The growing interest in decentralized finance (DeFi) has led to an increasing number of trading platforms with on-chain options that remove intermediaries and improve accessibility. Traditional options markets rely on centralized exchanges, which can introduce counterparty risk and require trust in third parties. Decentralized alternatives seek to offer permissionless, automated trading with transparent pricing and settlement on blockchain networks. These protocols vary in design, liquidity mechanisms, and user experience, shaping a competitive industry. Hegic is one such platform that provides smart contract-based, non-custodial options trading, allowing users to buy and sell options directly on-chain.

What is Hegic (HEGIC)?

Hegic was founded by the pseudonymous DeFi developer Molly Wintermute, who became active on January 28, 2020, sharing insights and updates on decentralized derivatives trading. The platform officially launched on April 23, 2020, as a peer-to-pool options trading protocol designed to simplify on-chain options trading. However, shortly after release, a critical bug in the smart contract led to $48,000 worth of user funds being permanently locked. Despite the setback, Molly Wintermute had built a strong community, and with the support of early contributors, a new smart contract was deployed in May 2020, fully reimbursing affected users.

By June 2020, Hegic underwent a security audit by PeckShield, improving its reliability. As trading activity increased, the platform continued to introduce new features, and by the end of the year, its total value locked (TVL) surpassed $80 million, with a record daily trading volume of $8.2 million in November 2020. Over the following years, Hegic expanded its offerings and refined its smart contract infrastructure, serving options traders consistently since February 2020. The protocol has facilitated over $1.5 billion in total options trading volume and executed more than 20,000 options contracts.

Currently, Hegic operates on Arbitrum, a layer-2 scaling solution for Ethereum, offering a more efficient and cost-effective trading experience. While its smart contracts have been audited, the team emphasizes that no protocol is entirely risk-free, encouraging users to conduct their own research. Hegic aims to remain a key player in the decentralized options market, continuing to attract traders looking for an alternative to traditional financial instruments.

How Does Hegic Work? Protocol and Options Trading

Hegic operates as a decentralized options trading protocol that removes the need for traditional market makers by leveraging an automated liquidity pool system. Unlike centralized exchanges that rely on intermediaries, Hegic allows users to engage in options trading directly through smart contracts, ensuring transparency and security. The protocol revolves around two main participants: Writers, who are liquidity providers, and Holders, who purchase hedge contracts. Liquidity providers deposit DAI into a Liquidity Pool, locking their funds for a specific period in exchange for writeDAI, a token representing their share of the pool. The liquidity pool acts as the counterparty to all options trades, funding hedge contracts without relying on a centralized entity.

Hedge contracts in Hegic function as either Put Hedge Contracts, which allow holders to sell an asset at a predefined strike price, or Call Hedge Contracts, granting them the right to buy at a fixed price during the contract period. When a holder initiates a hedge contract, they specify key parameters such as their Ethereum address, contract amount, asset price, strike price, duration, rate, and end timestamp. The holder pays a premium, which represents the cost of maintaining the position, and a settlement fee, which covers execution costs. The liquidity is then locked for the duration of the contract. If, at any point during this period, the market price is below the strike price for a put contract (or above for a call contract), the holder can release liquidity from the hedge contract by sending the asset to the protocol and receiving stablecoins equivalent to its market value.

Source: hegic whitepaper

The total amount of funds available for holding and executing hedge contracts is referred to as the Pool Size, and the strike price at which the holder can execute the contract determines the Intrinsic Value of the option. The Time Value is derived from the difference between the premium paid for the hedge contract and its intrinsic value. This structure ensures that liquidity providers (writers) benefit from the premiums paid by holders, while holders can hedge their positions or speculate on asset prices without counterparty risk.

In addition to benefiting liquidity providers, Hegic incorporates an incentive mechanism for HEGIC tokenholders. A portion of settlement fees is allocated to HEGIC tokenholders, rewarding them for their participation in the ecosystem. The protocol operates on Ethereum and Arbitrum, offering lower costs and improved efficiency compared to purely Ethereum-based alternatives.

Options Trading

Hegic provides a variety of options trading instruments and structured strategies for traders looking to hedge risk or speculate on asset price movements. These instruments are categorized based on market expectations: bullish options for rising prices, bearish options for falling prices, high-volatility options for uncertain markets, and low-volatility options for stable conditions. Additionally, Hegic integrates one-click strategies, simplifying complex options trading by bundling multiple contracts into a single trade. Below is a comprehensive list of what Hegic offers:

Bullish Options (For traders expecting price increases)

Source: hegic.co/app

1. Call Option – Grants the right to buy ETH or BTC at a fixed price during a specific period.
2. Strap (Classic Strategy) – A volatility-based strategy that consists of two call options and one put option with the same strike price and expiration. It is profitable if the price rises significantly and still offers reasonable profits if it drops.
3. Bull Call Spread (Classic Strategy) – A lower-cost alternative to buying a single call option. It involves purchasing an at-the-money (ATM) call while simultaneously selling an out-of-the-money (OTM) call with a higher strike price.
4. Bull Put Spread (Inversion Strategy) – A strategy where a trader sells an ATM put and buys an OTM put with a lower strike price. It generates immediate profit and benefits when prices rise or remain stable.

Bearish Options (For traders expecting price decreases)

Source: hegic.co/app

1. Put Option – Grants the right to sell ETH or BTC at a fixed price during a specific period.
2. Strip (Classic Strategy) – A volatility-based strategy similar to the Strap, but weighted more towards price drops, consisting of two put options and one call option.
3. Bear Put Spread (Classic Strategy) – Involves buying an ATM put and selling an OTM put with a lower strike price, making it a more cost-effective way to bet on price declines.
4. Bear Call Spread (Inversion Strategy) – A strategy that profits when prices remain stable or fall. It involves selling an ATM call and buying an OTM call with a higher strike price.

High-Volatility Options (For traders expecting large price swings in either direction)

Source: hegic.co/app

1. Straddle – A combination of an ATM call and an ATM put with the same strike price. Profitable when the asset’s price moves significantly in either direction.
2. Strangle – A lower-cost version of the Straddle, consisting of an OTM call and an OTM put with different strike prices. It profits if the price rises or falls significantly.

Low-Volatility Options (For traders expecting minimal price movement)

Source: hegic.co/app

1. Long Butterfly (Inversion Strategy) – Profits if the asset’s price remains close to the strike price. It involves selling an ATM call and an ATM put while buying an OTM call and an OTM put.
2. Long Condor (Inversion Strategy) – Profits if the asset’s price stays within a specific 10% price range, reducing risk compared to the Butterfly. It involves selling an OTM call and put while buying higher and lower OTM contracts.

One-Click Strategies

• Pre-structured options strategies combining multiple contracts.
• Available for all market conditions: bullish, bearish, high volatility, and low volatility.
• Classic strategies require manual exercise, while inversion strategies automatically settle at expiration.

0DTE

Hegic’s 0DTE (zero days to expiration) options offer traders a structured way to engage in short-term market movements. These options, which expire on the same day they are opened, enable precise risk management and strategic positioning without long-term exposure.

By leveraging Hegic’s decentralized platform, traders can capitalize on rapid price fluctuations, with some historically achieving significant returns within a single trading session. The ability to enter and exit positions quickly makes 0DTE options a valuable tool for active traders seeking flexibility in volatile markets.

Beyond speculative trading, 0DTE options can also serve as an effective hedging instrument, allowing users to mitigate risk and optimize portfolio strategies. As with any high-frequency trading instrument, managing exposure and understanding market conditions remain essential.

For those interested in exploring the mechanics and potential of 0DTE options, Hegic provides a seamless trading experience with transparent pricing and decentralized execution. More information is available on the official platform resources.

Source: Source: hegic.co/app

Hegic Use Cases

By leveraging smart contracts, Hegic provides a transparent, automated solution for managing crypto volatility with predefined risk and reward. Below are three primary use cases for Hegic:

• Hedging Against Market Volatility: Traders and investors can use put options to protect their holdings against price drops. For instance, an ETH holder concerned about a potential downturn can purchase a put option to lock in a minimum sell price. If ETH declines, the trader exercises the option, selling at the strike price rather than the lower market price, mitigating losses.
• Speculating on Price Movements: Hegic allows traders to profit from anticipated price increases or decreases without directly buying or selling the underlying asset. A call option lets traders gain exposure to price surges, while a put option benefits from price declines. Since losses are capped at the premium paid, options offer a risk-managed way to speculate.
• Generating Passive Income as a Liquidity Provider: Users can act as Writers by providing liquidity to the Hegic Liquidity Pool, earning premiums from options buyers. Since liquidity providers take the opposite side of the trade, they profit when options expire worthless. Additionally, Hegic’s automated settlement and fee distribution ensure a streamlined, hands-free income mechanism.

Hegic Main Features

Stake & Cover Pool (S&C)

Hegic’s Stake & Cover Pool (S&C) is an advanced liquidity mechanism introduced after the Hegic Herge protocol upgrade in October 2022. Unlike traditional models that separate liquidity providers and stakers, S&C merges these roles into a single liquidity pool, ensuring efficient capital utilization. Participants stake HEGIC tokens as collateral for selling options and strategies. In return, they receive a share of net premiums from options trading.

The profit and loss (P&L) distribution in the S&C pool is conducted over fixed Epochs, each lasting 45 days. If an Epoch ends with positive P&L, the earned premiums are distributed to stakers in USDC.e. If an Epoch results in a net loss, a proportionate amount of HEGIC tokens is converted to USDC.e to cover the deficit. The HEGIC/USDC.e conversion rate is determined five days before each new Epoch to ensure transparency. Stakers can monitor real-time P&L and withdraw their tokens at the end of an Epoch.

Hegic implements risk management measures to prevent excessive exposure. These include limits on available bullish/bearish and high/low volatility options, ensuring a balanced portfolio. Additionally, the Hegic Development Fund (HDF) steps in to absorb excess HEGIC tokens from negative Epochs, preventing sharp market price fluctuations. This structure allows HEGIC stakers to benefit from high returns while safeguarding the protocol’s financial health.

Source: hegic.co/app

HOT & HDF

The Hegic Operational Treasury (HOT) plays a crucial role in collateralizing active options, collecting premiums from traders, and handling intra monthly settlements of in-the-money (ITM) options. It ensures the smooth functioning of the protocol, acting as the primary liquidity source for active trades. The initial liquidity was provided by the Hegic Development Fund (HDF), which was responsible for testing and stabilizing the new protocol version before opening it to the broader market.

Each month, HOT distributes its net profits to the Stake & Cover Pool, ensuring that participants benefit from the protocol’s earnings. If an Epoch incurs losses, HDF intervenes by purchasing excess HEGIC tokens at a pre-set price, preventing downward pressure on the market price. The amount of options that can be sold per Epoch depends on factors such as HDF capital reserves, the HEGIC price per Epoch, and total staked HEGIC tokens. This structured liquidity control ensures that Hegic operates efficiently, even in volatile market conditions.

Referral Program

Hegic’s Referral Program, initiated by the Hegic Development Fund, aims to attract new users while rewarding existing participants for their contributions to protocol growth. The program operates through referral links, which track new users (referrals) who follow a link and execute trades within seven days. Once a referral makes a qualifying purchase, the referrer earns 2.5% of the premium the referral pays.

All rewards are accumulated in real time and distributed every 30 days in ARB (Arbitrum token), with exchange rates sourced from Coingecko. However, all purchases must be made using the same browser where the referral link was clicked, ensuring proper tracking. The Hegic Development Fund reserves the right to modify referral terms, but users will always receive advance notice before changes take effect.

Source: hegic.co/app

Liquidity Pools

Hegic’s Liquidity Pools allow users to deposit DAI, USDC, USDT, or other stablecoins, which are then converted into writeASSET tokens (such as writeDAI). These tokens represent a provider’s share of the Hegic liquidity pool and are used to collateralize hedge contracts. Liquidity providers (LPs) earn writing premiums from options buyers, generating a steady passive income.

Premiums are distributed only to active LPs at the time of new contract activations. Additionally, Hegic pools utilize CHAI, an interest-bearing ERC-20 token that automatically earns yield on DAI, ensuring additional passive income for liquidity providers. This dual-income mechanism enhances Hegic’s liquidity providers’ earning potential.

However, it is important to note that returns on writing hedge contracts depend on market volatility. Unlike traditional on-chain lending protocols with stable yields, option writing returns can fluctuate, with potentially higher gains and risks. Hegic’s liquidity pool model balances these risks by allowing automated earnings through liquidity allocation and risk-controlled options trading.

What is the HEGIC Coin?

HEGIC is the native token of Hegic, used for staking, governance, and liquidity provision. Its maximum supply is capped at 3.01 billion units, of which 703.72 million are already in circulation (March 2025).

HEGIC is an ERC-20 token that plays a central role in the Hegic protocol, serving functions in staking, liquidity provision, governance, and fee distribution. It is the backbone of Stake & Cover (S&C) pools, where users stake HEGIC tokens to collateralize options, earn premiums, and participate in net profit and loss (P&L) distribution. Every Epoch (45-day cycle) ends in either profit or loss, determining the annual percentage return (APR) for stakers. Since P&L is settled in USDC.e, HEGIC’s value can be analyzed based on historical APR performance, allowing investors to estimate future earnings.

The Hegic Development Fund (HDF) helps regulate HEGIC’s liquidity by purchasing excess tokens during negative Epochs to stabilize its market price. Unlike many DeFi governance tokens, HEGIC holders directly access protocol earnings through staking, making its valuation tied to fundamental growth. More traded options, increased user adoption, and protocol expansion directly impact HEGIC’s price and staking rewards. As the market determines the desired risk/reward ratio, HEGIC’s valuation is influenced by its earnings multiple (P/E ratio), similar to traditional financial assets.

HEGIC also offers utility benefits. Holders receive discounted hedge contract rates, provided their HEGIC balance matches or exceeds the contract’s strike price. Writers benefit from priority liquidity unlocks, allowing them to withdraw funds instantly when pool liquidity is insufficient. Additionally, HEGIC functions in governance, enabling holders to vote on contract rates, fees, asset support, and protocol upgrades via Hegic Improvement Proposals (HIPs). With a fixed supply of 3 billion tokens, of which two-thirds were burned in 2022, HEGIC remains integral to Hegic’s long-term sustainability and growth.

Source: hegic whitepaper

Is HEGIC a Good Investment?

HEGIC has a strong value proposition as it directly links token ownership to protocol earnings, allowing stakers to earn premiums from options trading and participate in profit-sharing. This makes it more fundamentally driven than many speculative DeFi tokens. However, its profitability depends on trading volume and market conditions—if options trading demand declines or more options expire in-the-money, HEGIC stakers could face losses. Additionally, liquidity risks and the impact of negative Epochs on token price may affect long-term sustainability and investor confidence.

How to Own HEGIC?

To own HEGIC, you can use the services of a centralized crypto exchange. Start by creating a Gate.io account, and get it verified and funded. Then you are ready to go through the steps to buy HEGIC.

News on Hegic

As announced on 14 February 2025, on the official X account, Hegic has added $100,000 in liquidity to Sharwa LPs, allowing traders to purchase options with portfolio margin. This upgrade enhances capital efficiency, bringing CEX-like margin benefits to DeFi while maintaining decentralization and security. With Hegic Options and Sharwa Margin Account, traders gain access to American-style options with deep liquidity and guaranteed payouts, all while avoiding liquidation risks. Properly hedged positions remain protected, making decentralized options trading more efficient and accessible than ever before.

Take Action on HEGIC

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