Hedge Community AMA #1 — April 29th
We had an awesome first AMA call last Friday! Below is a cleaned-up transcript that summarizes some of the Q&A that took place. You can listen to the full AMA on Twitter as well.
Speakers: Hedge Labs core team (Seb, Chris, Hao)
Q: Can you introduce yourself?
Hao: I’m Hao, the Head of Product and Business Development at Hedge Labs. Previously, I was a Product Manager at Google for five years (that’s where I met Seb), mainly working on Google Assistant, Google Maps, and Local Search. I currently live in New York — before that, I lived in Switzerland while working for Google. I’m originally from China, but grew up in Germany and spent time in Sweden as well, before moving to the US.
Seb: I’m Seb, Co-founder of Hedge. Like Hao, I’m from Europe, originally from France. I studied electrical engineering in London and then went to work as a machine learning engineer for a voice recognition startup. I ended up in Switzerland working for Google, where I met Hao. There, I was working on YouTube as a Product Manager for the analytics product. I later moved to the US, still with Google, and was building face and fingerprint ID for Android phones.
I played around with crypto and had written some Solidity smart contracts back when Ethereum was just starting up. Last September, I pitched the idea of Hedge to Chris, and we built v1, the beta version of Hedge, over a few weekends. We submitted it to the Solana Ignition Hackathon and won the Chainlink prize!
Chris: Hi, I’m Chris, the CTO here at Hedge. Born and raised in the Midwest and attended school in Minnesota. I earned a computer science degree and then ended up with an internship at Adobe in San Francisco. It was my dream to come out to the Bay Area and do all things tech here. I spent a little over two years at Adobe, working on Flash Professional and Adobe Air. I met a bunch of super smart engineers and started a company with a guy named Kyle Lui from HBS. It was a corporate benefits platform and we sold it to Salesforce. After that, I joined an online gaming company called Betable and ended up working on some interesting engineering projects there. I’ve known Seb for six years; he’s super smart. We never worked together but toyed around with various crypto ideas. So, I jumped in with him and we went from there.
Q: Can you give a quick summary of what Hedge is?
Seb: Hedge is a 0% interest lending protocol. That means you’re able to deposit collateral and get, for a one-time fee, a 0% interest loan. The reason I wanted to start Hedge is because I have been playing around with other platforms like Compound and Aave on ETH, but they charge variable interest rates and you don’t really know what you’re going to get charged because it is based on the supply and demand of the asset in the pool. This means that your liquidation price changes over time, so I really liked the idea of having a one-time fee and not needing to worry about my liquidation price. On Hedge, you can leverage and keep your position open as long as you want without paying a recurring fee. That’s what our platform enables.
Q: How was Hedge founded?
Seb: Hedge began when we won the Chainlink prize at the Solana Ignition Hackathon in September 2021.
Chris: In the beginning, we were on the fence. We thought this was super cool, but we weren’t entirely sure what the prototype was going to turn into. So it wasn’t till the end of last year that we were like wow, this community is incredible. People kept reaching out. I’m blown away by how engaged the community is and how much demand there is for this product. So at the end of the year, we decided to kick it into company mode. And both of us completely dove in for 80 hours a week.
Seb: It’s been interesting to see it evolve from a fun weekend project. We thought, what if we built this properly? And, make sure it’s audited? And everything’s a well-oiled machine? That’s why it took a while, but for good reason.
Q: What do you think is your biggest strength and what makes you really confident in the team?
Seb: I think we have been in the DeFi space for a while now and we understand how these protocols work. We’re building something we are extremely familiar with and deeply understand how the smart contract works as well as the economics of things like how the stablecoin keeps peg. I am building a protocol that I would like to use myself, which I think is a very good sign.
We also have a very strong team and have been able to ship very fast. From our time at Google, Hao and I have been both lucky enough to understand both how to build products for billions of users as well as what goes wrong when you scale. This experience is pretty crucial and useful as we’re building a whole new ecosystem.
Q: What do you think are your biggest competitive advantages?
Hao: To add to what Seb just mentioned, I think with Solana and Web3 / DeFi in general, we are still in the phase where it’s way too early to think about competitors. I understand why people ask about that, but I would say we are as an ecosystem too early to worry about that. You will get a much better return from just trying to work together, collaborate, and grow the overall ecosystem to make crypto and Solana as a whole more successful.
Chris: Exactly, the thing about DeFi is, it’s actually bad if there are big monopolies. While it might be fun for us, if everybody has their money invested in just one protocol it’s much riskier and also not DeFi. So it’s actually been really cool talking to other protocols that are doing things that are kind of similar, where we had great conversations around what everyone is building and we can make sure that there is a bit of overlap but we’re not completely building the exact same product. It’s just much better for the community as a whole.
Q: Can you describe what it is that you’re seeking to solve in DeFi? What’s the main goal or problem that you’re trying to tackle with Hedge?
Seb: The main goal is to give users access to token liquidity, which means being able to spend your assets at any point in time without selling them so you keep the upside. There are different ways to do this, but we want to do it in the simplest and fairest way for users, which is why we have our super low liquidation ratio of 110%, as well as 0% interest.
Q: What programming language is Hedge built in?
Chris: On the smart contract side, all the code that lives on the blockchain is written in Rust and uses the Solana libraries. We also use Anchor, which is a framework that helps us interchange with the smart contract. Our entire front end is built in TypeScript React, which is a pretty standard stack these days for Web3.
Q: Why did you choose to build on Solana?
Chris: I had only looked into Ethereum smart contracts before, so when I learned about Solana with its tiny transaction costs, the transaction speed, and the number of transactions you can process, these were all obvious wins.
Seb: What I really liked is how Solana focuses on composability. You have high TPS and there are no different L2s, so you can compose a ton with other DeFi protocols. Since we are creating a stablecoin, it is super powerful and felt like the obvious choice to build on a chain where composability was going to be very easy.
Hao: I would also say the Solana community has just been amazing and super nice to work in and with. We’ve been to a bunch of Solana events and everyone is super nice, super friendly.
Chris: I was quickly blown away by how for any project you can jump in their Discord and quickly connect with the founders, engineers, and the community and get a quick answer to your questions.
Q: Are there any technologies or protocols that Hedge is applying that are very noteworthy or innovative?
Chris: We have a few things in the contract that we need to make sure that, for instance, liquidations or redemptions happen in a secure and correct order. We have also tried to make our website as fast and responsive as possible, for example we have set up event listeners for chain data, so all the data on the website is real-time data as you are interacting with the vault.
Seb: Once we have the smart contract in tip-top shape and all security audits completed, we will also open source our code.
Chris: We also have been looking at the codebases of other DeFi protocols that we admire to see how they structure the code and their architecture layout, so we’re trying to make sure we follow best practices in that regard.
Q: Were any vulnerabilities discovered in your audit? Who audited you?
Chris: We’ve gone through two security audits so far and have another one in the works right now. One of them was with Soteria, where we used their tools and partnered with their incredible engineers who spend weeks digging through your code for a manual review. They found a few little small things, but no major security vulnerabilities. Most of it is just around double-checking the math and making sure that we don’t have integer overflow vulnerabilities or anything like that. So overall that report came back incredibly positive.
We also worked with Kudelski for another audit and they just wrapped up the report a little over a week ago. Kind of the same story — they have an incredible team over there, super thorough, and they took about five or six weeks to go through our code. They found a few minor things, but nothing major, so I think the code is pretty close to being ready to ship, after we wrap up those little things. However, we want to be really safe, so we are going after a third audit, which I won’t mention yet because it’s still in the works.
Q: Will there be any form of insurance for users in case there is a hack?
Chris: We have been looking at some of the recent events in terms of how other protocols who got hacked have been dealing with it, e.g. protocols have sold off protocol tokens on the market to come up with the capital to reimburse the users affected by a hack. We also have great investors with whom we will have a conversation about the things we can put in place if there ever was a security vulnerability.
Q: How can Hedge sustain such a low collateralization ratio?
Seb: This comes down to how the liquidation system works and how the total system is collateralized. On the liquidation side we are able to liquidate instantly and thus at a way lower price, because users can deposit our USH stablecoin into our Stability Pool before price downturns occur. So we have cash secured to liquidate before we need to. The other thing is there is a Recovery Mode, which means if the total system collateral ratio is below 150%, we will liquidate vaults just above 110% until the system reaches 150% again. So USH is actually 150% collateralized at all times, but users can also take riskier positions as long as the whole system is healthy.
Hao: I believe users have already started to notice the benefits of staking USH into our Stability Pool to not only receive HDG tokens but also get SOL back at a discount.
Q: What kind of tools will you be providing to control the risk of getting liquidated?
Seb: There are a few things we are doing. One is we give a very upfront liquidation price that never changes, so you only have to remember one liquidation price. We are also working with other notification companies where you can tie your wallet to your email or phone number and if you’re close to liquidation you will get a text, so you can quickly change your position. In the future when we have multiple collateral types we are looking into ways to rebalance your positions across multiple collateral types and partial liquidations.
Q: What are the tokenomics of the HDG token?
Seb: We have a fixed supply of 10 million HDG tokens. More than half of these will be given out to our community as rewards for participating in our protocol, e.g. for liquidity mining or depositing into our Stability Pool. The rewards for the Stability Pool are actually about 20–30% of all the tokens, given out in an exponentially decaying rate, so every year the amount of HDG tokens that are given out are halved. We make that very explicit on our site, where you can see that we currently give out about 3700 tokens per day and it’s decreasing over time. There is also an allocation of tokens to early investors and team members and future team members.
Q: What are the use cases for the HDG token?
Seb: In the beginning it’s just a protocol revshare token, meaning you can stake it and capture a share of the protocol revenue. If you stake 50% of the HDG tokens in the Staking Pool, you get 50% of the protocol revenue, but in the future we might try to add a governance component as well.
Q: wen mainnet?
Chris: We will have a date to announce soon! In the meantime, everyone on devnet has been great at hammering the website. It has been a great stress test and we found a ton of bugs and other things we want to fix before we go to mainnet. So please continue giving us that feedback and we are trying to address everything!
Seb: Absolutely, we have also seen users take very risky positions on devnet and the system has gone into Recovery Mode once or twice and survived extremely well.
Hao: I was definitely super amazed and grateful for all the feedback and engagement from everyone. We are taking notes of all the wallet addresses and hope to also give back to the community and show our appreciation, so stay tuned for more things that we have planned for you!
Q: What are your goals for 2022?
Seb: We’re focusing on our stable coin and want to ensure that there is utility across the whole ecosystem, starting with the ability to swap it or earn a yield on it on various lending markets. We are looking into the ability to buy real-world assets with our stablecoin as well later on. Other than that, we want to enable users to get liquidity on other types of collateral. For instance, there is interest in getting interest-bearing collateral, so we are looking at what other collateral we can add as long as there’s demand and support from oracles. We also want to enable vaults for other use cases like leverage. Currently there’s no one-click way to do it. We have some partnerships we’re considering to enable this, but we’ll announce more when the time comes.
Q: Do you have more plans for Hedge’s USH stablecoin in the future? Are you planning to release additional tokens?
Hao: In terms of the USH stablecoin, we are aiming to make our stablecoin useful in the ecosystem — whether that means that you can easily swap it for any other currency, or use that stablecoin in the Solana ecosystem to (for example) earn a yield on it, or use it as a currency for other protocols. We have a lot of ideas and are always looking for opportunities. In the beginning, we will make sure to list our stablecoin on exchanges and other lending platforms, so you can swap it to other currencies, cash it out, or borrow against it. We are not planning to release additional tokens at this point.
Q: Will you have leveraged borrowing in the future?
Hao: Leverage is a straightforward use case for our protocol, so we want to make it as easy as possible. However, since leveraging can be risky as well, we want to make sure that we educate our users and make them aware of the potential risk. But it’s certainly something we have planned.
Seb: I remember the early days in crypto when I was using these protocols and they wouldn’t tell me anything about the risks. Then one morning you wake up and it’s like “By the way, you’ve been liquidated.”
Chris: We have also been looking closely at the feedback in our Discord on little things that we took for granted. Our users have been really helpful in pointing out things like “I don’t understand exactly what this means, we need a tooltip.”
Q: Will you have a pool between USH and SOL?
Seb: I think in the beginning users probably want to swap for USDC, and we don’t want to split up our liquidity between too many exchanges and too many types of pools. However we definitely understand this totally makes sense if you want to leverage yourself up, so this will be the second-highest priority after other stable swaps.
Q: Are you going to have a DAO managing the protocol in the future?
Seb: We are thinking of the DAO route, it is something we have to fully figure out before we can release plans. Usually the community is good at helping to decide things like what are the risk parameters, what kind of collateral do we accept, what’s the collateralization ratio on these, etc.
Q: Are there plans for Hedge to become multi-chain?
Seb: Right now we are very much building on Solana with smart contracts in Rust and using the Anchor framework. We are definitely open to expand to other chains, but it would require a pretty intense technical rewrite and I think it makes more sense to focus on one chain and execute very well first. Then we can see if there is user demand for this type of protocol on other chains, but for now we want to focus on Solana and deliver a really good product there.
Q: Will there be a public roadmap for Hedge?
Hao: We are constantly thinking about new features and what we want to bring to Hedge, so as that evolves we are announcing features one by one. Since Web3 moves and changes so fast, we want to make sure we can adapt to that and execute fast.
Q: Do you have plans to support under-collateralized loans in the future?
Seb: I think this is a very different space and requires a complete overhaul on protocol design to the point where it becomes a different protocol altogether. I’m not saying we are not up to that challenge, but it would probably be as a separate protocol and maybe not by minting USH and so on.
Q: Are you able to show the projected future income that someone could get as a result of staking into our pools?
Hao: It is definitely hard to predict, since that income would depend on many factors. Once our protocol is live we can give a good sense of what the average return in the past has been, as some indication.
Seb: Very soon after launch we will have HDG price feeds and with that we can probably get a good idea of what the APR of depositing into the Stability Pool or Staking Pool might look like. I like the idea of offering analytic tools to our users where they can get a prediction on the return for their position. Building things that help users understand how to measure their position is definitely very important.
Q: Any plans for NFT collateralized loans?
Seb: That is also a very different style of market — we’re not against exploring it, but it would require us understanding the risk much better.
Chris: One of the core principles of Hedge is that we can remove vaults that fall under the collateral ratio very quickly. For that you need both accurate pricing of the collateral and you need a liquid market. NFTs currently don’t really have either of those, so it is a little tricky to have them on the platform.
Seb: I think a lot of these NFT collateral lending platforms will take the floor price and only allow you to lend out about 25% of it, so it is also not very capital efficient to borrow against an NFT.
Q: Are you somehow affiliated with hedgehogs in any way? Do you maybe even have hedgehogs on your team?
Chris: Seb and I were just two engineers during the Hackathon, who don’t have great design skills, so we were trying to figure out a mascot and ended up deciding on a hedgehog.
Seb: Our first logo was a vector hedgehog. I think the Solana website still lists us as Hedgehog Finance.
Q: So none of you had a hedgehog as a pet when you were a child?
Chris: I did not, I had a mouse at some point.
Q: Why are there thousands of hedgehog pixel art pictures on your laptop then?
Hao: It was probably just because we were looking for inspiration for logos or something like that ;)