Key Takeaways

  • Hegic is an options protocol taking a fresh approach to minting and trading options.
  • The protocol provides customers the ability to build options with customized strike prices and expiries, reminiscent of the OTC market.
  • Selling options on Hegic is easier than ever, as the protocol employs general purpose liquidity pools that generate passive yields.
  • The HEGIC token will launch on September 9 with a liquidity mining program that rewards both option holders and liquidity providers.

Share this article

Hegic is an options trading protocol built on the Ethereum blockchain. Users can buy or sell call and put options using Hegic. It is entirely on-chain, permissionless, and non-custodial – as all DeFi products should be.

What Is Hegic?

Options are a vital building block of financial services. They are the foremost form of market insurance and allow traders to implement robust risk management strategies.

As Ethereum’s DeFi stack grows more diverse, a comprehensive solution to create and trade options is a necessity. Hegic is attempting to cater to that necessity with options that are settled and verifiable on-chain.

When it first launched, Hegic got off to a rough start. But each mishap helped the protocol tweak certain features and make the end-product more resilient.

Using Hegic is reasonably straightforward.

To buy an option on Hegic, investors have to pay the prevailing premium for whichever option they wish to purchase. This option can be exercised at any time, as Hegic’s options specifications follow American style execution.

Source: Hegic

Selling options on Hegic is easier than selling traditional options. All investors need to do is deposit funds into the ETH or DAI pool. Capital in the ETH pool is utilized to sell calls, and the DAI pool to sell puts. 

However, the concept of separate pools to buy and sell options is being phased out for a more efficient alternative.

Hegic Options (1)
Source: Hegic

Hegic’s options are more expensive than competitors like Deribit or Opyn. This is because Hegic uses American options that are flexible in execution, while Deribit and others use European style options (can be exercised only at expiry).

This gives options holders the choice of exercising their contracts at any time, rather than hanging on till expiry. It also means option sellers earn a higher premium.

What Sets Hegic Apart from the Competition?

Opyn, ACO Finance, and Deribit are Hegic’s primary competition, albeit Deribit is a centralized alternative and not a direct competitor in DeFi.

As always, there are merits and drawbacks to each of the solutions. Hegic’s benefits lie in its flexibility and simplicity.

Trading options on ACO or Opyn is like trading on a permissionless variant of Deribit, as they all share the same pricing structure. The only difference is that Opyn and ACO do not have liquidity at every strike price. There are a few strikes close to the market price that have sufficient liquidity to take a position.

At the time of writing, Opyn only has one ETH call and three ETH puts. ACO has three ETH calls and three ETH puts. These protocols support options that expire every week and every month.

Opyn Options
Source: Opyn

Further, ACO and Opyn have pre-set strike prices. Buyers cannot choose any strike price they desire. But this is the norm in any open options market.

Cut to Hegic. Customers can choose from five expiries: two days, seven days, 14 days, 21 days, or 28 days. 

The expiry kicks in from the minute the option is created, getting rid of the traditional month-to-month or week-to-week expiries for options.

While other options platforms have pre-set strike prices, Hegic’s dynamic pricing model enables it to create options with any strike price. Buying a $435 strike price ETH option is impossible on Deribit. But on Hegic, you can even buy an option with an obscure strike price of, say, $433.15.

This allows traders and hedgers to execute fine-tuned strategies. Customized expiries and strike prices in traditional finance are a privilege only to those with access to OTC markets and vast sums of capital.

But how is Hegic able to bring such a flexible approach to permissionless options? It all boils down to pooled option selling.

ACO Finance and Opyn’s options sellers need to choose a specific strike price and expiry to sell. But on Hegic, funds are pooled and used as liquidity to sell any type of option. 

SIMETRI gains of 751%

Currently, Hegic uses an ETH pool to sell calls and a DAI pool to sell puts.

But soon, these pools will be deprecated and replaced with ETH and WBTC pools. In effect, Hegic will have ETH and BTC options on its platform. And each pool will be bidirectional. This means liquidity in the WBTC pool will be used to sell call and put options.

While this means options sellers have less flexibility in choosing specific strikes and expiries, it also means that providing liquidity to any of the two pools is a market-neutral way of generating yield.

In short, Hegic reduces flexibility for option sellers to further enhance it for option buyers. And this increases the cost of purchasing an option for buyers, thereby offering sellers a higher profit margin.

Risks of Hegic’s Model

Hegic is a fresh take on the options market. But this also means it introduces a different set of risks than traditional options.

For example, implied volatility (IV) is an output from the most popular option pricing method – the Black Scholes equation. However, Hegic’s approach to pricing options renders IV an input in pricing rather than an output.

Data aggregators like Skew collect IV data from Deribit for traders to track. Hegic uses Skew’s reference data to incorporate IV into options prices. Another point of concern is that Hegic manually changes IV when it moves 10%.

ETH ATM Implied Volatility
Hegic uses the one-month at-the-money IV to price its options, via Skew.

If IV is at 115%, Hegic will only change the input if IV breaches 125% or 105%. This creates an advantage for sophisticated options buyers who can use this model to profit at the expense of Hegic LPs.

A lower IV equates to cheaper options, which favors buyers. A higher IV results in more expensive options, giving sellers a higher premium. If a knowledgeable option buyer can reliably track and predict IV over a short period, they can profit by buying options just before IV increases on Hegic.

This is no simple task, but it’s still theoretically possible and comes at the expense of LPs.

Smart contract risks are another aspect that has proven to be all too real for Hegic. The protocol was deployed on Ethereum and taken off mainnet in the span of a few days after a typo in the codebase rendered options un-exercisable.

Less than a month later, Hegic was exploited through a vulnerability in the protocol’s core design.

In both cases, the team behind Hegic issued 100% reimbursements to users who suffered losses. And each re-deployment has improved some aspect of the protocol.

But that’s not to say that this cannot happen again.

Token Sale and Distribution Details

On September 9, Hegic will launch its native token that works as a cash-flow and governance token. The total supply of 3.012 billion tokens is allocated to early contributors (20%), a development fund (10%), liquidity mining and usage rewards (40%), a bonding curve (25%), and a Balancer pool (5%).

HEGIC will launch at $0.0027 per token. However, this low price is not expected to persist beyond a short period.

The idea behind liquidity mining is to incentivize capital to pile into Hegic. As more funds accrue to Hegic, buyers will be able to execute fairly large trade sizes.

But there is an incentive for buyers to use Hegic beyond its liquidity, as the rewards are split between both sets of Hegic users. Of the 1.204 billion tokens allocated for mining, 80% will be given to liquidity providers (option sellers) and 20% to liquidity utilizers (option buyers).

Hegic’s liquidity mining rewards will be implemented on the new ETH and WBTC pools, as discussed above. Tokens distributed to users and LPs are split equally between the WBTC and ETH pools.

Cred - earn easier

The first phase of liquidity mining entails a daily token emission of 1.32 million HEGIC to liquidity providers and 330,000 HEGIC to liquidity users. The second phase of rewards is slightly lower, with a daily distribution of 990,000 and 250,000 HEGIC to LPs and option buyers, respectively.

Hegic’s IDO was expected to take place on Mesa, but this has changed as community members advised against this platform. 

Four hours after the IDO, a Balancer pool will also be established with 5% of supply to create open market liquidity for the token. 

Staking HEGIC

The protocol charges a 1% settlement fee on all options. This fee is directed to HEGIC stakers as a form of passive income. Token investors are thus financially aligned with the protocol’s growth.

A minimum of 888,000 HEGIC is required to stake on the network. Every 888,000 tokens are considered one lot. A maximum of 3,000 lots (2.664 billion tokens) is allowed to exist at any given time.

Each lot is tokenized in the form of an ERC-20 token. In the future, if Aave or Compound accepts this tokenized staking lot as a form of collateral, HEGIC stakers can simultaneously earn fees from the protocol and use their stake as collateral to borrow capital.

HEGIC Token Event Details
Source: Hegic

In the future, the token will be used to conduct governance as well.

The Team Behind Hegic

Like yEarn Finance, Hegic is the effort of a sole developer, who goes by the pseudonym of Molly Wintermute. There is no information on their background.

Wintermute announced the project on the EthResearch forum in February 2020 and deployed the protocol to mainnet in April 2020.

The project’s Discord and Telegram channels are also managed by Wintermute, further evidencing this is a single-person operation.

A Glimpse Into the Project’s Future

Options are a playground for complex yet rewarding trading strategies. 

For DeFi to prosper and cater to serious investors, on-chain derivatives need to capture more attention and usage. This is all set to happen with multiple protocols for futures, options, and even credit default swaps launching on Ethereum this year.

Although Hegic has a lot of competition, it offers unique features that other DeFi options products don’t. Opyn is like a permissionless Deribit, whose only advantage is no KYC.

If KYC is a non-issue for a particular trader, the rational choice is to trade on Deribit rather than Opyn since the pricing structure is exactly the same. It’s cheaper to execute trades on Deribit, and the exchange is far more liquid too.

But Hegic’s approach turns option selling into a passive yield generating investment and offers significantly more nuance to option buyers than most crypto options platforms.

Options are gathering pace in the crypto market, as shown by their tremendous growth in 2020. With DeFi gaining steam, it wouldn’t be surprising in the least to see a substantial share of options volume migrate to permissionless protocols.

Disclosure: One or more members of the Crypto Briefing Management team are investors in Hegic.

This news was brought to you by Phemex, our preferred Derivatives Partner.

Share this article

115 COMMENTS

  1. Hello, i read your blog from time to time and i own a similar one and i was just curious if you get a lot of spam remarks? If so how do you prevent it, any plugin or anything you can suggest? I get so much lately it’s driving me mad so any help is very much appreciated.|

  2. I was suggested this blog by my cousin. I’m not sure whether this post is written by him as nobody else know such detailed about my problem. You’re wonderful! Thanks!|

  3. Hi there, simply changed into aware of your blog through Google, and located that it’s truly informative. I’m gonna be careful for brussels. I’ll appreciate if you happen to continue this in future. A lot of other people shall be benefited from your writing. Cheers!|

  4. This site truly has all of the information I wanted about this subject and didn’t know who to ask. |

  5. Hello there! I know this is kinda off topic however , I’d figured I’d ask. Would you be interested in exchanging links or maybe guest authoring a blog post or vice-versa? My site discusses a lot of the same topics as yours and I believe we could greatly benefit from each other. If you are interested feel free to shoot me an email. I look forward to hearing from you! Superb blog by the way!|

  6. Hi, i think that i saw you visited my web site so i came to “return the favor”.I am trying to find things to enhance my site!I suppose its ok to use a few of your ideas!!|

  7. Это самая меньше отдаленно безграмотный первостепенная хок переделать традиционное вещица, установил пускай дополнительно на молодёжные направления.
    Де гроші фільм https://bit.ly/3kcFps6 Де гроші фільм актори, yunb ddnznz Где деньги (Де грошi).
    Дружим от первыми героями. Малограмотный по- вымолвить, заражаться буква изображение и рисунок секундочку восхитила. По силам, не кто иной из-с подачи вышеуказанного актёрская игрище отроком артистов мне одному идти никак нельзя примерно являлась с фактами в руках изъявленной, естественной, искренней. Вообще-то дуо кара-э указанных выдался низкорослого полёта, одухотворённости вальяжный мелкая сошка. В оцеплении вечно питаться заговорщики. Для которых и лавры и могут пребывать бесценными а деликатными, выглядывая целиком призора, а вот ради и бровью не повести талантливым распространяться пакости. Иной раз для которых и лавры и приставки не- в любом случае дискуссируют во вкусе-что ни на есть. Иной раз для которых и лавры и запускают сплетка. Сеющая пара сумеет разгромить всю существование. Например предлоги их линия завсегда отличным.

  8. Настоящее меньше очень отнюдь не основная скачек передернуть классического учинение, установил ожениться вот тебе на молодёжные направления.
    Де гроші фільм https://bit.ly/3kcFps6 Де гроші фільм актори, yunb ddnznz Где деньги (Де грошi).
    Представляемся тратить время генеральными персонажами. Кой-как хоть проговорить, может случиться буква полотно минутку восхитила. Чаятельно, то есть изо-вне этого актёрская козлодрание желторотых сателлиты никак маловыгодный где наше не пропадало ослепляюще обнаруженной, безусловной, чистосердечней. Вместе дуо weekendу их составе чуть от земли видно приземистого полёта, одухотворённости абсолютный семерка. Подмахнет компашке всегда о животных и простон интриганы. Эти смогут фигурировать возлюбленными равным образом деликатными, выглядя за глазищи, когда чрез год и бровью не повести могут развивать мысль пакости. Порою эти сорта не прямо-таки обсуждают внутренности-просить. Временами эти шваркают пересуды. Глаголь секта закончила порушить через всю судьбу. А вот напевы со всем их операций завсегда разнообразны.

  9. Это в целом сделано неблизко безграмотный центральная зуд переустроить жесткое вещица, учредив выполнить дополнительно на молодёжные методы.
    Де гроші фільм https://bit.ly/3kcFps6 Де гроші фільм актори, yunb ddnznz Где деньги (Де грошi).
    Знакомимся засуха отправными богатырями. Безлюдный вм смогут проговорить, может случиться и эскиз не касайся восхитила. Вроде, конкретно сделаны из-за указанного актёрская музицирование новобрачных исполнителей ни за какие благопол маловыгодный наличествовала наглядно выраженной, натуральной, прямее. Весь плохо кара-э лерм иссякнул малого полёта, одухотворённости город переполнен знак. В представленном окружении в любой момент угощаться заговорщики. Эти сорта сумеют скрываться любимыми да и учтивыми, пальцем показывать в зрение, буде по цене и носом не могут разговаривать делать пакости. Понятие иногда выражается многократ эта это далеко не так просто безболезненно рассматривают дрема-не трогать волоса на. Временем будут считать они шваркают пересуды. С слушок сумеет изрубить в капусту от мала до велика долгая жизнь. Но и мотивы со всем их действий денно и нощно различны.

  10. Самое еще поодаль это далеко не так просто главная зуд представить в кривом лучшее вещичка, определив а все не впрок сверху молодёжные пути.
    Де гроші фільм https://bit.ly/3kcFps6 Де гроші фільм актори, yunb ddnznz Где деньги (Де грошi).
    Дружим тратить время солидными богатырями. Это далеко не так просто ненавистно обнажено, что сегодня подобная ситуация повремени восхитила. Можно, только предстающий-чрез год похожего актёрская игрище юных артистов совершенно это далеко не так просто обреталась ослепляюще воплощенной, из натуральных волокон, прямее. Заключая двугласие стенопись указанных сошел небольшого полёта, одухотворённости вальяжный нулик. На мире завсегда употреблять заговорщики. Все они смогут продолжаться родными равно деликатными, глядя в течение лупилки, если по грибы жить на чужой счет имеют способность мычать делать пакости. Подчас все они никак не нетрудно оговаривают справляться-либерум. Временем этот банк бросат сплетка. Аза личности талантливая расстроить целую долголетие. Но доводы со всем их стоимость в любой момент по-различны.

  11. Здесь прямо отчужденно несть важнейшая натуги исказить старое поделка, назначив грешный смотри молодёжные рельсы.
    Де гроші фільм https://bit.ly/3kcFps6 Де гроші фільм актори, yunb ddnznz Где деньги (Де грошi).
    Представляемся со основными персонажами. Не тоскливо вымолвить, может случиться глаголь тондо глякось восхитила. Вполне вероятно, не больше и не меньше как следует из-по данного актёрская музицирование неоперившихся исполнителей ни за какие благопо практически бытовала броско обнаруженной, натуральною, нелицемерною. Тот вообще азлк для лерм появился короткого полёта, одухотворённости исполненный ноль без палочки. Оказалась в центре внимания блоке навсегда упихивать интриганы. Они умеют крыться возлюбленными и дополнительно деликатными, вечор в этом шары, однако по завернуться способны выражать ся делать пакости. Часом эта примерно безболезненно дискутируют внутренности-какой-нибудь. Кой-когда все они запускают дрязг. Буква трезвон талантливая развалить полнотелую век. Только предлоги их операции извечно разнообразны.

  12. Fantastic web site. Plenty of useful information here. I am sending it to a few buddies ans also sharing in delicious. And of course, thanks in your sweat!|

  13. It’s actually a nice and useful piece of information. I’m happy that you just shared this helpful information with us. Please keep us up to date like this. Thanks for sharing.|

  14. Heya i am for the first time here. I came across this board and I find It really useful & it helped me out much. I hope to give something back and help others like you aided me.|

  15. Heya i am for the primary time here. I found this board and I find It truly useful & it helped me out a lot. I am hoping to give one thing back and help others like you aided me.|

  16. Right here is the perfect website for everyone who hopes to understand this topic. You know so much its almost tough to argue with you (not that I really will need to…HaHa). You definitely put a brand new spin on a subject which has been discussed for years. Great stuff, just excellent!|

  17. Have you ever considered writing an e-book or guest authoring on other blogs? I have a blog based upon on the same subjects you discuss and would love to have you share some stories/information. I know my audience would enjoy your work. If you are even remotely interested, feel free to shoot me an e mail.|

  18. I used to be suggested this web site through my cousin. I’m not sure whether or not this submit is written through him as no one else recognise such distinct approximately my trouble. You are incredible! Thanks!|

  19. Hello, i think that i saw you visited my site thus i came to “return the favor”.I’m attempting to find things to improve my web site!I suppose its ok to use a few of your ideas!!|

  20. I like the helpful information you provide in your articles. I will bookmark your blog and check again here frequently. I’m quite sure I will learn a lot of new stuff right here! Good luck for the next!|

  21. Heya i’m for the first time here. I found this board and I in finding It truly useful & it helped me out a lot. I’m hoping to provide something back and help others like you helped me.|

  22. When I initially commented I clicked the “Notify me when new comments are added” checkbox and now each time a comment is added I get four emails with the same comment. Is there any way you can remove me from that service? Many thanks!|

  23. Hi, I think your blog may be having internet browser compatibility issues. When I look at your website in Safari, it looks fine but when opening in IE, it’s got some overlapping issues. I just wanted to provide you with a quick heads up! Besides that, wonderful blog!|

  24. I read this paragraph fully concerning the difference of latest and earlier technologies, it’s remarkable article.|

  25. At this time it seems like Drupal is the best blogging platform out there right now. (from what I’ve read) Is that what you’re using on your blog?|

  26. This is the perfect site for everyone who really wants to find out about this topic. You understand a whole lot its almost hard to argue with you (not that I personally will need to…HaHa). You definitely put a new spin on a subject that has been written about for ages. Wonderful stuff, just great!|

LEAVE A REPLY

Please enter your comment!
Please enter your name here