The power of dHEDGE is to connect investment managers and traders with investors who can mirror their strategy. This is done in a way where investment managers are not able to withdraw investor funds thanks to dHEDGE's smart contracts.
Investors retain custody of their funds throughout the duration of being invested in a pool. When an investor buys a stake in a trader's pool, the investor is issued a pool token. The pool token is how an investor is able to redeem funds from the smart contracts. Only the pool token holder has access to the funds in the smart contract associated with that user's funds.
Pools are at the heart of what attracts investment managers to dHEDGE. Investment managers and traders can raise funds to manage in minutes with dHEDGE and without third parties.
The managers have an incentive to manage funds with dHEDGE as they can place a performance fee tracking the pool's Return on Investment (ROI).
dHEDGE on Ethereum is powered by Synthetix. dHEDGE managers trade synthetic assets that utilize a unique paradigm called peer-to-contract (P2C) liquidity, which enables zero-slippage trading.
The peer-to-contract mechanism guarantees you as a user that you will get a price from an automated source.
As a user, this means that the price won't change in response to your bid because another bot picks up your bid in the order book and enters a new bid slightly higher. You get to trade at the oracle price, no matter what other participants are bidding on the same synthetic asset. The volume of limit orders bid or asked on a synthetic asset cannot influence the price at which the orders are filled.
With the peer-to-contract mechanism, the price you see is the price you get.
The smart contracts powering this functionality are fundamentally drawn from dHEDGE, Synthetix, and Chainlink.
How does the price of the synthetic asset get determined if not from the buyers and sellers of the synthetic assets? Price oracles, primarily Chainlink price oracles, provide a consistent price feed to Synthetix contracts stipulating the market price at which the base asset is trading.
“Given our reliance on regular price feeds for our derivatives trading mechanism, finding a robust decentralised oracle solution has always been at the top of our priority list. Chainlink delivers the solution, deployed by an excellent team and supported by an invaluable community.”
The advantage of synthetic assets is they are a vehicle for demonstrating the price of the base asset on-chain, enabling investors to construct unique on-chain portfolios.
To consider one example of the utility of synthetic assets, a trader can buy and sell synthetic Gold or Silver with the synthetic version of these assets, sXAU, and sXAG, without dealing with physical pieces of metal or storing the precious metals.
Unlike centralized limit order books (CLOBs), synthetic assets will always trade at the oracle price for any trade size.
Synthetic assets from Synthetix comprise the base-level decentralized liquidity pool that empowers pool managers to execute their strategies in a decentralized, permissionless, and trustless way.
dHEDGE pools on Polygon are powered by whatever transaction guard is enabled on the dHEDGE V2 contracts. These guards are called Guarded Open Access Transactions (GOAT).
GOAT allows dHEDGE to rapidly add new protocols, without endangering investor funds.
Currently, Sushi Swap on Polygon is supported, but more protocols are coming soon. Managers trade with assets in their pool directly with Sushi on behalf of their investors through the pool V2 contracts.