Special Purpose Tokens + Liquidity providers = Access to limited edition PAR calls on Hedgey and a radical evolution in how projects reward their liquidity providers.
With the upcoming launch of Hedgey.finance, Parachute will be launching a new frontier into the world of options for decentralized finance with an approach unlike any other. The tools, usability, and scale of Hedgey will be closer to traditional finance than any other DeFi product today. Additionally, the access to capital, decentralized p2p nature of the product, and open-source infrastructural SDK’s will allow us to utilize decentralized finance for exponential growth in a way traditional finance is incapable of.
One of the many spokes in our early stage growth will be establishing liquidity on Binance Smart Chain (BSC). To create a robust options market on BSC, we’ll need significant PAR/BNB liquidity on the primary BSC AMM, Pancakeswap. After much discussion with the community, we’ve decided to run a community-based liquidity program that rewards our members and helps us establish this early foothold on BSC. How we’re doing it, however, is far from ordinary.
The problem with Liquidity programs
Liquidity programs generally involve community members staking an amount of liquidity and receiving a token for providing that liquidity. More often than not, this means that a huge amount of the same token being added to liquidity is also being distributed in one large event to liquidity providers(LP), causing an acute sell off.
In the worst outcome, this can lead to yield farmers collecting and dumping tokens on the market, acting against the very interest of the community and LPs taking part in the program. Long story short, these programs are great in the short term and terrible in the long term.
A radical shift in LP rewards via Hedgey
To counter the downside of traditional LP programs and further build utility for Hedgey, we’re announcing the launch of Options Based Liquidity Rewards (OBLR).
OBLRs allow projects to offer token rewards at various fixed prices in the future while protecting against downward pressure during the distribution of these rewards.
They are offered as restricted-access call options, in this case created by Parachute. You cannot buy these call options. Instead, participants in our liquidity reward program will receive special purpose tokens (SPT) that allows them to claim the option while paying no premium for it. In its real world application, it will be a series free PAR call options on Hedgey.finance that only liquidity providers can access.
Overview: Member A provides liquidity to the PAR/BNB pool. In return, they receive a token that allows them to claim specific PAR calls on Hedgey. These calls are obtainable ONLY to liquidity providers by using their SPT tokens, have tiered strike prices above the current price of PAR, and can only be exercised if PAR gets to or beyond the strike price. This means when Member A chooses to claim the PAR by exercising the call(or cash close) the sale of tokens won’t dip PAR below the strike price. It’s an anti-dumping mechanism, built directly into Hedgey.
(note: SPT tokens will be standard ERC20 tokens and transferable by the recipient at their discretion)
Example A: Tom uses his SPTs to get a 1,000,000 PAR (7/1) $.05 call. PAR goes to 10 cents. Tom cash closes his call and receives $50,000.
Example B: John uses his SPTs to get a 100,000 PAR (7/1) $.05 call. PAR goes to 5 cents exactly. John cannot cash close his call because the sale would drop PAR below 5 cents.
Example C: Jerry uses his SPTs to get a 5,000,000 PAR (7/1) $.05 call. PAR drops to 2c on 7/1 and the option expires. Jerry gets nothing.
(The program will offer a various amount of risk/reward opportunities)
Downside of traditional liquidity programs — Liquidity programs generally result in a massive influx of tokens hitting the market at the same time.
Solution — Reward Liquidity providers with staggered, out-of-the-money calls and tremendous upside at no cost.
What the project will look like:
- The program will run for 28 days. During which, users can enter the liquidity pool for PAR/BNB up until the 21st day of the program. (We may run consecutive programs)
- For this program, Parachute will periodically look at the LP tokens held in a user’s wallet from Pancake swap pair for PAR/BNB
- To qualify, participants must stake a minimum of 3.5 BNB + 3.5 BNB worth of PAR at the beginning of their registration.
- Users will have to register here https://forms.gle/3oWuQ3KRTpmFTdEZ6 to begin the first day of their pooling for this program. Providing liquidity alone will not enter a user into the program. Users must meet all requirements to be considered. The start day for a user begins on April 15th or when they submit their information, whichever occurs later.
- If a user moves their LP tokens from the original registered wallet before the program ends, they will receive 0 rewards for this program.
- To disincentivize migration from the PAR/ETH pool on Uniswap, qualified PAR/ETH will not be recognized for this program if it is sourced from liquidity removed from Uniswap. Attempts to ignore this or obfuscate liquidity origins will result in disqualification from this program at the sole discretion of Parachute, regardless of provability by Parachute.
- Parachute reserves the right to modify or cancel the program at any time.
What the participants will receive
- Participants of the program will receive Special Purpose Tokens (SPT’s), sent directly to their registered wallets once the program period has ended.
- Rewards will be calculated using undisclosed tiers based on the amount of BNB/PAR staked multiplied by the duration of staking. (The more you stake and the longer you stake it, the more SPT’s you’ll receive)
- These SPT’s will be redeemable for limited-access PAR calls on the BSC Hedgey contract. These call options will not be purchasable outside of SPT holders.
4. These calls will not be sellable, but will be cash-closable.
5. Rewards will range from $100k USD PAR calls to $4k USD PAR calls with the higher rewards reserved for top tier of liquidity providers.
6. These calls will also serve to naturally hedge impermanent loss for all liquidity providers. (This is a small but HUGE detail)
When it begins and ends:
The registration is open today. Once you’ve provided liquidity, you can register here. The first day of the program will be April 15th at 00.01 UTC. The final day of the program will be May 12th at 00.01 UTC. (At which point the next program may begin)
I have ETH. How do I convert it to BNB (and bridge my PAR to BSC)?
If you’re new to Binance Smart Chain, fear not! It’s almost identical to the Ethereum network. Converting ETH to BNB and your PAR to BSC PAR is outlined in this series of tweets. Get the info you need here.
What this means for Hedgey
With the launch of this program, Hedgey becomes a permissionless protocol for advancing how projects run their liquidity programs. This means ANY project can create their own SPTs and use Hedgey to run OBLR’s on our permissionless protocol.
By using OBLRs, projects and their communities can work with synergy to build liquidity while hedging against acute overinflation of token distribution in doing so. Furthermore, liquidity providers are incentivized to encourage positive health of the liquidity pool beyond their reward, as their ability to receive the reward relies on the continued health of the token.
This is HUGE for Hedgey. In addition to it’s utility for Initial Options Offerings, projects can now use Hedgey for a significant job in building early liquidity. Like other permissionless protocols, we anticipate projects using this freely to build liquidity and incentivize their community.
REGISTER YOUR LIQUIDITY ADDRESS HERE: https://forms.gle/3oWuQ3KRTpmFTdEZ6