Hegic (HEGIC): 0% Fee Options Trading
Options are among the most popular derivatives in traditional finance, but getting started with options trading can be a daunting process for beginner investors. Not only do many brokerages have high account minimums, they also require users to provide a lot of personal information, which some people might not be comfortable with.
Hegic is decentralizing the process of options trading by providing a platform that allows anyone, even complete beginners, to get started without jumping through any hoops. The platform offers noncustodial crypto options trading that doesn’t require any verification.
Since Hegic is essentially just a protocol, it isn’t beholden to any government agency or financial institution. The platform uses smart contracts to automate the trading process and guarantee on-chain settlement. In this guide, we take an in-depth look at Hegic.
What Is Hegic?
Hegic offers a simplified options trading experience with no registration or KYC required. Image source: Hegic
Hegic is a decentralized options trading platform that uses smart contracts to offer users trustlessness, transparency and on-chain settlement. With Hegic, users can place put and call options using crypto assets like Ether and wrapped BTC (WBTC) with 0% trading fees.
Trading options through a traditional brokerage firm can be difficult for beginner investors for a variety of reasons. For starters, options trading typically requires larger amounts of capital than stock trading. Brokerage firms also require personal information about potential investors before allowing them to trade options.
Decentralized finance (DeFi) is transforming financial markets by providing a permissionless alternative to traditional finance that’s open to everyone, regardless of capital, location or trading experience. Hegic uses DeFi logic to provide users with freedom, privacy and functionality beyond what’s offered by traditional brokerages. Hegic users enjoy:
Noncustodial, trustless trading that’s completely decentralized and censorship-resistant
No email registration or know-your-customer (KYC) required
Ability to earn yield as a liquidity provider
0% fees on options trading
Hegic is a protocol, not an organization or company. It was launched in February 2020 by an anonymous developer who goes by the name of Molly Wintermute. There is no CEO or board of directors. The protocol can’t ban or censor anyone, which is why it doesn’t need to compromise its users’ privacy or charge commissions.
Since trading on Hegic doesn’t require KYC or email registration, all you need to get started is to connect an Ethereum wallet to the platform, and you’re good to go.
Hegic: How It Works
Hegic uses smart contracts called “hedge contracts” that are analogous to call or put options in traditional finance. Users can participate as either writers or buyers of hedge contracts. Here’s a breakdown of what that means:
Writers: These are liquidity providers (LPs) who write call or put options and allocate ETH to generate yield. Option writers can earn approximately 29% in annual percentage yield (APY) on their money.
Buyers: These are users who buy the call or put options for assets. Purchasing an option grants the holder the right (but not the obligation) to either buy (call option) or sell (put option) the underlying asset (ETH or WBTC) at a predetermined ETH/USD price (strike price) on or before a specific date. Buyers can exercise an option as long as the contract hasn’t expired.
The cost of holding a hedge contract is 2% premium fees (per week) plus a 1% settlement fee. When the contract expires, the settlement fee and premium fees are automatically collected. The premium fees are distributed to liquidity providers (contract writers), while the settlement fee is distributed to staking HEGIC holders.
Hegic pools together contract writers’ funds to diversify their liquidity allocation, improve capital efficiency, and spread out the downside risk. Similarly, the premiums from hedge contracts are pooled together and distributed to all contract writers. As liquidity providers, contract writers earn rewards proportional to their allocation. The underlying logic is that a Hegic liquidity provider may potentially earn more than a traditional solo options writer.
What Is HEGIC?
HEGIC is the native token of the Hegic platform. It’s an ERC20 token that functions as the protocol’s utility token.
HEGIC has a fixed supply of 3,012,009,888 tokens. It was listed on a bonding curve contract in September 2020 with a start price of $0.0000069. A quarter (25%) of the total supply was sold to the public.
Users can gain special benefits from holding HEGIC, including discounts on premium fees, priority liquidity unlocking, and platform governance voting. The Hegic platform relies on the HEGIC token for fair distribution of rewards among users. The project plans to integrate a community governance mechanism into the platform in the future.
Key Features of HEGIC
1. Staking to Earn Rewards
Users who stake at least 880,000 tokens can become eligible to receive a portion of the platform’s 1% settlement fee every quarter. Major HEGIC investors are therefore aligned with the protocol’s growth.
2. Acquiring gHEGIC: Hegic Platform’s Governance Token
Hegic plans to launch a governance token that will be rewarded to its active community members, enabling them to vote on platform proposals that involve settlement fee sizes, rates, supported assets and other decisions.
gHEGIC is the platform’s Soft Governance Token, which is separate from Hegic’s utility token. It will be rewarded to users who meet at least one of the following criteria:
Purchased four or more hedge contracts
Actively participate in Hegic’s official Discord channel
Participated in the ICO and have not sold their tokens
Allocated at least 1 ETH to HEGIC liquidity pools without making withdrawals
Chart showing the distribution of HEGIC. Image source: Hegic
The fixed supply of 3,012,009,888 HEGIC is distributed as follows:
5% is set aside to provide liquidity to the balancer pool
10% is set aside for the Hegic Development Fund
20% is set aside as rewards for early contributors
25% was sold to the public through the bonding curve contract
40% is set aside as inflationary rewards for options holders and liquidity providers
Eligibility for Settlement Fees
HEGIC holders who stake their tokens are eligible to receive a portion of the settlement fees collected from contract holders. The amount disbursed is proportionate to the number of tokens held.
Discount on Premium Fees
HEGIC holders can receive a 30% discount on premium fees if they can prove they have a token balance that’s larger than the contract value.
Priority for Unlocking Liquidity
Withdrawals from liquidity pools are processed in a queue. Liquidity providers can get priority for unlocking funds deposited to Hegic liquidity pools if their token balance is larger than their liquidity value.
Delisted from Binance
Binance announced on April 4, 2022 that it was delisting HEGIC on April 11 after reviewing the asset and coming to the conclusion that it doesn’t meet the platform’s standards. Binance didn’t specify which of its standards Hegic violated, but assured its users that HEGIC withdrawals will continue to be supported until July 12, 2022.
Is Hegic (HEGIC) a Good Investment?
HEGIC is a good investment for those looking to earn yield from their holdings. Staking HEGIC tokens further guarantees disbursement of settlement fees collected from hedge contract holders. HEGIC token holders are also entitled to several other benefits, including:
Access to gHEGIC and the right to vote on platform-specific proposals
Discounts on premium fees for contract holders
Priority for liquidity providers when making withdrawals from liquidity pools
Image source: Santiment on Twitter
It’s important to note that Binance’s delisting of HEGIC had a big impact on Hegic’s value. Its price plummeted to $0.01 after the delisting announcement — a 95% drop from its previous high seven months before the announcement, according to financial market data platform Santiment. At the time of this writing (June 9, 2022), the price of 1 HEGIC is $0.008. It’s uncertain if HEGIC will recover and return to the highs of around $0.05 it achieved in February 2021.
Users can acquire HEGIC from several crypto exchanges, including Bybit, OKX, KuCoin, Uniswap, and more. Create an account on an exchange that supports HEGIC, deposit funds into your account, and then search for HEGIC or a trading pair containing HEGIC.
Hegic has created an options trading platform that opens up the world of financial derivatives to everyone. It uses DeFi logic to provide noncustodial options trading while guaranteeing complete autonomy and privacy. Anyone from anywhere in the world can use Hegic without needing to verify their identity or meet account minimums.
Options are among the most popular financial derivatives, having shown tremendous growth in the crypto market in recent years. Even Wall Street heavy-hitter Goldman Sachs has announced plans to start offering over-the-counter crypto options trading. As the market for DeFi products continues to gain steam, Hegic may experience growth as options and other derivatives continue to migrate to permissionless protocols. Overall, it’s a project worth keeping an eye on.