How It Works
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.
Let’s look at the different possibilities.
Trading
Hexagon Pools are smart contracts that define how traders can swap between tokens on Hexagon Finance. What makes Hexagon Pools unique from those of other protocols on Avalanche is their limitless flexibility, thanks to the Balancer V2 model. Hexagon Pools with high token counts are similar to traditional index funds, allowing users to have broad exposure to the crypto market. Where Hexagon Finance differs from traditional index funds, however, is in the fees.
Instead of paying fees to have a broker rebalance the Pool, Hexagon Pools distribute fees as they are continuously rebalanced by traders making swaps.
How do I make a swap?
First time here? Check out our guide (to be updated) for a walkthrough on how to make your first trade.
In short, you'll need:
AVAX to pay for gas fees
ERC20 tokens (or AVAX) to trade
An AVAX C-chain address you can use with one of the compatible wallets, MetaMask recommended.
Price Impact
Price Impact is how much the price of an asset changes during a swap. Since prices in AMMs depend directly on token balances, and a swap creates a change in balances, the spot price in the pool changes.
Slippage
Slippage is the change in token prices between when you create a transaction and when it actually executes. To make sure you get within the price range you expect, trades have Slippage Tolerances. You can change this tolerance by in the Slippage settings.
Can I trade if I have no tokens?
Yes, Flash Swaps allow arbitrageurs to find and swap imbalanced pools and claim the difference as profit. Since only final net amounts are transferred, arbitrage trades are also significantly easier. An arbitrageur who has no tokens but detects a price asymmetry between Hexagon pools could trade to make a profit.
Liquidity Providers
Hexagon Protocol also operates as a decentralized exchange. Users can swap their assets or provide liquidity without relying on centralized intermediaries.
Hexagon Pools enable users to earn income simply by depositing their tokens into the pool. Liquidity providers (LPs) earn fees whenever swaps are conducted through Pools they provide liquidity to. In addition to trading fees they collect, Liquidity Providers can earn FLAKE tokens — the governance token used to cast votes on Hexagon improvement proposals. To attract further liquidity, Hexagon Finance has a flexible Liquidity Mining Program that targets high-priority pools and can respond quickly to changing market conditions.
How do I invest/provide liquidity?
First time here? Check out our guide (to be updated) for a walk-through on how to add/withdraw liquidity.
In short, you'll need:
AVAX to pay for gas fees
ERC20 tokens
An AVAX C-chain address you can use with one of the compatible wallets, MetaMask recommended.
What are the benefits of providing liquidity?
Hexagon Liquidity Providers (LPs) collect trading fees on each swap.
Trading fees: A small percentage of the trade paid by traders to pool LPs, set by the pool creator. For instance, if a pool had a 1% fee, and governance introduced a 1% protocol fee - the total swap fee to the trader would remain at 1%, but now 0.99% would accrue to the pool's LPs, and 0.01% would accrue to the protocol fee collector contract.
Flash Loan fees: A small percentage of assets that are used for flash loans accrues to the protocol, for allocation by governance.
In addition, some pools are eligible for Governance Distributions through the Liquidity Mining program.
How are trade fees collected?
When there is a trade in a pool, the pool collects a trade fee. The trade fee is denominated in the input token.
Example: Let's say there is a pool holding AVAX and USDC with a 0.3% trade fee. If Alice trades 100 USDC for AVAX, the pool will keep 0.3 USDC (0.3% of 100 USDC) and give her back an amount of BAL worth 99.7 DAI.
How do I get my trade fees?
As the pool collects fees, your Hexagon Pool Tokens automatically collect fees because they represent your proportional share of the pool.
Let's say 4 users all provide liquidity in the same pool starting out worth $100. After some time, it has earned many trade fees and is now worth $200. The pool itself grows while their proportional shares stay the same.
How does a pool determine the price of tokens?
In general, the AMM logic determines the prices that traders pay. For example, Weighted Pools, use a constant product formula and Stable Pools, use a StableSwap formula.
Arbitrage Opportunities
Flash Swaps
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.
Flash Loans
Flash Loans are uncollateralized loans that must be repaid in the same transaction as borrowed. Two of the most common flash loan use cases are arbitrage trades and collateral swaps.
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