In our GMX blog article, we dipped our toes into the sea of derivatives trading in DeFi. This time we will continue on the same path by looking into options trading on Hegic, a DeFi options protocol on Arbitrum.
As it was the case with GMX, same goes for Hegic - while Nash doesn't directly provide ability to trade options, its flexibility allows it to integrate with various platforms like Hegic. Consider Nash Fiat Ramp as your gateway to DeFi, and Nash Wallet as the hub of your DeFi journey.
Hegic is an on-chain AMM options trading protocol on Arbitrum. You can trade BTC or ETH call and put options with ATM (at-the-money) and OTM (out-of-the-money) strikes, as well as multiple one-click strategies depending on market sentiment (Bullish, Bearish, High or Low Volatility). All options are settled in USDC.
Hegic options are American-style options, which means they can be exercised at any time before the expiry (with the exception of Inverse strategies, which are auto-exercised).
Before engaging with Hegic, it's important to understand the basics of options trading.
An option is a contract giving the buyer the right, but not the obligation, to buy (in the case of a call option contract) or sell (in the case of a put option contract) the underlying asset at a specific price on or before a certain date. There are numerous options strategies available, but we will just cover the two most popular option types - calls and puts.
Call option gives the owner the right (but not the obligation) to buy a specified amount of an underlying asset at a specified price within a certain time. A quick example would be buying a Call option for 1 ETH with the strike price of 2000$, and expiration in 90 days - options is giving the buyer the right to buy 1 ETH for 2000$ anytime he wants in the next 90 days. Doesn’t matter what is the current ETH price, the option owner can purchase the ETH for 2000$. In order to have that option he pays the fixed premium to the option seller, or in this specific case to Hegic protocol (who is the option seller).
Put option gives the owner the right (but not the obligation) to sell a specified amount of an underlying asset at a specified price within a certain time. A quick example would be buying a Put option for 1 ETH with the strike price of 2000$, and expiration in 90 days - options is giving the buyer the right to sell 1 ETH for 2000$ anytime he wants in the next 90 days. The rest of the conditions are the same as in the call option.
In a similar way that GLP token in GMX platform were the liquidity for perpetual traders, HEGIC token is used to provide cover for sold options by the protocol, by staking HEGIC tokens in what is called the Stake & Cover pool.
Hegic Stake & Cover participants are the option writers and they are collecting premiums, fully participating in the protocol's net P&L distribution. Stakers receive 100% of net premiums earned on selling ATM & OTM options (both ETH and WBTC calls & puts) and options strategies (all of them) on Hegic. The net premiums earned (or losses accrued) are distributed pro-rata among all of the Hegic S&C Pool stakers.
So in a very similar way to the way GMX functions, Hegic token owners take the position of the “house”. Historical data shows quite good results, as in the last 14 months, there were only 3 negative epochs for stakers, with the current historical APY for the period is above 20%.
First and foremost we need to connect our Nash Wallet to Hegic protocol. Start at the official Hegic website and click on the “Connect Wallet” button in the upper right corner. That will display a pop-up message offering the different options for connecting to Hegic, we will select Wallet Connect.
Next, we will see a QR code, and we then need to open the Nash app on our phone to scan it. Go to Settings → Connect with Wallet Connect -> Add New Connection -> Scan QR Code.
After scanning the QR code, inside our Nash Wallet we will be asked which chain we want to connect to Hegic, and we choose Arbitrum and click on Approve. That's it! We should be connected to Hegic and our wallet address will be visible in the upper right corner, alongside with the amount of USDC.e we have in our wallet, as options on Hegic are purchased and settled in USDC.e.
Quick note about USDC.e :
Arbitrum chain has two USDC tokens (USDC and USDC.e), both are from Circle and are exactly the same in terms of security. The difference is that USDC.e token is USDC token that Circle issued on Ethereum and was bridged to Arbitrum, while just USDC is a version that was natively minted on Arbitrum.
As Hegic was deployed quite early upon the start of Arbitrum, it only supports the bridged USDC.e, as at the time its smart contracts were written there was no native USDC. The same is the case with most of the Arbitrum protocols, and currently there is 4 times more USDC.e on Arbitrum then natively minted USDC!
Once we connected to Hegic, it’s UI is simple and easy to navigate:
Lastly, we've prepared a tutorial detailing how to link your Nash Wallet to Hegic and harness its powerful features:
Don't have the app yet? Get started with Nash by scanning the QR code below with your mobile device and downloading the app today. Or, if you're reading on mobile, just click it.
This article is not financial advice and is for educational purposes only. Any website and other services that are mentioned are examples and also work for other platforms. Do your own due diligence if the platforms are in line with your risk appetite and provide a valid product offering. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions. Nash is not liable for any losses you may incur.