The Wonders of AnyHedge - Stabilize Synthetic Assets on the BCH Blockchain
This is a translation of Bruce Lee’s second, in-depth analytical piece on AnyHedge. It deals with stabilizing other assets against BCH. Link to original article below.
Author | Bruce Lee (Please credit Bruce in reposts)
After my last article that went viral, many know that AnyHedge can be used to stabilize the fiat value of your BCH. However, what most people don’t know is it can also be used to stabilize other synthetic assets.
[Recap: How does AnyHedge stabilize the fiat value of your BCH? ]
AnyHedge is an open-source protocol built on BCH. It has many functions, but the primary function is locking the fiat value of your coins (It’s like insurance for your BCH).
When you use AnyHedge to create an on-chain smart contract and deposit $100 worth of BCH into it, no matter how the price fluctuates, you will always end up with $100 worth of BCH.
- For example, suppose BCH is 200 dollars, you deposit 0.5 BCH valued at $100
- If the price of BCH falls $120, you can withdraw 0.8333 BCH valued at $100
- If the price of BCH rises to 350 dollars, you can withdraw 0.2857 BCH, valued at $100
In the examples above, you are the hedger, and your counterparty is the speculator. When the price of BCH drops, you receive more than 0.5 BCH; when the price of BCH rises, and you receive less than 0.5 BCH.
Let’s look at it from another angle. When you hedge $100 worth of BCH, the stabilization of BCH uses on-chain smart contracts and not the traditional token method.
[Advanced: Stabilize any asset on the BCH chain through AnyHedge]
In our previous example, we saw that AnyHedge can lock in the hedger's fiat value of BCH. BCH could be locked in any kind of fiat, e.g. US dollars, euros, yen, and so on.
However, "fiat" can be replaced by other assets, and we can use it to stabilize other synthetic assets.
Take the most popular Tesla stock (TSLA) in US stocks as an example:
- The current price of a TSLA stock is 826 dollars, and the current price of 1 BCH is 473 dollars. We use AnyHedge to stabilize 100 shares of TSLA stock
- Use AnyHedge to create a contract, we act as the hedger and deposit BCH into the contract
- 826*100/473=174.63 BCH, hedger locks in 100 shares of TSLA stock.
- When the contract is established, BCH/TSLA=0.5726
- If BCH/TSLA rises 100% to 1.1452, you can get back 87.315 BCH, with a market value of 87.315*1.1452=100 Tesla shares
- If BCH/TSLA drops 50% to 0.2863, you can get back 349.26 BCH, with a market value of 349.26*0.2863=100 Tesla shares
No matter how the price of TSLA and BCH fluctuates, this contract will always have a market value of 100 shares of TSLA. When we created this contract, it was equivalent to stabilizing 100 shares of TSLA.
Similarly, this is possible with stocks, gold, oil, commodities, e.t.c. As long as there is a standardized asset that can be traded on an exchange (the exchange can be a cryptocurrency or a traditional stock exchange). In theory, AnyHedge can stabilize anything.
[Who is the counterparty?]
In the beginning of this article, I gave an example of how to stabilize a fiat. We know that the two parties of an AnyHedge transaction are divided into hedger and speculator. When we stabilize assets, we are the hedger, and our counterparty is the speculator. But, who will be the speculator? What motivates others to speculate?
The answer is simple, the market maker.
If you have traded on Detoken (the first platform to implement the AnyHedge protocol), you will find that this platform does not have a traditional orderbook like a typical exchange. You just enter the quantity, and an order is opened according to the latest market quote. This is similar to various coinswap platforms), Detoken itself acts as the market maker. By becoming a market maker, Detoken can earn premium because they provide liquidity.
For example, I want to buy TSLA stocks, but I have no channels to do so. Therefore, I am willing to pay a 1% premium to invest in Tesla through an AnyHedge contract. Market makers provide liquidity in order to earn this 1% premium, so everyone gets what they want.
In the TSLA example, how exactly does the market maker make the market?
When an AnyHedge contract is established, the market maker will act as a speculator and deposit a certain amount of BCH into the contract. Their position in the contract, is to long BCH/TSLA. In order to balance the hedger, the market maker will sell BCH (denominated in dollars) on the exchange and buy TSLA on the US stock market. In this way, the market marker is holding both long and short orders of the BCH/TSLA trading pair. No matter how the price fluctuates, he will not incur losses.
When the AnyHedge contract is settled, the market maker will withdraw BCH from the contract. At the same time, the market maker buys BCH on the exchange and sells TSLA on the US stock market. Thus, the market maker closes out the long and short orders of the BCH/TSLA trading pair they previously held.
[What pain points has AnyHedge solved? ]
The trust problem
Cross-chain trading of assets is very popular in the crypto community. For example, BTC is wrapped on the ETH blockchain to participate in DeFi using BTC. We know that if the asset is a cryptocurrency, cross-chain wrapping is easier to achieve.
But what if the asset is a stock, gold, or oil? You can only use a centralized solution. For example, if an organization issues a token worth 10,000 barrels of oil, everyone has to trust the organization, before using this token to trade with each other. USDT is issued and used in this manner.
This method has serious drawbacks, if the centralized party every gets into a serious enough problem, they just abscond with the funds. Then the token bound to this asset will be worthless.
The AnyHedge method of stabilizing assets is done trustlessly, on-chain and decentralized. When each contract is redeemed, you get the BCH equivalent of the asset, or rigid redemption. After the contract is established, even if your counterparty disappears and the contract expires, you can still withdraw funds from the contract.
AnyHedge not only solves the problem of bridging cross-chain assets, it also allows non-blockchain assets to be stabilized at will.
Cutting Through the Red Tape
Many Chinese want to buy and sell US stocks, but the series of procedures for opening an account and depositing funds are extremely troublesome. With AnyHedge, you will eventually be able to participate in the trading of US stocks as long as you hold some BCH, which is very convenient.
[How to trade synthetic assets? ]
Buying: When you stabilize 1 share of TSLA with AnyHedge, it is equivalent to buying and holding 1 share of TSLA on spot; or buying 1 synthetic TSLA share from someone else.
Selling: When you close the contract of the synthetic asset you are holding; it is equivalent to selling 1 share of TSLA on spot; or transferring 1 synthetic share of TSLA to someone else.
An interesting place to be:
When party A uses AnyHedge to stabilize 1 share of TSLA, and party B uses AnyHedge to stabilize $826, the two parties exchange contract ownership, which is equivalent to A selling one share of TSLA to B at a price of $826. Of course, B can also use other assets such as USDT, BCH, e.t.c to exchange synthetic assets with A.
[The Market Is Huge!]
If we add the collective value of all stocks and securities, index funds, gold, oil, commodities, various futures, e.t.c, how big is this market?
When you can use BCH to easily invest in all these assets, you will know that the sky is the limit.
Using AnyHedge to stabilize every single asset, am I just living in the clouds? No, since Detoken can stabilize fiat now, adding other assets only takes slight modifications.
General Protocols Blog
This article forms part of the General Protocols Blog, a collection of cross-platform links showcasing our team's community activity, Bitcoin Cash projects, UTXO development, and general crypto musings.
This is very nice article