14th January 2021

dHedge: Advanced DeFi trading made easy

Join Piers Ridyard in this episode of the DeFi Download, where he talks with Henrik Andersson, co-founder of dHEDGE. They discuss copy trading with synthetic assets, breaking barriers to entry into the asset management world, and democratising investing.

dHedge: Advanced DeFi trading made easy

The dHEDGE motto is “Invest like the best,” and it offers “Non-custodial mimetic trading for synthetics on Ethereum.”

Henrik is also the manager of Apollo Capital, a crypto fund in Australia, and has been involved in DeFi since it was still known as Open Finance. Henrik envisioned building a decentralised asset management platform on Ethereum. After getting involved with Synthetix, he saw the opportunity to build dHEDGE on top of the Synthetix platform.

What is copy trading and why use synthetic assets?

Copy trading is the idea that it is not necessary to know how to trade. You can follow someone who does, instead. Essentially, you provide capital to an algorithm that follows a knowledgeable trader with a solid investment strategy.

Using the dHEDGE app, a user can follow and copy trade the best traders, managers, and strategies in the world. Their strategies are accessible to anyone who can access the app.

On the dHEDGE platform you can trade synthetic assets. These are assets that replicate the return of other assets on Ethereum. dHEDGE is built on top of a protocol called Synthetix, which is one of the most popular DeFi platforms and perhaps the biggest platform for synthetic assets.

The difference between Synthetix and synthetics

It is helpful at this point to clarify the difference between the words “Synthetix” and “synthetics.” “Synthetics” is the concept of creating an asset that is a derivative of another asset. “Synthetix,” the protocol, brought this idea into DeFi by introducing pools, shares, and the ability to move seamlessly between bets.

The main advantages of working with synthetics and on Synthetix include:

  • Offering a wide variety of assets and asset classes
  • Minimising security risks by keeping trade on the Synthetix platform
  • Having no slippage or order book

The dHEDGE user base

The dHEDGE team, while still on the Ropsten testnet, conducted a few competitions that attracted the interest of people, primarily from the DeFi and the Synthetix communities, who joined to try out the platform.

The platform is permissionless and users have the option of undertaking either of two roles: Either to be an investor and copy trade any of the managers on the platform, or to be a manager and create a pool that other people can copy trade.

dHEDGE’s mission and long-term vision

dHEDGE’s aim is twofold. On the one side, it addresses the barriers to entry into the asset management world and, on the other, investor access to high-quality management platforms. 

In the traditional financial sector, few people get a chance to become portfolio managers. The barrier to entry in terms of cost is extremely high.

Investors from developing countries find it difficult to access credible management platforms. In the developed world, it is often mandatory to be an accredited, and thus wealthy investor to have access to first-rate hedge funds and the best managers in the world.

dHEDGE strives to break down these obstacles and democratise investing, by using the blockchain and DeFi.

Performance mining

Performance mining aims to be the non-gameable alternative to yield farming and liquidity mining. The dHEDGE team seeks to create something that will have long-term value.

A manager who performs well and an investor who brings value to the platform by identifying who the best performing managers are, will both be able to earn the dHEDGE governance token.

dHEDGE tackles the issue of non-gameability by applying a range of methods:

  • They look at the long-term performance results, starting at the pool’s inception, to rank managers. They examine the Sortino ratio, which is performance risk-adjusted by the downside volatility.
  • They discourage managers from taking advantage of randomness and creating hundreds of pools, expecting some of them to perform well, by multiplying the Sortino ratio by the assets under management (AUM). This gives managers the motivation to put real money behind their strategies.
  • They encourage managers to verify themselves on Twitter.

dHEDGE’s strategy for attracting talent includes:

  • Offering incentives in terms of performance mining
  • Raising awareness for the platform
  • Distributing a governance token, the DHT
  • Creating a strong community aligned with the success of the platform

The first products of the dHEDGE platform

dHEDGE went live on the Ethereum mainnet in October, providing access to all forty Synths available on the Synthetix platform, both long and short. Their next major release, performance mining, took place in December and was based on the performance record the managers had established. The dHEDGE team continues to develop and decentralise the platform. 

Further resources