Incentives

AnyHedge incentivizes participation from Hedge, Short, Oracle and the optional order book facilitator. It is important to recognize these incentives, as described below, when working with or modifying the system.

Hedge is the obvious target audience, and benefits from removal of volatility in a non-custodial and trust-minimizing way. Parties receiving BCH in their activities are the natural users on this side, which includes miners, merchants and services that mainly deal in BCH. Initially, we expect them to be willing to pay a premium up to but not more than exchange fees to fiat or transferable stablecoins over the time they expect to remain in crypto. As the benefits of non-custodial setups become more widely understood, they may be willing to pay more. Such fees can can range from 0.3% at Binance to 7% at LocalBitcoins, depending on desire for availability, censorship-resistance and reliability.

Short absorbs risks from the Hedge to have a chance at amplifying their exposure and increase their upside when the external asset falls in value relative to BCH. This group is typically made up of speculators who expect the external asset to fall in value with respect to BCH, but can also be traders who have long exposure elsewhere in the market. We expect them to be willing to pay a premium that is competitive against lending rates for leveraged shorts elsewhere. For example, USDT, an asset typically borrowed for similar purposes, has a lending rate on Coinex generally at 12-15% APR (Annual Percentage Rate).

It is worth noting that the market premium may go to either Hedge or Short depending on relative demand at any given time.

In addition to the two primary parties, at least one reliable Oracle must be present. In order to avoid legal complications and disputes related to collusion, we expect oracles to actively avoid knowledge of contract details. Emitting accurate, reliable and independent messages will maximize the value and demand for a given oracle. Initially, we expect Oracle to be a free service provided by existing players such as exchanges. As volume grows and more reliable guarantees are desired to facilitate important trades, oracles may begin to charge fees for their signed messages through regular contracts with exchanges, or per-contract fees paid in a non-custodial way. Although we expect that oracles will generally publish messages publicly on the blockchain to increase user confidence, oracles can easily delay public broadcasts and provide paid access to a timely message feed. Oracle providers may also derive income from additional services, such as automatic redemption and liquidation of AnyHedge contracts.

Finally, as described in the previous section, exchanges are critical as facilitators of high liquidity with their managed order books. Unlike most other assets, AnyHedge contracts free the exchanges from custodial risk and therefore lower their operating costs to the price of implementation and maintenance of noncustodial interfaces. The uniqueness and utility of AnyHedge itself can also attract volume to an exchange.