Hexagon Finance is a one-stop decentralized trading and investment platform on Avalanche, and the Phase 1 product is powered by Balancer V2.
A set of permissionless protocols, that anyone can build upon and any assets can be integrated with, Hexagon Finance has two product phases
Phase 1 is a dex powered by Balancer V2.
Phase 2 is a lending platform powered by AAVE.
Launched in 2020 by Ava Labs, Avalanche is a flexible smart contract platform that facilitates the creation of custom blockchains – including private blockchains and decentralized applications (dApps). It is also compatible with the Ethereum Virtual Machine (EVM).
According to Defillama, Avalanche has the 4th largest TVL among public chains, locking over 10 billion in crypto assets, with 191 Dapps running as of April 4, 2022. And still growing at a rapid speed.
All of this provides Hexagon Finance with friendly and strong technical and ecological support for the coming deployment and integration. The Hexagon Finance team, together with Balancer Dao, is in constant touch with the Avalabs team, and several DeFi projects within the ecosystem.
We believe these premises will create a friendly atmosphere for future collaboration and turn Hexagon Finance into an important piece of the legos building in the Avalanche DeFi mansion.
Hexagon Finance Phase 1 product is a fork of Balancer V2 on Avalanche.
Hexagon Finance targets three prominent use cases. Liquidity Providers who can create and contribute to existing pools, traders and arbitragers looking for liquidity sources, and developers building on top of the Protocol.
Like most of the Dex models in DeFi, Hexagon Finance deploys liquidity pools to facilitate trading, rather than order books. Liquidity pools are the fundamental building blocks and they are smart contracts that define how traders can swap between tokens.
What makes Hexagon Finance Pools unique from those of other protocols is their limitless flexibility. While other exchanges have pools with constrained parameters, Hexagon Finance can accommodate pools of any composition and underlying math, thanks to the Balancer v2 mechanisms. It is possible to include different types of pools, like weighted pools, stable pools, LBPs, etc., with tailored algorithms to provide customized slippages, impermanent loss exposure and rewarding structures for traders and liquidity providers.
Balancer, one of the best-known decentralized exchange (DEX) platforms, has been in development since 2018 and was released in 2020 on Ethereum. Since then, it has risen to become one of the top DEX platforms in the world, with the 13th largest TVL among DeFi protocols according to DefiLlama (as of April 2022).
Balancer is a modern form of a decentralized exchange, known as an automated market maker (AMM). This means it uses the ratio between assets shared in a liquidity pool to determine each asset’s value. As users add or remove liquidity from one side of a pool by conducting trades, this changes the pool ratio, and hence the price of each asset.
It offers similar functionality to platforms like Uniswap and TraderJoe but includes a number of unique features that set it apart from other DEXs. One of the main differentiators is that it applies an innovative AMM algorithm to build liquidity pools with more than two assets and facilitates trades among them. At the same time, it provides additional flexibility and control to pool owners in setting up key parameters in terms of liquidity management and trading.
The unique features from Balancer provide great flexibility for both traders and liquidity providers. The weighted pools facilitate having various pooled assets, trading pairs and reduce impermanent loss. The model can even perform as a tailored mutual fund, while automatically rebalancing itself and accumulating transaction fees.
Its stable and metastable pools apply stable math to lower slippages in trading homogenous and correlated tokens.
The LBP (liquidity bootstrapping pool), fully integrated by Copper, will help new projects to initiate token launch, with fewer front contributions in funds, anti whale or bot features and facilitating price discovery in a more friendly way.
Furthermore, the Avalanche ecosystem is rife with a number of successful DEXs using the Uniswap model - think of TraderJoe, Pangolin, Hurricaneswap, etc. - while almost no one has embraced the Balancer model so far.
This means that Hexagon not only will definitely provide additional choices for institutional investors, retail traders, and yield hunters but will also naturally stand out amongst the crowd.
Hexagon Finance will first deploy a DEX - what we refer to as ”Phase 1”. Hexagon Pools are smart contracts that define how traders can swap between tokens on Hexagon Finance.
Hexagon Finance is building a user-friendly interface to exchange tokens, with optimal routes automatically picked for trades and multiple tokens supported within the same pool. This in turn guarantees better liquidity and a greater variety of pairs compared with the Uniswap model.
For example, in a hypothetical AVAX-ETH-USDC pool, one could simply trade USDC for AVAX or ETH in the same pool without having to separately build liquidity for an AVAX-USDC and ETH-USDC pair.
Users can earn yields by contributing liquidity to the Hexagon pools.
What makes Hexagon Pools unique compared to other protocols on Avalanche is that liquidity pools can be created using algorithms tailored to their specific assets, providing limitless flexibility. This mechanism can provide different risk-return profiles for users.
Stable pools apply stable math to facilitate trades between stablecoins and highly correlated tokens. The stable pools tend to have low slippage for stablecoin transactions, with little fluctuation expected in terms of pooled value. This also applies to the metastable pools such as our planned sAVAX/AVAX.
Projects building liquidity for their platform tokens, in addition to the traditional 50/50 liquidity pools paired with stablecoin or AVAX, can customize the token weights in their weighted pools.
Normally, an 80/20 or 70/30 pool is recommended for newly launched projects, as new tokens are expected to be volatile. These pools may provide a liquidity solution with less impermanent loss, compared with the 50/50 pool, for liquidity contributors.
For a deeper understanding of impermanent loss, please check the Hexagon docs here.
Hexagon Pools with a variety of tokens are similar to traditional index funds, allowing users to have broad exposure to the crypto market. Weighted pools are so flexible they can include up to 8 crypto assets in a single pool, with customized weights.
These pools will create a portfolio, or even an index if you like, with auto-rebalancing features. Where Hexagon Finance differs from traditional index funds, however, is that in the DeFi world you can gain from transaction fees besides price fluctuations.
For example, let us imagine you intend to invest a DeFi portfolio on Avalanche. A pool featuring equal shares of ETH, AVAX, AAVE, JOE, QI, CRV, PTP and ALPHA would probably be suitable. By contributing liquidity in the pool, you will automatically split your funds evenly into these 8 crypto assets. No matter how the prices of these 8 assets move in the future, arbitraging will ensure that your share in any of the 8 cryptos will be 12.5% of your total investment.
But you can still earn both transaction fees in the liquidity pool - in case any trades are made among these tokens - and mining incentives, if the pool is whitelisted for rewards.
Hexagon Finance is a perfect venue to build liquidity for platform tokens, since projects, no matter newly launched or already established, can choose to build pools with tailored weights.
(As arule of thumb, pools with weights leaning toward the platform’s token may require fewer contributions in the token itself, display less impermanent loss and have higher slippage when trading. Vice versa, pools with weights favoring the paired token could require higher contributions in the paired token, while having higher impermanent loss and lower slippages.)
Also, some projects would certainly be interested in building safety mechanisms using weighted pools, while still providing liquidity, just like Aave does with Balancer. Aave is a decentralized non-custodial liquidity protocol where users can participate as depositors or borrowers. Aave uses pool tokens from the 80/20 AAVE/WETH Weighted Pool on Balancer to lock funds in their Safety Module (SM) while still providing liquidity for the AAVE token.
Liquidity Bootstrapping Pools (LBPs) are a specific configuration of Hexagon's Liquidity Bootstrapping Pools on Copper Launch. Their primary use is to distribute tokens, mostly for newly-launched projects.
LBPs are pools that can dynamically change token weighting (from 1/99 to 99/1 for TokenA/TokenB), relying on weighted math with time-dependent weights. The starting and end weights and times are selected by the pool owner.
LBPs were conceived with the following key considerations in mind:
- A team should be able to build liquidity without large amounts of upfront capital
- A team should be able to create a treasury to fit their desired risk profile and funding goals
- The distribution of tokens and liquidity provision should be decoupled from token price changes. In other words, differently from bonding curves, tokens should be distributed even if their unit price stays constant.
Price discovery. The price of the token starts relatively high and drops based on a pre-configured price decay curve that can be resisted by buying pressure from LBP participants. Anyone can buy into or sell out of the LBP freely at any time, so price truly regulates itself.
Open and permissionless participation. No whitelists, hard caps, or listing requirements. There is no minimum or maximum allocation. LBP participants choose how much they want to buy.
Fair distribution. LBPs flip the first-come-first-serve launch model on its head. It's no longer a race where the first bot in or the transaction with the highest gas fee wins. Get your token into the hands of as many people as possible in a fair way that disincentivizes front-runners and whales getting better rates than smaller participants.
Capital efficiency. The initial price of the project's token in the LBP can be magnified by up to 99 times relative to the collateral deposited along with it. Additionally, the collateral can be fully retrieved at the end of the LBP unless the project's tokens already exist outside of the LBP, in which case someone could decide to sell into the LBP.
What are Hexagon's Liquidity Bootstrapping Pools (LBPs)?
Any user who identifies a price difference in two Hexagon Pools can execute a flash swap. The arbitrageur who makes a flash swap does not need to hold any of the input tokens required to make a trade. The arbitrage opportunity arises as the trader identifies the price imbalance, tells the Vault to make the swap, and receives the profit.
Every time someone makes a trade on Hexagon Finance, liquidity providers (people who have deposited funds onto Hexagon Finance) get some fee split evenly between all providers.
It’s important to note that because fees are dependent on volume, daily APRs can often be quite low just like they can be very high.
When you go to the deposit page and deposit in the liquidity pools on Hexagon Finance, liquidity provider tokens (LP tokens) will be transferred to the same address. The fund you provide then gets split between each token in the pool. That’s something you have to keep in mind because if you were to deposit 1000 USDC in a 50/50 AVAX/USDC Pool, you would then get half in USDC, half of the value in AVAX and deposit these into the pool. Those values change constantly as people trade and arb the price in the pool.