With no reliance on the protocol’s native asset rewards distribution model, HLTPs offer a new incentive model for liquidity providers.
ETH Liquidity Pool
What is Hegic ETH Liquidity Pool?
ETH Liquidity Pool is a non-custodial smart contract. You can provide ETH to the pool and start earning premiums in ETH. No other user or organization will have access to your funds.
ETH allocated on the ETH Pool contract are used for selling ETH call options on Hegic. ETH call options buyers pay premiums for a right to swap their DAI for ETH from the pool at a fixed price during a certain period. Liquidity providers have an obligation to swap buyers’ DAI for ETH when they are exercising ETH call options contracts.
How the Hegic ETH Pool Works?
ETH call options buyers pay premiums for a right to swap their DAI for ETH at a fixed price during a certain period. Premiums in ETH are distributed between ETH Pool liquidity providers right after the buyers pay them.
The amount of ETH on the ETH Pool contract will be locked for the period that the buyer has paid for. If a buyer does not exercise the contract during this period ETH will be unlocked for new contracts.
If a buyer exercises the contract, they swap DAI for ETH that was locked for them. DAI will be automatically swapped for ETH using a Uniswap pool and ETH will be returned to the ETH Pool.
How to Join the Hegic ETH Pool?
Send ETH to the pool contract. You will receive writeETH (ERC20) tokens that give you a share in the pool’s profits and losses.
How to Withdraw ETH?
Send writeETH tokens to the pool contract. They will be automatically burnt and you will receive ETH to your Ethereum address. 20% of the ETH liquidity pool is always available for withdrawals by providers and cannot be locked on new options contracts.
What are the Risks?
You can lose up to 100% of the funds that you provide to the ETH Liquidity Pool contract. Selling ETH Call Options exposes liquidity providers’ capital to unlimited losses. There is a technical risk that the ETH Liquidity Pool contract can be hacked in the future. Never provide more ETH to the ETH Pool contract than you can afford to lose.
How is the Premium Distributed?
Premiums paid in ETH by the ETH call options buyers are accumulated on the ETH Pool contract. Each time a new buyer pays a premium, the price of writeETH token increases. Because of that each writeETH token will give you a right to withdraw more ETH from the ETH pool contract.
How are the Losses Distributed?
Each time a holder exercises an ETH call option contract with losses to ETH Pool liquidity providers, the price of writeETH tokens decreases. Because of that, each writeETH token can give a right to withdraw less ETH from the ETH Pool contract.
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