DeFi Currency Hedging
made simple

Manage exchange rate risk using on-chain derivatives.

Benefits

• Trade long/short positions on Exchange Rates (e.g. EUR/USD) as ERC-20 tokens
• Capital efficiency through leveraged payout structure
• No Liquidation risk for Liquidity Providers
• Retrieve collateral pre-expiry by burning long/short token-pairs

The Process

1. Sponsors deposit collateral to mint equal amount of Long / Short Tokens
2. Users trade tokens to bet on either side of the currency pair
3. Contract Expires
4. Exchange Rate is provided by oracle system
5. Collateral is distributed to Long / Short Token-Holders according to payout function

Example:

1. Sponsor provides 100 LUSD collateral to mint Short / Long Tokens for USD/EUR-contract with bounds 1.10 - 1.30 USD.
2. User A buys the Long Tokens from the Sponsor for 51 LUSD
3. User B buys the Short Tokens from the Sponsor for 51 LUSD
4. Contract Expires
5. Value of 1.25 is returned by price oracle
6. Payout User A: 100 LUSD * (1.25-1.10)/(1.30-1.1) = 75 LUSD
7. Payout User B: 100 LUSD * (1.30-1.25)/(1.30-1.1) = 25 LUSD

Wait but why?

1. Sponsors can earn returns through trading fees
2. Users get leveraged exposure to the currency of their choice to:
• Hedge an existing currency risk exposure (e.g. USD income but EUR expenditures)
• Maximise profitability of their currency speculation

The technology

1. Derivative contracts based on UMA Primitives:
• General Contract-Lifecycle defined by the Long-Short-Pair Contract: Blogpost, Documentation, Video-Explainer
• Payout structure based on Linear Payout Library: github
• Price feeds provided through Optimistic-Oracle: Documentation,
2. Liquity(LUSD) used as collateral stable-coin for contracts