Decentralised Options Could Make DeFi Liquidation A Thing Of The Past

Place/Date: - December 14th, 2020 at 7:44 pm UTC · 4 min read
Source: Hedget Protocol

This year saw DeFi (decentralised finance) explode in popularity, and with the current total value locked in DeFi sitting at over $14 billion, many users are enjoying high USD-denominated yields that dwarf the traditionally low interest-rates they are used to. With DeFi protocols, users can not only earn interest on their deposits but they can now borrow assets with crypto collateral and can trade derivatives too, all in a completely decentralised manner.

But with high yield returns come higher risks, and cryptocurrencies are still highly volatile assets. Sudden price fluctuations mean that liquidation is still a very real and present danger; a drop in the price of ETH along with blockchain congestion was the catalyst for a total of 3994 liquidations worth over $8 million taking place during the MakerDAO incident dubbed “Black Thursday” on March 12th 2020.

Options have been a part of the financial markets for hundreds of years, and are a proven way to hedge financial risk against unforeseen events. Alongside futures, options are the most widely traded of derivative assets in traditional finance, but despite the fact that DeFi options make a lot of sense, a comprehensive solution to create and trade decentralised options still presents a hole that needs to be filled.

A Solution For Decentralised Options

Hedget Protocol looks to fill this hole with it’s decentralized options trading platform, offering anyone the ability to protect their DeFi assets in both lending and trading positions. Hedget enables traders to buy and sell options products by providing collateral with both stablecoins and traditional cryptocurrencies, but as well as trading them on the platform, users can offer options products as a security feature for various decentralised lending and trading protocols.

Currently, most DeFi protocols are built on top of the Ethereum blockchain supporting Ether as collateral and, as previously mentioned, this puts users at risk of liquidation if ETH prices suddenly fluctuate. The Hedget protocol allows users to hedge the risk of their assets, and with flexible modules that can be integrated seamlessly into other protocols and platforms such as Compound3 and Aave, users can now also hedge against their debt positions on other lending protocols.

The Best Of Both Chains

Hedget Protocol utilises Chromia, a leading relational database solution provider, as an Ethereum layer 2 solution, meaning that complex transactions can be completed in a completely decentralised manner. Even better, the protocol only uses Ethereum layer for settlement, meaning that Hedget users benefit from lower fees and increased speed all whilst maintaining access to the Ethereum ecosystem’s mainstream assets and liquidity.

Liquidity Mining and Governance

HGET is the native token for utility and governance within the Hedget network, and the Hedget team have gone to great lengths to ensure that both the protocol and users funds are free from counterparty risk. Token storage on the Hedget platform is non-custodial, and as well as offering users that stake HGET the opportunity to propose updates to the protocol and vote on allocation of reserve tokens via governance processes, Hedget’s recently announced Liquidity Mining program also rewards tokens to liquidity providers on Uniswap via it’s Liquidity Mine interface.

Hedget Co-Founder Serge Lubkin announced funding from Alameda Research in September after a successful IEO , and the trading firm behind the FTX trading platform will act as both a liquidity provider and a partner to bridge Hedget with the FTX and Serum exchanges as a strategic partner. Other notable investors include Orion Protocol and FBG Capital.

As the DeFi landscape continues to grow and with hundreds of millions of dollars already liquidated to date, Hedget protocol provides market participants with a decentralised options infrastructure and access to products that protect against the uncertainty of the cryptocurrency market.