During the last few weeks, we have seen a lot of crypto traders going from riches to rags. Bitcoin frequently dipped by more than 10% several days during the month of May. The flagship currency started the month trading at around $55000. However, it currently trades around the $39000 region.
Altcoins like Ethereum, Polkadot, Cardano, Binance Coin and the likes have also plummeted in price. Many Altcoins are more than 50% away from the all-time highs at the moment.
Millions of long positions have been liquidated due to the high volatility and southward movement of bitcoin. No one really wants to lose to the market, but that’s impossible, at least for now.
Despite the market crash, it is possible for traders to minimize their risks and avoid liquidation. This is where Hedget comes in.
What is Hedget?
Hedget is a protocol built to solve existing problems in decentralized finance. It is a decentralized platform that traders can use to limit their risk exposure in case the value of an asset goes down.
Dual Trading Options on Hedget
Hedget provides basically two options for traders to utilize on the platform. The call option and the put option. The former is utilized when the trader wishes to go long while the latter is utilized when the trader wishes to go short or benefit from the drop in value of an asset.
How Both Options Work
A trader buys the call option with a projection that the price will increase at an expected date in the future. On the other hand, a projected drop in price will make a trader buy the put option.
For example, imagine Cindy and John, two traders who wish to make profits from the fall in the price of bitcoin. Cindy brings her collateral in the form of BTC to the contract while John buys her option.
When BTC is $40000, Cindy deposited 35000 USDT in the contract to create a put option at $35000 per BTC. So in other words Cindy instead of buying BTC right away want to buy it cheaper later. Cindy set her contract to expire in one week. Cindy also puts a price tag of $1000 on the option.
John is another trader. He projects that the value of BTC will decrease in the coming month, so John purchased Cindy’s put option at the tag of $1000.
After one week, BTC’s price decreased to $30000 and John decided to trigger the put option. He may decide to take his profit. John’s profit is the difference between the strike price and the current price of the asset.
That is $35000 – $30000 = $5000. Additionally, we will factor in the cost of the contract to calculate John’s net profit. That will be $35000 – $30000 – $1000 = $4000.
Cindy’s loss on the other hand will be $30000 – $35000 + $1000 = $4000. But nevertheless, Cindy got her BTC cheaper than it was when she created her put option.
After the cash gain or physical asset gain is settled, the position is closed. John and Cindy made gains from the drop in the price of Bitcoin.
This simple example illustrates how traders can make gains from the price dip of bitcoin or any other cryptocurrency.
The Options Trading Model on Hedget
Options trading on Hedget allows traders to buy or sell an asset with a future date in mind. While some platforms already have this feature, Hedget stands out because it is decentralized. Other platforms that permit hedging are centralized. Centralization does not sync with the blockchain and DeFi ecosystem.
Hedget has internal smart contract option accounts. Users must provide complete collateral for an option to be created. This may reduce subsequently as Hedget gains more traction. Stablecoins will be featured as pricing options.
Conclusion
The DeFi ecosystem requires lots of innovations and inventions. This innovation serves as a decentralized hedge for traders and it shields lending protocols from liquidation. These features are highly needed in the DeFi space. As such, we can project that Hedget will play a key role in the DeFi revolution and more crypto users will utilize the platform to reduce their trading risks sooner or later.
Image: Pixabay
