I am passionate about Bitcoin and Ethereum and want to on-board new people to crypto.

Emanuel Coen

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In this article we analyze the differences between various index projects and try to show investors which DeFi index is the best to invest in.

In this article we analyze the differences between various index projects and try to show investors which one is the best to invest in.

A Comparison of DeFi Index Projects (PieDao, IndexCoop & Indexed Finance)

Index funds are starting to become popular in the DeFi space, with several projects like IndexCoop, PieDao and Indexed.Finance each experimenting with different mechanics. 

An index fund (ETF) is a portfolio or basket of assets constructed to match or track the components of a financial market sector, such as the Standard & Poor's 500 Index (S&P 500). When a certain asset goes up or down in price, the index will re-balance and return to the percentage allocation it aims for that particular asset. 

This model of investing allows investors to develop a passive form of portfolio management strategy and takes away a lot of the workload required to manage a successful portfolio.

## Why should I buy a DeFi index?
Especially in times of a bull market where an entire sector is performing well (on average), it is oftentimes more attractive (and easier) to pick up an index token tracking an entire sector than to individually pick winners & losers.

Not to mention that for many newcomers with smaller budgets (<$5k) it is much more gas-efficient to buy an index token and get exposure to 10 projects in one trade, than buying the 10 tokens individually.

However, with all the index projects to choose from, it can be hard for retail investors to pick the right DeFi index for their needs. 

In this article we’ll attempt to break down the differences between these projects, focusing on three characteristics: indexing methodology, portfolio structure and rebalancing. These are the core components of any DeFi index and largely determine its performance (assuming they track the same assets).

### Indexing methodology
Indexing methodology includes the criteria tokens need to meet in order to be considered in an index as well as the method of weighting them within the portfolio, both initially and when setting rebalancing targets. 

### Portfolio structure
Portfolio structure refers to the type of contract used to hold the index’s underlying tokens, whether those assets are used to generate additional revenue by being deployed in other DeFi protocols, and any relevant fees. 

### Rebalancing 
Rebalancing describes how a fund changes its composition to match the weight targets set by the indexing methodology. This needs to happen in order for the index to accurately track the performance of its underlying tokens. If the market cap of one token in the index rises for example and another one declines, the index might need to increase its exposure (weight) to the increasing token. 

If you don’t understand what these terms mean, don’t worry, they will become more clear as we go through examples.

## Index Coop
![Screen Shot 2021-01-25 at 4.06.24 pm.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/Screen_Shot_2021_01_25_at_4_06_24_pm_8d8cc7cec6.png)

- Indices: DPI ($AAVE, $SNX, $UNI, $MKR, $YFI, $COMP, $LRC, $REN, $KNC, $BAL)

- TVL: $55M 

- Governance token: Yes

- Liquidity Mining: Yes - for staking DPI - ETH

- Fee: 0.95% annualized

[Index Coop](https://www.indexcoop.com/) is a project building crypto indices on Ethereum. The governance token INDEX is used to make decisions regarding upgrades, maintenance and deployment of indices. At present, Index Coop has a single index: the DeFi Pulse Index (DPI), which is a token set using [Set Protocol](https://www.tokensets.com/) as the underlying framework.

### Indexing Methodology
DPI is managed by INDEX governance, which uses criteria based on token and project characteristics to determine eligibility for the inclusion of an asset within the index. Tokens are weighted by circulating market cap as collected from Coingecko.

On the third week of each month, DPI has a Determination Phase, where INDEX token holders reweigh the current tokens in the index and submit any additions or removals of tokens in the index and submit them on chain. Other holders can then verify the accuracy of this data and approve the resulting targets for the index’s portfolio composition.

Further details about the indexing methodology can be found on [pulse.inc](https://www.pulse.inc/).

### Portfolio Structure
DPI is a Set Protocol “token set”, and is similar to a traditional index fund in that DPI tokens represent proportional ownership of the underlying assets, which are held in the set in amounts proportional to their weights until each rebalance.
DPI tokens can be issued to users who deposit the underlying tokens in amounts proportional to their weights, or redeemed to claim the underlying tokens.

Evidently, most users don’t issue the DPI by supplying the individual tokens but rather market buy it on decentralized exchanges like Uniswap or on the IndexCoop website.

DPI charges a 0.96% Streaming Fee, which is an annual percentage of the index’s market cap which the manager (Index Coop) may claim.

### Rebalancing
On the first business day of each month, DPI begins a Reconstitution Phase. In this phase, smart contracts are used to execute trades on decentralized exchanges to rebalance the index toward the weight targets set in the Determination Phase, as well as add and remove tokens from the index. This occurs over the course of the day so that trades may be chunked to minimize slippage.

## PieDAO
![Screen Shot 2021-01-25 at 4.28.41 pm.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/Screen_Shot_2021_01_25_at_4_28_41_pm_6e15719678.png)

- Indices: 6 (BCP, DEFI ++, DEFI +L, DEFI+S, BTC ++, USD ++)

- TVL: $13M 

- Governance token: Yes - $DOUGH

- Liquidity Mining: Yes - for supplying liquidity to 3 BCP, DEFI+S or DEFI+L on Balancer in combination with ETH 

- Fee: varies but most indices have a 0.58% streaming fee

PieDAO is a protocol for managing ETFs, which are referred to as “Pies”. The governance token DOUGH is used to vote on decisions regarding deployment of pies, protocol upgrades and selection of underlying assets and weights within Pies.

Pies take a variety of forms, with some being similar to token sets with constant assets and weights, and others acting as a sort of mix between mutual funds and index funds, with pre-set rules that take both DOUGH holders’ sentiments and market data into account when assigning tokens and weights.

Note that PieDao also has a second product called PieVaults, which [we covered previously](https://cryptotesters.com/tutorial/pie-dao). PieVaults also track the performance of a set of underlying tokens **but additionally they lend assets in various DeFi lending protocols such as Compound & Aave** to generate yield. That means the vaults are not 100% collateralized, which makes it a more risky product than a normal index, and why we didn’t include it here.

DOUGH holders may create and vote on governance proposals to deploy new pies or rebalance existing ones, but each pie has its own methodology:

BTC++ is a basket of equally-weighted Bitcoin wrapper tokens, while USD++ a basket of US dollar stablecoins has weights assigned by governance according to the tokens’ perceived trust minimization qualities and stability relative to the dollar.

DEFI+L includes large cap DeFi tokens, weighted by governance using a combination of tokens’ market caps and their Sentiment Scores, which are based on DOUGH holders’ views of the projects’ relative potential for growth and other characteristics such as their P/S ratio.

DEFI++ is a mixture of 70% DEFI+L tokens and 30% DEFI+S tokens.

### Portfolio Structure
Pies are Balancer Smart Pools with swap fees typically set to 1%. This means that the underlying tokens of each index sit in a AMM liquidity pool. Each token in a pie has a weight in the contract which represents the proportion of the total Pie value held in that token. Tokens within Pies can be traded at prices determined by their weights and balances, as well as the swap fee.

By using an AMM as the **holding mechanism for their liquidity**, pies can generate returns beyond the growth of the underlying tokens whenever the fees accrued through swaps are greater than the impermanent loss from arbitrage.

Pies each have their own streaming fees, paid out linearly to DOUGH holders as a proportion of the Pies’ market caps.

### Rebalancing 
When PieDAO modifies the target weights for the underlying assets in a pie, they do not immediately take effect. Instead, a “poke” function on the pool is used to slightly adjust tokens’ weights toward their target weights set by governance. 

This creates small arbitrage opportunities (moments at which the prices in the AMM are not on par with the external market) within the pie which arbitrageurs can execute to move the actual balances toward their targets. Weight adjustments are executed linearly over a number of blocks so that pokes can not happen in quick succession. 

Over time this allows large scale rebalancing of the pool without relying on external markets to execute rebalancing trades.

## Indexed Finance
![Screen Shot 2021-01-25 at 4.57.09 pm.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/Screen_Shot_2021_01_25_at_4_57_09_pm_ed8385cda0.png)
- Indices: 2 (DEFI5 & CC10)

- TVL: $ 17M 

- Governance token: Yes - $NDX

- Liquidity Mining: Yes - for staking DEFI 5 or CC10 or supplying liquidity to their liquidity pool on Uniswap 

- Fee: No fee

Indexed Finance is a protocol focused on **passive portfolio management**. This means that the entire re-balancing and re-weighting of the indices happens automatically through on-chain processes. 

Governance is only needed to vote on decisions such as market sector definitions ( which projects should be considered for a new index), deployment of indices and approval of new management strategies. 

### Indexing Methodology
The current indexing strategy tracks specific market sectors, which are initially defined by governance with a set of criteria for token eligibility. A controller contract stores a list of tokens for each sector (up to 25 tokens) which is managed by governance according to the sector’s inclusion criteria.

Market sectors’ tokens are periodically sorted on-chain by their fully diluted market caps, which are extrapolated from their moving average prices as recorded on a Uniswap oracle. When an index pool is deployed, it is assigned a target size which is used to select the top tokens in that market sector. For example, the CC10 index has 10 tokens and its corresponding market sector list might have 15 tokens.

At deployment, tokens are weighted by the square roots of their market caps. Once a week, these weights are recalculated and assigned as new target weights on the pools autonomously. Each time a pool has been re-weighed four times, it may be re-indexed, meaning the index might remove on asset and swap it out for the next best candidate from the category list.

### Portfolio Structure
Index pools use a **fork of Balancer** with modifications that enable gradual re-weighing and re-selection of the underlying assets. Each token in the pool has a weight which represents the proportion of the total pool value held in that token. Tokens within a pool can be traded at prices determined by their weights and balances, as well as the pool’s swap fee, which is 2.5%.

By using an AMM as the holding mechanism for liquidity, index pools can generate returns beyond the growth of the underlying tokens whenever the fees accrued through swaps are greater than the impermanent loss from arbitrage. Note, the fee is higher than PieDAO’s to protect users from impermanent loss.

### Rebalancing
When the controller updates the weight targets on a pool, they do not immediately take effect. Instead, the actual token weights are moved toward their target weights whenever swaps are executed, with a maximum frequency of once per hour. This creates small arbitrage opportunities over time which arbitrageurs can execute to move the actual balances toward their targets.

When a new token is added through re-indexing, the pool uses price data from Uniswap as well as the pool’s own market cap to price swaps for that token within its AMM until the balance reaches 1% of the pool’s value, after which it is priced normally.

## DPI vs. PieDao & Indexed
As an index holder the technicalities behind the different index implementations might not really matter for you on the first sight but on the long-term they have an impact over the performance of the index token you hold.

For example, consider the way the different indexes re-balance. During a rebalancing a part of the tokens are sold to reach the target weights assigned by the protocol. In the case of the DPI index, this happens once a month, after the index has been assigned new weights by the methodologist (the core team). 

This means that the index holders are exposed to the price movements of that particular day when the DPI index re-balances. It might be the case that on the particular day the DPI buys new tokens they are at peak prices.

PieDao and Indexed.Finance both have a different portfolio structure. Here, the assets sit in an AMM liquidity pool and the re-weighting happens gradually as traders trade with the pool and thereby bring the balances to where the pool wants them to be. Since the buying happens gradually and never all at once, the pools are able to re-balance at cheaper prices.

For example, if the pool wants to decrease its exposure to the AAVE token, it will **gradually** decrease the Aave weight in the pool. This, in return, will attract traders to buy AAVE from the pool since it will cause AAVE to trade at a discount compared to external markets. 

Now you might notice that selling tokens for cheaper than the external markets (creating arbitrage opportunities) is not ideal for index token holders. This is why PieDAO and Indexed.Finance both charge a swap fee. In the case of Indexed.Finance this fee is 2.5% whereas PieDao charges a 1% fee.

The tradeoff here is the following: a higher fee protects index holders better from impermanent loss but a lower fee attracts more trading volume. 

**PieDAO & Indexed:** 
```Value appreciation of the index tokens + Trading fees earned - impermanent loss```


**DPI:**
```Value appreciation of the index tokens - rebalancing costs (trading fees + slippage) - management fee```

## PieDAO vs. Indexed Finance
The main difference between PieDao and Indexed relates to their governance. Indexed uses a model that is very “governance light”. All the logic relating to how Indexed.Finance indices re-weight is encoded on-chain. The price data comes from a Uniswap price oracle which triggers the re-weighting of the liquidity pool that we mentioned earlier. Once an index is deployed, governance doesn’t have to do anything except if it wants to update the portfolio contracts or change the methodology of an index.

With PieDao the weights are set by governance votes so it requires more participation. PieDao also has some indices with static weights like the BTC++ or USD++ which don’t require any governance because they are not intended to rebalance.

## Summary
Of course, there are other things to watch out for. The security of the protocol is important, the TVL, the management fees, how the governance is set up and how much token holders can weigh in on important decisions.

Since DeFi indices are a relatively young category within DeFi, it is still too early to benchmark the performance of these various indices. In one year from now, it will be easier to compare which one is most interesting to hold as an investor. The same goes for security. The longer a protocol has existed out there with a significant amount of user funds without being hacked, the more likely it is that its code is secure. 

Without a doubt, we can say that exciting new things will happen within the DeFi index space. The fact alone that index holders can participate in the governance of their favourite index protocol is a 10x improvement over traditional finance.










A Comparison of DeFi Indexing Projects

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The ability to provide fixed-rate lending makes the DeFi space more accessible for mainstream users and institutional investors. In this areview we explore how Notional works.

Fixed Rate Lending & Borrowing with Notional Finance | Review by Cryptotesters

In 2020 we witnessed the explosive growth of decentralized finance (DeFi). What started as a small, insular movement is slowly reaching the mainstream. The benefits for users are hard to ignore: users are able to seamlessly lend, borrow and exchange tokens within a financial system that is secure, transparent, and globally accessible. According to DuneAnalytics more than 1m unique “users” have interacted with DeFi applications to date. The Total-Value-Locked in DeFi is [approaching $17b](http://defillama.com/) with no signs of slowing down anytime soon.

While the stars seem well-aligned for [DeFi](https://cryptotesters.com/blog/what-is-decentralized-finance), it is also evident that a couple of financial primitives are still missing before this system can be considered fully mature. One of these primitives is fixed rate financing. 

## What is fixed term financing and why is it needed?
Until now, most [DeFi lending platforms](http://cryptotesters.com/defi-lending-rates) like Compound, Cream, Aave etc. offer **variable interest rates for lending and borrowing**. Since they work with liquidity pools, the interest rate for every asset is determined algorithmically. 

If a lot of lenders **deposit** assets into the pool and there is **little borrowing demand** for the asset, the interest rate will be low. If the borrowing demand then increases, the interest rate will automatically surge to incentivise more lenders to supply more of the asset into the pool. As a result, interest rates are changing all the time on a block-by-block basis.


The reasons why fixed interest rates are crucial for DeFi adoption are quite evident. Users who lend their assets want to have certainty. It is simply more desirable to know how much interest you’re going to receive if you deposit your assets for a certain time period. In absence of fixed interest rates, DeFi users have to manually chase the best interest rates themselves, by withdrawing their assets and sending them to a higher-earning lending platform, which is both time and resource expensive. 

On the borrowing side, which is mostly composed of large traders, the need for fixed rates is even more urgent. These users borrow assets to pursue lucrative trading strategies. In essence, they borrow assets to put them to productive use and achieve a return on investment (ROI) that is higher than their cost of borrowing. If the cost of borrowing suddenly surges, the whole trade strategy could backfire.

## How Notional Finance works
From a user perspective, the process is quite intuitive, especially if you’re already familiar with other DeFi lending platforms. Since Notional is still in beta, the only asset you can borrow is DAI and the maximum amount you can borrow is capped at 997 DAI (these caps will be lifted in the next 2 weeks!)

1. Select a maturity for your loan (3 weeks or 3.5 months)

2. Select the amount you want to borrow

3. Choose how much collateral you want to deposit (min. 140%)

4. Confirm

![Notional1.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/Notional1_669b3e901d.png)

Like on any other DeFi lending platform, the borrowed amount is paid out automatically to your [Ethereum wallet](https://cryptotesters.com/best-ethereum-wallets) once you have confirmed the loan.

![Notional2.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/Notional2_86b912cf42.png)

Your loan position is reflected in the Notional dashboard. You can repay your loan at any point or extend it (“Roll”) to a longer maturity date if you wish. 

That’s pretty much it. Although the process is intuitive, the result is quite impressive! We were able to get a fixed loan at a 3% interest rate until April of 2021!

One last thing to note: although the interest rate is fixed, this doesn’t mean you’re liberated from having to ensure that your collateral level stays at a healthy level (min. 140%). To that end, you can deposit or withdraw collateral as you see fit in the Portfolio section.

## How does Notional Finance work under the hood?
The most important building block of the Notional system are fCash tokens. They are transferable tokens that represent a claim on a positive or negative cash flow at a specific point in the future. Essentially an internal accounting unit to keep track of who is owed what at any given time.

1. Positive fCash balances: are assets that can be **redeemed** for currency at maturity.

2. Negative fCash balances: are obligations or debt, where the owner has to **provide** currency at maturity.

These different obligations are tokenized and traded in Notional’s custom AMM implementation. Think [Uniswap](https://cryptotesters.com/tutorial/understanding-uniswap) but using a special liquidity curve that has been designed to **minimize slippage when trading fCash tokens**. This detail is crucial for Notional, as small changes in the exchange rate can cause large changes in the interest rates.

Every user in the system interacts with Notional’s liquidity pools. Furthermore, each maturity date has its own liquidity pool to ensure that lenders and borrowers have somewhere to buy and sell fCash at a good price. Let’s consider the fDAI pool with a maturity date of December 1 2020.

![Notional3.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/Notional3_4ce52ab322.png)

### The Lender
A lender who deposits 100 DAI in notional effectively buys positive 105 fDAI (equity). The 105 fDAI are redeemable for 105 DAI at the maturity date. The exchange rate that the user gets implies a fixed interest rate on the loan between the moment of purchase and Dec1 2020.

### The Borrower
A user who borrows 100 DAI at a fixed interest rate, mints negative 105 fDAI (debt) and sells it for 100 DAI. By selling fDAI for currency, he/she receives the DAI up front in exchange for the obligation to repay a fixed amount on December 1 2020. This all happens under the hood in one transaction for the borrower. 

### The Liquidity Provider
The last missing piece in this system are the liquidity providers. Liquidity providers deposit the currency (in our case DAI) into the liquidity pool and ensure that there is always enough liquidity for lenders and borrowers to exit the system.

Like other AMMs, returns on the Notional AMM are driven to a large extent by trading volume, total liquidity in the pool, and the fees charged on trading. The more trading on a given liquidity pool, the greater the amount of fees accrue to liquidity providers. For more in-depth information on how liquidity providing works check out [Notional’s docs](https://docs.notional.finance/traders/using-notional/providing-liquidity).

## Conclusion
The ability to provide fixed-rate lending makes the DeFi space more accessible for mainstream users. Fixed rate borrowing on the other hand, will be a relief for institutional investors and traders and make crypto investing more similar to traditional finance.

It will be interesting to see if Notional will be able to attract enough liquidity to bootstrap the system and allow users to lend & borrow large amounts.  

Notional is currently getting ready for their full launch and will be running user interviews with the DeFi community over the next week. If you are keen to help Notional, you can sign up for an [interview here](https://docs.google.com/forms/d/e/1FAIpQLSc2FN5V4tKalYkjoX0KG52Uo1Ju2O1BAPkH_EucE1imXXrb7w/viewform?usp=sf_link) and earn $20 for your time if selected. 






Fixed Rate Borrowing & Lending with Notional Finance

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Options are one of the most important financial primitives in the traditional finance world. Now they are finally available in DeFi, on steroids with Hegic protocol.

Options are one of the most important financial primitives in the traditional finance world. Now they are finally available in DeFi with Hegic protocol.

How to trade options in DeFi with Hegic | By Cryptotesters

A new protocol has taken the DeFi space by storm: HEGIC. Coded over a period of a couple of months in a [city library](https://twitter.com/0mllwntrmt3/status/1305100993047265283) by an anonymous developer called Molly Wintermut, HEGIC is currently growing at lightspeed with over $50m being locked in the protocol and a [market cap of $85m](https://www.coingecko.com/en/coins/hegic).

### What makes Hegic special? 
In its current form, Hegic is a non-custodial options trading platform allowing users to buy put & call options on ETH and WBTC. Unlike centralized option trading platforms, Hegic is completely non-custodial, KYC less, composable (meaning it integrates with the rest of DeFi) and lets liquidity providers participate in the economic success of the platform.

![Hegic_LP.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/Hegic_LP_d71b3617dd.png)

Before we go through each of these characteristics and the in’s and out’s of the platform in detail, we’ll do a short introduction on options.

## What are Options?
Options are financial instruments that allow the holder to buy or sell an asset at a specified price. They are derivatives since they derive their price from an underlying asset. The terms of the option are set by the options contract.

1. **CALL options**: allow the holder to buy the asset at a determined price within a specific timeframe.

2. **PUT options**:  allow the holder to sell the asset at a determined price within a specific timeframe.

Each option contract has a specific expiration date by which the holder must exercise the option. The price for which the option holder can buy (or sell in the case of a PUT option) the asset is known as the **strike price**. The fee that the option holder has to pay for having the right to buy (or sell) at the specified price is known as the **premium**.

## Why are Options popular?
Let’s begin by making clear that the global option markets are gigantic. Option contracts can exist for any financial asset whether it’s stocks, commodities or real estate and their volumes often exceed the underlying spot market volume (where buyers & sellers trade assets at face value) by multiples.

There are many reasons why options are so popular with traders. Let’s go over a few.

### Higher Potential Returns
The returns that can be achieved with options are uncapped. Consider a CALL option on Ether with a strike price of $500. If ETH goes up to $10.000 within the timeframe specified in the option contract, your return will be $9500 (minus the premium).

### Capital Efficient
Options allow traders to get the same level of exposure to the price movement of an asset than if they would trade on the spot market, while putting up much less capital.

For example, the ETH CALL option in the example above might cost $200, much less than if you would buy 1ETH at $500 on the spot market. 

### Less Risky
There are a couple of reasons why options are less risky than other instruments chosen by traders to get exposure to the price of an asset. For one, your downside is capped. Using our example one more time, the most you can lose is the $200 premium you paid for the right to exercise the option. If the price of ETH goes to $10 you would simply let the option expire without exercising it, while if you had bought 1ETH at $500 on the spot market you would have lost $490.

Compared to margin trading, which lets traders finance a large purchase by leveraging their capital, there is also no liquidation risk. It’s a fact that crypto markets can be volatile and whereas a margin loan can be instantly liquidated if there is a sudden downswing, options are only temporarily affected by price swings. If the asset price recovers after the downswing, the option can still be exercised at a profit.

### Hedging
Options are also an efficient and relatively inexpensive tool to hedge your positions. In simple terms, hedging is a risk management strategy employed to offset losses in investments by taking an opposite position in a related asset. For example, if you are LONG on bitcoin, you can buy a PUT option that allows you to sell bitcoin at a favourable price if bitcoin were to crash. This PUT option would thus “insure” your overall portfolio from a crash in the bitcoin price.

## How to buy an option on Hegic?
Buying an option on Hegic is incredibly fast and seamless. Needless to say that like every application on Ethereum, no KYC is needed and your [Ethereum wallet](https://cryptotesters.com/best-ethereum-wallets) can be connected in one simple click.

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Next, you choose the asset you want the option contract for and the type of option. PUT options allow you to sell your asset at a specified price and CALL options allow you to buy the asset at a specified price. Usually, PUT options are for shorting an asset and CALL options are for long exposure.

You can then set the strike price, which determines the price at which the option becomes exercisable and define the duration of the option contract. You can play around with the inputs and see how they influence the premium or “Total Cost” you have to pay for the option contract.

![WBTC_OPTION.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/WBTC_OPTION_2e2c0ed93e.png)

Once you bought the option you will automatically see it appear in the hegic.co dashboard. In our case for instance, we bought a CALL option to buy 0.5 WBTC at a price of $15000 with an expiry date in 31 days (18 at the time of writing). Since the price of bitcoin moved upwards since the purchase, our option is currently in the money (ITM). If we would exercise it today, we would exit with a profit of $558. 

The profit can simply be calculated by subtracting the strike price and premium from the current asset price, in our case: 

```Profit = 0.5 *(17916-15000) - premium```

Note, that the option break-even price can fluctuate as the premium which you pay at the beginning when you buy the option is priced in ETH. Thus, if the price of ETH goes up or down it will affect the dollar value of your premium and therefore ultimately your profit.

If your option is in-the-money (ITM) at any time during the option's duration, you can manually exercise the option but you have to do it before the option expires else you won’t receive the payout. 

If you prefer a video tutorial to guide you through this process, watch DeFi Dad’s tutorial on “[How to Buy options on Hegic](https://www.youtube.com/watch?v=9P5cScthjsY)”.

## Providing Liquidity on HEGIC
One of the breakthroughs of DeFi is that it removes middlemen and allows users to participate in the important operations of the protocol. As such, users can provide liquidity to the option pools to collateralize the protocol. Options need to be collateralized by the platform since they represent an obligation to pay the user in case the option becomes exercisable. Centralized option trading platforms would do this in-house as it is a source of revenue but in Hegic this task is outsourced to the community. The more liquidity is provided, the more usable the protocol becomes as option holders can take larger positions at a better price.

The rationale for supplying liquidity is that, if, the premiums paid by option holders are higher than the payouts to options holders, the liquidity providers will accrue profits proportionate to their share of the pool. Moreover, liquidity providers receive $HEGIC rewards for contributing to the protocol and taking on risk.

![HEGIC_LP_PROVIDER.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/HEGIC_LP_PROVIDER_83bd1533af.png)

In our case, we contributed 35ETH to the ETH option liquidity pool. At the time of writing, we have a slightly positive P&L and we have also accrued over 10.000 $rHEGIC tokens (more on those later).

Effectively, when you provide liquidity to either the ETH or WBTC option pool you are short on volatility in the respective market. What this means is that if price movements are not too significant, liquidity providers have little risk exposure. 

In normal market conditions, PUTS and CALLS cancel each other out, meaning that if PUTS are in the money CALLS expire out of the money and vice versa. However, in the crypto market the option pool is often skewed towards CALL options, as most people are bullish on crypto prices. In the case of a sudden bull run, this is a risk you need to be aware of and take measures against, should you decide to become a liquidity provider.

## HEGIC tokenomics
$HEGIC is the future governance token of the Hegic protocol. More importantly, at present HEGIC is needed to buy a staking lot. Each staking lot requires 888.000 HEGIC tokens (currently $222.000). In return, staking lots receive **100% of the settlement fees** in ETH and WBTC generated by the protocol.

Since this is a lot of money for most ordinary people, developers in the community are already busy developing HEGIC staking pools that let users participate in a staking lot with any amount. 

Two Hegic staking projects already live are [zlot.finance](https://zlot.finance/) and [hegicstaking.co ](https://www.hegicstaking.co/) and a third is currently being developed by yearn.finance. 

The case for the HEGIC token is the following: the more option volume is turned over on the platform, the more settlement fees will be earned and the more interesting it will become to acquire enough HEGIC tokens for a staking lot.

In total, there are 3,012,009,888 HEGIC. By far the largest chunk of the supply, namely 40%, is reserved for liquidity mining until 2023. 80% of these rewards for Hegic protocol users go to liquidity providers and 20% go to option holders since both perform crucial tasks for the development of the protocol. The remainder of the supply is split across the Hegic Development Fund (core team), Early Contributors (third party developers building integrations & community tools), liquidity provision for the HEGIC token on [decentralized exchanges](https://cryptotesters.com/blog/what-are-decentralized-exchanges-and-how-do-they-work) and finally 3% was sold on the IBCO (read more [here](https://github.com/jmonteer/hegic-resources/blob/main/docs/Hegic%20FAQ.md)).

### Hegic Rewards for Liquidity Providers
When you provide liquidity to the option pools you receive a token called writeETH as proof for your deposit in the option liquidity pool. This token must be staked to receive $rHEGIC. In our case we provided 35ETH and received 11,200 $rHEGIC over a period of two weeks.

Now what is [$rHEGIC](https://etherscan.io/token/0x47C0aD2aE6c0Ed4bcf7bc5b380D7205E89436e84) you may ask. In short, $rHEGIC is an IOU. It will be exchangeable 1:1 against $HEGIC in the future but not now as the HEGIC core team wants to foster long-term alignment with the protocol. For $rHEGIC tokens to be exchangeable one of the following milestones needs to be reached: on-chain trading volume > $100M or on the 11/11/2021. Until then $rHEGIC can not be used for much. However, since it represents a claim on $HEGIC in the future it can be sold on Uniswap (albeit at a discount). 

![rHEGIC.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/r_HEGIC_f77d4eb480.png)

### Hegic Rewards for Option Holders
Users who purchase options on Hegic, receive utilization rewards (20% of total rewards) for holding options and using the Protocol. The exact amount you receive depends on the value and the duration of your options. Since they are distributed proportionally, it also depends on how much other option holders exist at the time of your purchase.

## Conclusion
All in all, HEGIC is one of the most interesting protocols in DeFi at the moment. Options are the missing piece in the array of financial primitives that are being replicated from the traditional finance world. Moreover, although HEGIC is only a couple of months old, it already has a vibrant community of developers contributing to the development of the protocol.

It will be interesting to watch if Hegic can attract more liquidity in the option pools. This liquidity is needed to cut the fees option holders have to pay for their options, which are currently not competitive with centralized option platforms. However, already today the platform offers advantages that centralized competitors will **never** be able to offer. No KYC, distributed ownership but most importantly composability. We can see the first effects of composability with Andre building on the Hegic stack to offer options on any ERC-20 token, not just ETH or WBTC.

Equally important, is the development of a secondary market for tokenized Hegic PUT and CALL options. Currently on HEGIC options can only be exercised when they are in-the-money. In other words it is worthless, as long as your option has not passed the break-even price. In traditional markets, an option also has value on the secondary market when it is out-of-the-money but volatility is high.


HEGIC PROTOCOL: Bringing option trading to the DeFi space

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What is Pickle Finance? Although the name might sound funny Pickle is one of the hottest applications being developed in the DeFi space at the moment.

What is Pickle Finance? Everything you need to know about one of the hottest DeFi projects.

One of the hottest new types of applications being developed in the DeFi space at the moment are on-chain asset management protocols. As more and more applications join the DeFi space everyday the number of good investment opportunities rises exponentially.

This abundance of opportunities is both a blessing and a curse. It’s a blessing because there is good money which helps to attract new people into DeFi and experience the magic of Web3. It’s a curse because investors have to constantly scan the market and chase the highest [DeFi lending rates](https://cryptotesters.com/best-defi-lending-rates) themselves which is both time and resource expensive as every transaction on the Ethereum network incurs transaction fees. The average investor just wants to invest once and let the money work. 

This is what [Pickle.Finance](https://pickle.finance/) and other DeFi asset management protocols do. Pickle’s mission is to be your one-stop shop for maximizing your returns in crypto with the lowest amount of effort. User funds are pooled in smart contracts which have automated strategies to put those funds to productive use and get higher returns than one would by simply putting money into a lending protocol like Compound or [Aave](https://aave.com). When a strategy becomes outdated a new strategy is developed by the Pickle community. As of the time of this writing, people have entrusted more than $145 million dollars with Pickle and the Pickle community has made a name for itself as one of the most vibrant and active communities on Twitter.

## How does Pickle work?
At the center of the Pickle product suite are so called “Pickle Jars”. Pickle Jars allow users to deposit tokens from liquidity pools such as Uniswap or Curve, and then execute sophisticated strategies that maximise the returns of the depositor.

![PickeJars.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/Picke_Jars_bb9aa8fbdf.png)

The 0.69 Jars series for example, auto-harvest the Uniswap $UNI token which is distributed to Uniswap liquidity providers, sell those tokens, and purchase more Uniswap liquidity tokens on behalf of the user. If you were a “normal” liquidity provider on Uniswap, staking your LP tokens in Uniswap you would have to do this process manually by yourself: wait a couple of weeks until you have accrued enough $UNI tokens, claim them and then sell (or not). Pickle automates this process for you and spreads the [gas fee costs](https://cryptotesters.com/blog/understanding-ethereum-transaction-fees) across all its users thereby achieving considerable economies of scale. 

Note that by being in these Pickle Jars you’re effectively short $UNI since you’re selling them to increase your ETH - DAI/USDC/USDT. If you want to hold $UNI tokens this is not the right strategy for you.

## PickleJars: The backbone of the Pickle protocol
Although every Pickle Jar strategy varies slightly, most of them have in common that they try to stabilize stablecoins. As you might know there are various stablecoins that exist on the Ethereum Blockchain. While some are centralized (USDC, USDT) and backed by “real dollars” in bank accounts, others like DAI and sUSD are decentralized which means they are issued by smart contracts and backed by crypto assets (ETH, SNX).

For these decentralized stablecoins to work at scale it is crucial that they trade at parity (1:1) with the dollar so people can rely on their stability. In the last couple of months however, they have often traded at a small premium (1.01-1.04) because the demand for [DAI](https://cryptotesters.com/blog/how-to-buy-dai) and sUSD has been astronomical. Since these stablecoins are 100% censorship-resistant (can’t blacklist addresses) they are more popular and often offer higher yields in DeFi protocols than their centralized counterparts. A centralized stablecoin issuer would simply respond to this demand by issuing more stablecoins but decentralized stablecoins can not do this - they rely on people opening vaults and collateralizing their ETH or SNX which they can not directly control. This is when they start trading at a premium.

Pickle offers a simple mechanism to bring stablecoins back to peg: it distributes its $PICKLE token to liquidity providers and adjusts the weights dynamically. When a stablecoin is above peg (e.g DAI), the protocol will distribute fewer PICKLEs to that pool and more PICKLEs to other pools (USDC, USDT). As farmers chase the best yield, this creates sell pressure for the overvalued stablecoin (DAI) and buy pressure for the other coins. This works in reverse for stablecoins that are below peg. This strategy is replicated across all its Jars. To stabilize sUSD, it offers a range of Curve related Jars.

To make the process of swapping between different pools dead simple Pickle offers an integrated “Swap” feature, allowing users to change their LP position from one stablecoin pool to another in a single click. The ease of swapping helps off-peg stablecoins return to their peg faster.

However, in recent weeks the Pickle Community has decided to move away from the narrow focus on stablecoin jars to more broad strategies including governance tokens and new protocols. It's new mission: "Highest yield. Lowest risk. Longest time. ". Essentially to be consistently delivering higher returns than most of the market without incurring too much risk. 

If you want to get a sense of what's ahead for Pickle in the near future, check out a rare podcast interview with Pickles anonymous founder Larry the Cucumber on the Gabriel Haine's show.

[![Screen Shot 2020-11-12 at 4.14.39 pm.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/Screen_Shot_2020_11_12_at_4_14_39_pm_03ea96a55c.png)](https://www.youtube.com/watch?v=ktl9sLYNiJc&feature=youtu.be)

## Pickle Tokenomics
Unlike other on-chain asset management asset protocols like [yearn.finance](https://yearn.finance/), which has a fixed supply, Pickle has an inflationary supply. As you can see from the supply schedule the majority of PICKLE tokens (1.3M) will be distributed by the end of this year after which there will be a constant inflation of 1.29% per year.

![pickleinflation.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/pickleinflation_5055a9b97e.png)

This means Pickle has an efficient mechanism at hand to incentivize behaviours that it deems important. At the moment, 70% of new PICKLE tokens are distributed to PICKLE-ETH liquidity providers on Uniswap to create deep liquidity and 30% are used to incentivize Jars ( with changing weights as we discussed).

Pickle tokens can be used to vote on governance proposals and to stake. When you stake PICKLE tokens you receive a proportionate share of the profits from the PickleJars, which the protocol generates by charging users a 27.5% performance fee. These staking rewards are paid out in ETH.

![PickeStake.png](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/Picke_Stake_cf1b66b4e9.png)


## Conclusion
Pickle Finance is a really interesting project offering consistently high APRs and delivering innovative strategies at lightspeed. Unlike many other “farm” projects that create valueless tokens, Pickle generates real cash flows which PICKLE holders can capture by staking. With the inflation being significantly reduced at the beginning of next year things could get very interesting for Pickle soon.

Pickle has carved out a very nice focus area for itself in the DeFi space by making stabilizing synthetic assets a strong pillar of its product. In the future as Pickle’s TVL grows, issuers of synthetic assets might even work directly with Pickle to steer liquidity providers to their asset’s pool to ensure there’s sufficient liquidity. There could also be more vaults to stabilize WBTC/renBTC/tBTC and other assets. It will also be interesting to see new Pickle Jars being implemented as the community has decided to diversify away from just stablecoins to more exotic strategies.

One thing that must be said about Pickle is that the team is anonymous and user funds are controlled by a multi-sig consisting of mostly team members. However, so far, the team has been extremely transparent shown a lot of integrity in all its decisions from token distribution to governance decisions.











What is Pickle Finance?

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For those who are not sure what DAI is, it’s a decentralized stablecoin whose value is pegged to the US dollar. We often get asked by people how to buy DAI and where to buy it from.
We have compiled a comprehensive guide on how to buy DAI.

DAI is the token of MakerDAO platform and pegged to the US dollar by a clever system of well-aligned financial incentives. Learn how to buy DAI.

How to buy, sell and trade DAI - Buy DAI instantly | Cryptotesters

We often get asked by people how to buy DAI and where to buy it from. 

### Quick guide: HOW TO BUY DAI?
1. Go to one of the exchanges we have listed below (like [Kraken](http://r.kraken.com/c/2018798/687155/10583), [Coinbase](https://coinbase-consumer.sjv.io/NDj07))
2. Deposit dollars or whatever your local currency is (e.g by bank transfer)
3. Go to "trade" and select the right trading pair e.g USD/DAI
4. Withdraw the DAI to your [Ethereum wallet](https://cryptotesters.com/best-non-custodial-wallets)
5. Invest it or send it to someone anywhere in the world

For those who are not sure what DAI is, it’s a decentralized stablecoin whose value is pegged to the US dollar. Unlike centralized stablecoins which are issued by private companies who simply maintain the peg by guaranteeing to hold an equivalent amount of dollar reserves in bank accounts, DAI is generated and kept stable by the [Maker protocol](https://community-development.makerdao.com/makerdao-mcd-faqs/faqs). The Maker protocol is not a company. It’s a system that consists of **multiple smart contracts on the Ethereum Blockchain** and is governed in a decentralized manner. 

The main building block of the Maker system are so-called ‘Vaults’. In short, anyone who wants to generate DAI tokens has to deposit collateral into a ‘Vault’. This is necessary to ensure that there’s always enough value in the system backing the borrowed DAI (similar to how the dollar used to be backed by gold). Currently, the system accepts $ETH $BAT and $USDC as collateral and there are plans to add more assets. 

Once the collateral is locked in the 'Vault', DAI is generated by the Vault and paid out to the Vault owner. Effectively the system is lending DAI to the ‘Vault’ owner and taking the collateral as security for the loan. When a Vault Owner wants to close a loan they simply pay the borrowed DAI tokens back and receive their collateral paid out in return.

Note, that this system lives entirely on the Blockchain and doesn’t rely on any trusted counterparty. Anyone in the world can open a ‘Vault’, the process takes seconds and ‘Vault’ owners don’t need to identify themselves. The system doesn’t need to know identities because the loans are secured by the collateral in the smart-contract ‘Vaults’.

### Does this mean I have to open a 'Vault' to get DAI?
No. Like any currency, DAI is traded on secondary markets and can be bought by anyone on these markets. For example, a ‘Vault’ owner who borrowed DAI might sell their DAI on an exchange to buy more Ether (or maybe a car). This is good news, as you will most likely need DAI if you want to use any of the awesome DeFi applications like Compound (to earn interest), PoolTogether (a no-loss lottery) and many others.

### Where can I buy DAI?
There are many ways to buy DAI and we’ll walk you through each of them and explain the benefits and trade-offs of each method.

#### Centralized Exchanges
Like most cryptocurrencies, you can buy DAI on traditional cryptocurrency exchanges.  The most well-known exchanges listing DAI are [Kraken](http://r.kraken.com/c/2018798/687155/10583), [Coinbase](https://coinbase-consumer.sjv.io/NDj07)) and [Bitfinex](https://www.bitfinex.com/?refcode=E54tqQBr). Like with any other cryptocurrency you’ll first have to deposit fiat money in your exchange account to buy DAI.

![Kraken Exchange](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/c49b73961d6c4d32ab548763ad696b2cct_.png)

If these are not available in your region there are other smaller regional exchanges listing DAI like:

[KuCoin](https://www.kucoin.com/)(Asia)
[Korbit](https://www.korbit.co.kr/) (South Korea)
[Yobit](https://yobit.net/en/) (Russia)
[Coinjar](https://www.coinjar.com/au/) (Australia)
[Panda](https://panda.exchange/) (South America)

#### Custodial wallets
Custodial wallets are wallets where the provider holds the crypto funds on behalf of their clients.

The difference between buying on an exchange vs. buying within a wallet is of technical nature and not really obvious to the end-user: whereas exchanges facilitate trading on their platform, custodial wallets connect to exchanges and other brokers when selling crypto to their users.  That’s why buying within a wallet is often a bit more expensive than if you would buy it from an exchange. 

![Wirex App](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/93857698efa941bb8a39b046367c3825ct_.png)

Custodial wallets are convenient for beginners because users don’t bear the responsibility of storing their private keys. The provider stores the funds for you. However, this means that you’re not entirely in control of your assets. 

A few custodial wallet providers that offer users to buy DAI are:
[Wirex](https://wirex.sjv.io/o3Mde) (Europe & Asia)
[Coindirect](https://www.coindirect.com/ )(Africa)
[Buenbit](https://www.buenbit.com/) (Argentina & Peru)
[Easy Crypto](https://www.easycrypto.com.au/) (Australia & New Zealand)
[Orion X](https://www.orionx.com/en/) (Mexico & Chile)

#### Fiat on-ramps
Fiat on-ramps allow users to purchase cryptocurrencies in a simple manner. They’re not exchanges because there’s no trading occurring on their platforms. They’re also not wallets because you don’t store your crypto with them. Instead, you specify your wallet address and once you’ve made your purchase they send the cryptocurrency to your wallet address.

Fiat on-ramps sole focus is  on providing an easy and secure buying experience. Fiat on-ramps selling DAI include:

[Ramp Network](https://instant.ramp.network/) (UK & EU)
[Moonpay](https://buy.moonpay.io/ )(Europe & USA)
[PayTrie](https://paytrie.com/) (Canada)
[Transak](https://transak.com/) (UK & India)

#### Non-custodial wallets
Some non-custodial wallet providers also let you buy DAI. As a reminder, non-custodial wallets are wallets where users themselves are responsible for storing the private key. The wallet provider has no means of accessing the users funds. Some of these wallets have integrated fiat on-ramp providers from the list above to make it easier for their users to acquire DAI.

![Zengo wallet](https://cryptotesters-images.s3.eu-central-1.amazonaws.com/c74d64b855d442e5ac90208f9c1cb6dact_.png)

Non-custodial wallets with DAI on-ramps include:
[Argent](https://argent.link/cryptotesters)
[Zengo](https://zengo.rocks/cryptotesters)
[Authereum](https://authereum.com/)
[Portis](https://www.portis.io/)

#### Decentralized Exchanges
Another possibility to buy DAI is by turning to a decentralized exchange. Decentralized exchanges like centralized exchanges are online trading platforms where users can trade crypto assets. However, they differ in their design. 

DEXs work by using smart contracts and on-chain transactions to reduce or eliminate the need for an intermediary. They don’t hold users funds. Instead, users trade from their non-custodial wallet. Moreover, they are optimized to be resistant to government intervention and can often be accessed through multiple interfaces. The only caveat is that you can’t buy DAI with fiat using a decentralized exchange because that would go against their principle of decentralization. You can only use Ether (ETH) or other Ethereum tokens. Some popular decentralized exchanges include:

[Kyber Swap](https://kyberswap.com/swap/eth-knc) 
[Uniswap](https://uniswap.exchange/)
[Oasis](https://oasis.app/)
[DEX.AG](http://dex.ag/)

### What can you do with DAI?
Now that we've established how to buy DAI and where to buy it from let's look at some of the things you can do with DAI.

#### Savings
Holders of the Dai stablecoin can earn the Dai Savings Rate (DSR) on the Dai they hold by locking it into a special smart contract. There are no fees involved, no geographic constraints, and no liquidity impediments—no minimum deposit is required to earn the DSR, and all or any portion of Dai can be withdrawn at any time.

The Dai Savings Rate contract is accessible through [Oasis Save](Oasis) and other projects that have integrated the DSR, including [Zerion](https://zerion.io/) and the [Argent wallet](https://argent.link/cryptotesters). The DSR is not only a propeller of financial freedom, offering complete user control, but also [game-changing for the DeFi movement](https://blog.makerdao.com/why-the-dai-savings-rate-is-a-game-changer-for-the-defi-ecosystem-and-beyond/).

#### Remmitances
As a stable medium of exchange, Dai can be used for repayment of debt,  cross-border transactions, and payment for goods and services. Sending money across borders using traditional financial services is expensive and time-consuming. For example, at the time of this writing, [Bank of America charges $45](https://www.bankofamerica.com/foreign-exchange/wire-transfer.go) for international wire transfers of USD from the United States, while [Western Union charges $9](https://www.westernunion.com/us/en/send-money/app/price-estimator) to transfer $1,000 from a WU location in the United States to a WU  location in Argentina. But because the Maker Protocol is built on the blockchain, users can transfer [Dai peer-to-peer across the globe](https://blog.makerdao.com/the-cheapest-way-to-transfer-money-internationally-send-crypto/) within seconds and at a fraction of the cost of traditional means (users only pay a gas fee).

#### Open Finance
For Developers, Dai represents an opportunity  to offer users of their own platforms the ability to transact with a stable dollar denominated asset, opening the door to more risk-averse participants. Traditionally, it has been very hard for developers in emerging markets to integrate dollar currency into Fintech applications. DAI is accessible to anyone as it exists on the Ethereum Blockchain.

The growing developer base and Dai user base also contribute to the network effect of the Maker Protocol, increasing awareness and improving the stability of the ecosystem.

We’ll continuously update this post to feature the best options for users to buy DAI. If you know of any other convenient options let us know and we’ll update the article. Check out cryptotesters.com if you’re interested in crypto products and looking for which crypto wallet or exchange to use. Subscribe to our newsletter if you enjoy articles like this one.



A Comparison of DeFi Indexing Projects

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Fixed Rate Borrowing & Lending with Notional Finance

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Fri Dec 11 2020

HEGIC PROTOCOL: Bringing option trading to the DeFi space

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Thu Nov 19 2020

What is Pickle Finance?

Emanuel Coen |

Wed Nov 11 2020

How to buy DAI?

Emanuel Coen |

Sat May 09 2020