  • Buy put and call options on WBTC.

  • Deposit liquidity for ETH and WBTC pools.

Hegic Roadmap

Decentralised option liquidity pools on ETH and WBTC for mainnet launch is already super nice but the most interesting thing about Hegic is the impressive roadmap.

Among others, the following parts hold the most excitement:

  • HEGIC Staking and Staking Lots Release: If you have enough funds to buy 888,000 HEGIC, you can get a staking seat which will get you settlements fees for all option contracts bought. For all options bought, there is a 1% settlement fees which goes to staking seats.

  • Of course, there can be multiples staking seats, 3000 maximum are available.

  • ETH and WBTC Hedge Contracts: in traditional finance, options are used to hedge exposure, to stocks for example. Traders apply a delta hedging strategy to protect their principal at all time. As DeFi and non custodial options are just started it might be difficult for the average user to fully hedge a position. That’s why this hedge contract project is so exciting to us.

  • Autonomous Hegician (AH): a tool to bring advanced order types such as stop loss and take profit. It will also add the possibility to automatically exercise options which are in the money.

  • Nexus Mutual Basic Insurance: Hegic will purchase an insurance to make sure that users’ money in Hegic is safe and will be reimbursed if something goes wrong in case of a hack, for example. It will add more trust in the protocol.

  • ChainLink IV On-chain Feed: Hegic will use on chain implied volatility data from ChainLink once they will be released in production. That ensures the accuracy of IV data for option contracts.

Hegic statistics

So far Hegic has generated a total options volume of 1,268 ETH.

Conclusion

The anon dev behind Hegic has been busy on the development of Hegic. It is quite amazing to see such a dedication after all the péripéties encountered in the past. We refer to the previous bugs which had almost destroyed the protocol.

It looks like he/she has learned from past mistakes to build a more robust protocol and with the mainnet go live date on October 10th, we do believe a new era is underway. The roadmap looks super exciting to say the least.

We will discuss the tokenomics of Hegic in another article accessible to our subscribers.

Thanks for reading

Secret Salsa

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