Acquisition Proposal for Hedge
Summary: This proposal discusses the acquisition of Hedge a decentralized protocol that enables users to create and trade PUT options for any asset (calls are also possible). The goal is to provide a simplified yet powerful tool for hedging portfolios both for offchain assets and onchain, accessible to a wide range of users with varying levels of financial expertise.
Abstract: The proposals for an acquisition by Sushi for Hedge, which allows users to mint PUT options on any asset, using stablecoins for full collateralization in a completely permissionless and completely custom way. The PUT options are tokenized and can be sold or exercised, depending on market conditions at expiry, with the protocol designed to be user-friendly and removing counterparty risk.
Motivation:
The protocol was going to be acquired as tbh am really weary of legal risk around options so thought acquisition would be better, but there were red flags that came up from the party so looking at other options. Seemed net benefit, protocol gets amazing new use case and market with fee rev built in, and I am able to fund my oracle infra am building while users can hedge all their assets both onchain and off using the tools. Sushi also gets MANY more tokens and volume through the protocol as we approach liquidity in a fundamentally different way which is very DEX focused.
Specification:
Hedge is a decentralized finance (DeFi) platform that brings sophisticated tools that are fundamental to the finance space to DeFi, in a fully transparent, open and permissionless way, allowing for the creation of arbitrary hedging tools using fully collateralized options to move away from pure speculation to real tools which allow not just crypto hedging but for access for anyone to hedge any assets they want in a non-custodial, transparent, permissionless and fully collateralized way. We combine the flexbility of being able to create options for arbitrary assets, on demand yet using a straightforward approach to hedging financial assets onchain.
It utilizes fully onchain tools to allow users to create and utilize PUT options, providing a mechanism for both securing assets against potential price declines and enabling profitable opportunities for option creators in bullish markets. You can create a Hedge for any asset you want from Crypto to commodities to fiat while benefitting from fully onchain collateralization for transparency and counterparty risk management! Use any API, choose your expiry and tokenize positions for completely liquid positions.
Key Features at a Glance:
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Effortless PUT Creation : Customize a hedge option on your chosen asset, defining your terms for expiry and collateral.
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Fully Chain Agnostic : Deployable on any chain, on demand, including operational oracle infra for arbitrary APIs in <1h
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Leverage Support : Utilize leverage on your PUT, particularly beneficial for assets with low volatility.
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Flexible Collateral : While it initially accommodates stablecoins (like USDC), the protocol is built to handle various forms of collateral.
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Your Choice of Price Source : Choose ANY API that will source your strike price.
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Delta Payouts : Receive the Delta (difference) between the strike and current price at expiry. PUT sellers can redeem collateral, less the Delta, at expiry.
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Tokenization : PUTs can be sold on any decentralized exchange (DEX) you prefer, allowing for liquidity.
How Hedge Works
- Minting PUT Options:
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Sellers : Those bullish on a particular asset can mint PUT options by selecting a target price (strike price) and providing collateral in a stablecoin (e.g., USDC). They then create a contract that can be held until a specific expiration time (e.g., 1 year).
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Earning Premiums : The minted PUT options can be sold to buyers, earning the sellers premiums under the assumption that the asset’s price will rise.
- Utilizing PUT Options:
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Buyers : Investors seeking to hedge against potential losses can purchase these PUT options.
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Exercising Options : If, at expiry, the asset’s price is below the strike price, buyers can exercise the options, receiving the difference between the strike price and the asset’s current price, thereby mitigating losses.
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No Exercise : If the price is above the strike price, the option is not exercised, and sellers redeem their full collateral, keeping the earned premiums as profit.
3.Trading PUT Options:
- The minted PUT options can be traded on decentralized exchanges like Sushi, providing liquidity and enabling buyers to hedge against various assets and establish free and liquid markets.
Demand-Focused Liquidity
Hedge’s approach deviates from the “one-size-fits-all” liquidity pools that DeFi enthusiasts are accustomed to. This model fosters a dynamic marketplace where the options only exist if there’s demand, ensuring capital efficiency and reducing unnecessary market clutter. Instead of pre-minting options, Hedge introduces a concept akin to bespoke tailoring in fashion:
User-Driven Option Creation:
- Traders aren’t limited to choosing from existing options; they conceptualize the option they desire, specifying the parameters that suit their strategic needs, including the asset, strike price, expiration date.
Sushi Integration:
- Once the option parameters are set, the trader places a one-sided order on Sushi to buy the option amount. This isn’t a typical trade — it’s an expression of demand, setting the stage for a new option market.
On-the-Fly Liquidity:
- Here’s where the magic happens: this demand doesn’t just sit idle. It beckons liquidity providers. Anyone seeing the order can decide to mint the required option and sell it directly into the order, effectively fulfilling the buyer’s request.
Efficiency and Dynamism:
- Liquidity is not spread thin across countless options, some of which might see little to no activity. Instead, it’s concentrated where there’s actual demand, optimizing capital allocation and market responsiveness.
Innovative Liquidity Provision:
- Liquidity providers aren’t just passive market participants; they actively fulfill demand, minting options based on real-time market needs. This role is more proactive and engaging, offering potentially better rewards for aligning with market demand.
User Empowerment:
- Traders are not at the mercy of existing market structures. They have the power to create their market, defining what options exist based on their trading strategies.
Reduced Slippage, Improved Price Execution:
- With liquidity tailored to demand, price slippage is minimized, and both buyers and sellers experience improved price execution, making trading less costly and more predictable.
Hedge’s innovative approach to liquidity provision and option creation represents a significant leap forward in the DeFi space. By aligning liquidity with trader demand, Hedge not only optimizes capital use but also empowers users, enhances market efficiency, and paves the way for the next generation of financial derivatives in decentralized finance. This user-focused, demand-driven model could very well be the blueprint for future DeFi innovations, setting a new standard that other platforms will aspire to emulate.
Uses
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Risk Mitigation for Asset Holders:
- Hedge provides a mechanism for asset holders to protect themselves against unfavorable price movements, ensuring that they can hedge their investments against downturns in the market.
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Profit Opportunities for Option Sellers:
- For those confident in the upward trajectory of an asset, Hedge provides a way to profit from this belief by allowing them to earn premiums from selling PUT options. If their belief holds and the asset price is above the strike at expiry, they also reclaim their collateral, making it a profitable venture.
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Enhanced Market Dynamics:
- By enabling a decentralized mechanism for hedging, Hedge potentially stabilizes the market dynamics by providing a structured way for investors to safeguard against price movements.
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Accessibility and Inclusivity:
- Hedge democratizes financial protection by providing an open platform where anyone can hedge their assets without the need for traditional financial intermediaries, thereby opening up sophisticated financial instruments to a wider array of investors, while maintaining full collateralization.
Hedge endeavors to provide a balanced and robust platform where users, regardless of their market outlook, can find tools to either protect their investments or leverage their market predictions in a secure and decentralized manner.
Resources
Docs
dApp
You can right now just plug in any API as price source, choose any collateral asset, custom every param and itll spin up a tokenized option ready to roll
Sepolia Deployment
Poll
- For - Signal support to acquire Hedge. Move on to price discussions.
- Against - Signal nonsupport to acquire Hedge. Do not move forward.