yEarn Meets Hegic
Hegic is a decentralized options platform developed by a pseudonymous developer who goes by the alias, Molly Wintermute. Hegic’s LPs act as sellers of options contracts, while option contract buyers are the customers on the DeFi platform.
The beta version of Hegic dubbed v888 was launched on Oct. 10. The developer is currently working on a new version of the protocol with more features and upgrades.
Cronje recently tweeted about the two developers collaborating to introduce options contracts for Uniswap token pairs on yEarn vaults via Hegic.
During the DeFi bull run, every project that Cronje touched turned to gold.
The same phenomenon played out again, with HEGIC surging 30% after Andre’s tweet went live about the possible integration of the two platforms. The increase in trading volume was also significant.
While Cronje’s plans are not yet final, later in the day, he published an explainer of binary options for paired pools (e.g., ETH/DAI).
The explainer again pointed to developing a risk management strategy for token pairs on decentralized exchanges (DEXes) like Uniswap and Curve.
— Andre Cronje (@AndreCronjeTech) November 9, 2020
LPs on Uniswap must deposit equal amounts of tokens for both tokens of a pair.
While one is usually denominated in a stablecoin, the other token, such as ETH, YFI, and others, entails price volatility risk. An options contract to hedge this risk would thus enhance the earnings for LPs.
As Andre and Molly are working on these binary options, another community-led development called yHegic vault is being built in parallel.
How V2 Vaults Work
A vault on yEarn enables automated earning for the vaults’ LPs. The tokens in the vault are routed to other DeFi protocols to earn returns for the LPs.
The strategy for each vault often involves various token swaps, deposits in DeFi pools, or recursive lending and borrowing on multiple platforms.
The new edition of vaults on yEarn, Vault V2, will allow the implementation of multiple strategies for LP earnings and include other upgrades like security tests.
The yHegic V2 vault on yEarn is currently in the test production phase. The community proposal for the yHegic vault proposal went live on Sept. 20. Presently, out of 232 votes, 83% have voted for yHegic.
The vault will be denominated in HEGIC tokens and earn 1% fees of options sale on Hegic.
Apart from LPs that provide liquidity in the form of Ethereum or Wrapped Bitcoin on Hegic, there are HEGIC lots built by staking a minimum of 888,000 HEGIC. These lots earn 1% fees from the settlement of the options contracts.
The yHegic vault will allow users to stake any amount of Hegic tokens (even less than 888,000 HEGIC) and deposit it into the vaults. When the Hegic token deposits reach a threshold of 888,000, the smart contract would add a new Hegic lot to the vault.
Since the V2 upgrade allows multiple strategies, HEGIC deposits can also earn from other DeFi pools.
9/n One of yETH vault’s strategy is buying eth call options.
One of yWBTC vault’s strategy is providing liquidity to the options pool.
Part of the yDAI vault is using put options to protect against a market crash.
— Carlos Sessa (@Macarse) October 30, 2020
Last week, yHegic vault added its first lot of 888,000 tokens and began earning for its LPs. However, the developers of yEarn have warned that the vault design is currently unaudited and is very risky.
Disclosure: One or more members of the Crypto Briefing Management team are investors in Hegic.