Hedgehog Documentation

a decentralized hedging protocol based on a bonding curve

Hedgehog is in beta and unaudited. The bonding curve creates a market and therefore there is a market risk where you can withdraw less assets than deposited. Please evaluate these risks and use at your own responsibility.

Hedgehog is fully decentralized and free! Check the white paper here.

Hedgehog is an algorithmic hedging protocol. The goal of hedgehog is to allow fully decentralized on chain hedging against depreciation of on chain assets. It aims to realize this by using Singe sided Automated Market makers. That is why we call our hedgehog SAM.

SAM is based on Automated Market Makers (AMM) with the difference that the market only has one asset. The other side of the market is a hedge token (hAsset) that is minted on deposit and burned on withdraw based on the position on the bonding curve. For hedgehog we use an exponential bonding curve. Because of the exponential curve, users that deposit later will receive less hAssets. While the hAssets of users that deposit early increase in value. This means that hAssets are inversely correlated to the assets deposited in hedgehog. This allows for SAM to be a prediction market for depreciation in value of assets.

In a sufficiently liquid SAM the price of hASSET will be stabilized for changes in the demand of the asset. Resulting in a decentralized on chain stable token (unpegged - no oracle). It however is expected that initially a SAM will be in price discovery, where new users will deposit/withdraw assets in their expectation of new users of a SAM not their expectation of depreciation of the asset.

The wording stabilized is used because it is not directly fixed to FIAT, but is correlated to the demand changes of the asset in SAM.

Example

Below an example of a user that hedges for an expected ETH price decrease using hedgehog (hWETH).

• Users A deposits WETH and mints hWETH because of the expectation that ETH will depreciate in value.

• User B deposits WETH and mints hWETH also because of the expectation that ETH will further depreciate in value

• User A burns hWETH and withdraws WETH because they expect that ETH no longer will depreciate

  • The hWETH price increased because of the deposit of user B. Resulting in user A withdrawing more WETH

User A successfully timed the market and hedged against an ETH value decrease, receiving more WETH in step 3. Like most markets this is a zero sum game, where user B now has an unrealized loss. If user B was right and more people deposit after him because of an expected decrease he can also withdraw more WETH. If user B is wrong and user A is wright then user B realizes a loss when he burns his hWETH and withdraws WETH.