DAI Liquidity Pool

What is Hegic DAI Liquidity Pool?

DAI Liquidity Pool is a non-custodial smart contract. You can provide DAI stablecoins to the pool and start earning premiums in DAI. No other user or organization will have an access to your funds.

DAI stablecoins allocated on the DAI Pool contract are used for selling ETH put options on Hegic. ETH put options buyers pay premiums for a right to swap their ETH for DAI from the pool at a fixed price during a certain period. Liquidity providers have an obligation to swap buyers' ETH for DAI when they are exercising ETH put options contracts.

How the Hegic DAI Pool Works?

ETH put options buyers pay premiums for a right to swap their ETH for DAI at a fixed price during a certain period. Premiums in DAI are distributed between DAI Pool liquidity providers right after the buyers pay them.

The amount of DAI stablecoins on the DAI Pool contract will be locked for the period that the buyer has paid for. If the buyer does not exercise the contract during this period, DAI will be unlocked for new contracts.

If the buyer exercises the contract, they swap ETH for DAI that was locked for them. ETH will be automatically swapped for DAI using Uniswap pool and DAI will returned to the DAI Pool contract.

How to Join the Hegic DAI Pool?

Send DAI stablecoins to the pool contract. You will receive writeDAI (ERC20) tokens that give you a share in the pool's profits and losses.

How to Withdraw DAI?

Send writeDAI tokens to the pool contract. They will be automatically burnt and you will receive DAI stablecoins to your Ethereum address.

20% of the DAI liquidity pool is always available for withdrawals by providers and cannot be locked on new options contracts. If there are not enough funds in the pool to withdraw all of your liquidity, you will have to wait for the options contracts expirations and do it after the liquidity is back to the pool.

What are the Risks?

You can lose up to 100% of your funds that you provide to the DAI Liquidity Pool contract. Selling ETH Put Options exposes liquidity providers' capital to unlimited losses. There is a technical risk that the DAI Liquidity Pool contract can be hacked in the future. Never provide more DAI to the DAI Pool contract than you can afford to lose.

How is the Premium Distributed?

Premiums paid in ETH (and automatically swapped for DAI on Uniswap) by the ETH put options buyers are accumulated on the DAI Pool contract. Each time a new buyer pays a premium, the price of writeDAI tokens increases. Because of that, each writeDAI token can give a right to withdraw more DAI from the DAI Pool contract.

How are the Losses Distributed?

Each time an ETH put option holder exercises a contract with losses to the DAI Pool liquidity providers, the price of writeDAI tokens decreases. Because of that, each writeDAI token can give a right to withdraw less DAI from the DAI Pool contract.