Hedge is a protocol that aims to offer:
- The best lending rates possible: our initial offering is a 0% interest vault
- Maximum loan-to-value as high as 90.9%
- Low minimum loan amounts close to $200
- Loans with a one-time small setup fee and 0% interest so users can repay the loan on their own schedule
Users are able to deposit collateral (currently, SOL is the first supported form) in a Hedge vault, which allows them in return to take a loan from Hedge. The loan is issued in the platform’s native stablecoin, USH.
With a 0% interest loan, once you've deposited SOL to borrow USH, you are in no way obligated to repay your USH. As long as you maintain a healthy collateral ratio (collateral divided by debt) for your vault, you can access your collateral any time and pay back the loan on your schedule.
The borrowed USH can be used for multiple purposes, including exchanging it for other stablecoins or leveraging your SOL exposure by buying more SOL with USH and adding this to your collateral. You can also deposit the USH in the stability pool to earn HDG token rewards. Another way to participate in Hedge is to liquidate under-collateralized vaults. This keeps the system healthy, and gives you rewards. For more detail, see Stability Pool and Liquidating a Vault.
Imagine that you own a lot of SOL (maybe you're a successful NFT artist!), more than enough to buy the Tesla you really want. However, you believe in the future upside of SOL and don't want to sell yet.
Instead, you create a Hedge vault with 1,000 SOL (worth $150,000 if the SOL price is $150). You take out a loan of 50,000 USH, which is pegged to USD so you can make your purchase. A year later, SOL has doubled to $300! Your collateral is now worth $300,000 and your debt is still $50,000, so your vault is worth $250,000. You've made a profit of $150,000, meaning you can buy yourself a second Tesla or keep the SOL in the vault until you decide to close it.
Since Hedge only charges a one-time fee with 0% interest, your debt isn't increasing over time so you aren’t in a rush to decide next steps. Just make sure that you keep an eye on the SOL price so that your collateral is worth at least 110% as much as your debt. Ideally, the ratio of collateral to debt should be as high as possible; having a low ratio can risk your vault being redeemed or liquidated.
Hedge issues two tokens:
- USH is a USD-pegged stablecoin. Each $1 equivalent of USH is backed by at least $1.10 equivalent of collateral.
- HDG is a revenue share and governance token. It’s used to reward market makers for providing liquidity to the system by capturing a proportional share of the protocol revenues when staked.
The key parts of the protocol are:
- A 0% interest loan offering
- A stability pool, where users can deposit USH and be rewarded in SOL and HDG tokens
- A staking pool, where users can stake HDG and earn a proportional share of the protocol's revenue
- Incentives to participate in token liquidity pools (such as USH/SOL & HDG/SOL)
Hedge only charges fees when:
- Initiating a USH loan. There is a one-time fee of 0.5% of the loan amount.
- Liquidating a vault. If your vault falls below the minimum required collateral ratio, it may be liquidated. In this process, an equivalent amount of debt in USH is first burned from the stability pool. The user who initiates the liquidation is rewarded a fee (5% of the vault value), and a portion of the liquidated vault’s collateral is taken as a protocol fee (20% of the vault value). The rest of the collateral from the liquidated vault is then distributed to users in the stability pool.
The following scenarios may result in loss of funds:
- Bugs: All SOL tokens are managed by the smart contracts written by the Hedge team. A bug or error in the contracts could result in a loss of SOL. Hedge is audited by multiple auditors, see https://docs.hedge.so/protocol-overview/security.
- SOL liquidation: If your vault is below the minimum required collateral ratio, your SOL may be liquidated and offered as a reward to liquidators.
- SOL exposure: If you deposit USH in the stability pool, your USH will gradually be burnt to liquidate risky vaults in return for SOL. However, this causes exposure to the SOL price, which could result in less funds than initially deposited.