We assign DeHedge a “Stable+” rating.
DeHedge is a decentralized platform for hedging risks for crypto investors. DeHedge protects investments in ICOs and cryptocurrencies in cases of currency fluctuations, fraud and project liquidation. Using DHT tokens, the platform offers to insure such risks by fixing "insurance" parameters in a blockchain account via smart contracts.
The project’s services have already been developed to a high level, and have a good degree of uniqueness and potential relevance. The project offers a solution for flexibly managing the risks of investing in ICO projects and cryptocurrencies. There is a working MVP for the platform, which enables investors to insure risks for several ICO projects. This shows that the basic services offered are readily available, and offers greater opportunities for further development.
The team's competence is at a high level as well; the staff includes a large number of investment business professionals with rich experience in market trading, derivatives development and asset management. The team is capable of bringing proven ideas from the traditional investment world to the crypto industry.
However, we also see a number of risks for the project, including: Centralization - a strong dependence on what projects the hedging platform will permit, what models it uses in calculations, and how it manages its risks. Complexity in scaling - the project is implementing a complex product, and it is difficult to cover a large number of ICO projects; the total risk assumed by the platform is leveled to a greater extent with a larger number of participants. Regulatory, legal and business risks that may affect the future development of the project, as well as a large number of factors that affect the price of the token and others.
Despite this, we see potential for the project and assign it a "Stable+" rating.
General Information about the Project and ICO
DeHedge is an insurance hedging platform for investors in ICO projects and cryptocurrency traders. Users of the service will be able to insure their risks from strong fluctuations of cryptocurrency and also reduce the likelihood of losses when investing in ICO projects at the stage of a crowdsale. users pay a premium for insurance (hedging). Thus, they will potentially receive less profit but will partially protect their investments in the event of strong depreciation.
Hedging tokens is the main service the project focuses on. This service is suitable for ICO investors that wish to minimize risk for their investments in various tokens. The DeHedge service enables them to buy the right to sell tokens at the same price they paid for them at the crowdsale stage. In the event that something happens to the project (it turned out to be a scam or the token price falls sharply over a certain period), the user will be able to sell tokens at the same price for which he bought them and not lose more than the amount he paid for insurance. This service thus minimizes the risk of being deceived by fraudsters or being subject to price risk after listing on exchanges.
The second service that cryptocurrency traders can use, offers buying and selling options (the same insurance) at a predetermined price with certain insurance risks. In the event of an insurance situation (a decrease or increase in price), DeHedge undertakes to compensate for price movement, thereby minimizing losses for crypto investors.
preICO start date: 15.03.2018
preICO end date: 20.04.2018
Token name: DHT
Soft cap: no data
Hard cap: 5000 ETH
ICO price: 1 ETH = 36,000 DHT 1 BTC = 490,000 DHT
Minimum Buying Transaction: 0.1 ETH or 0.01 BTC
Maximum Buying Transaction: -
Accepted currencies: ETH, BTC
ICO start date: no data
ICO end date: no data
Token name: DHT
Soft cap: no data
Hard cap: 50,000 ETH
ICO price: 1 ETH=28,800 DHT 1 BTC=392,000 DHT
Minimum Buying Transaction: 0.1 ETH or 0.01 BTC
Maximum Buying Transaction: -
Accepted currencies: ETH, BTC
Tokens will be sent to investors after the ICO completes.
Unsold tokens will be frozen and transferred to a common pool of frozen tokens.
DHT will be issued to the amount of 10,000,000,000 (ten billion) units. No more than 2,500,000,000 (two and a half billion) tokens are offered for placement at the ICO. After the ICO, 7,500,000,000 unplaced tokens (75%) will be frozen until another round of placement, if such is decided on.
Distribution of tokens during the ICO is as follows:
The funds raised during the ICO will be allocated as follows:
- 80% - hedge reserve
- 12% - platform development and team provision
- 6% - marketing and promotion
- 2% - legal and financial services
Description of the Services and Scope of the Project
The risk of losing money from investing in ICO projects or trading cryptocurrencies is a problem for the crypto industry. Reasons for this may be varied, but the most significant are the complexity involved in analysing early-stage projects for ordinary investors, and a lack of convenient tools to insure portfolios without selling them at unprofitable prices.
Traditional investment markets have a rich set of solutions to protect investors. These are options, futures, forwards and many other tools which can help investors create a strategy for trading and protect their positions on exchanges.
DeHedge is designed to expand the toolkit for crypto investors and create a convenient mechanism to protect both ordinary investors and crypto funds against losses using proprietary models for evaluating projects and their tokens, as well as creating a pricing mechanism for insurance - premiums on options.
DeHedge offers hedging (insurance of risks) in two versions:
I Hedging risks of investing in ICO projects.
II Hedging price risks for cryptocurrencies and tokens in the secondary market.
I Hedging risks of investing in ICO projects
DeHedge is developing services designed to protect investments in ICOs and cryptocurrencies in the event of currency fluctuations, fraud and project liquidation.
The project is making its own selection of ICO projects, token prices of which can be hedged. For this purpose, an analysis of projects using various parameters is carried out using DeHedge’s own scoring model involving artificial intelligence mechanisms. Further, after the first stage of selection, projects are submitted for evaluation and approval to an investment committee, which conducts additional checks. After approval, tokens are bought at a discount at the pre-sale.
Any investor who wants to insure risks when investing in a project offered on the website can buy tokens issued by this project with "insurance" for a certain period (the standard one is 6 months). If something happens to the token or its price, DeHedge compensates for losses to the investor. An additional token, DHT, is used for insurance, i.e. hedging - which enables writing all transactions to blockchain and tracking them.
II Hedging price risks for cryptocurrencies and tokens in the secondary market
The project assumes the future development of a service for hedging price risks. This will insure positions against adverse and sharp price jumps in one direction or another.
The service will operate as follows:
- The investor selects a token on an exchange, the time range for protection against depreciation and the range of rate change. The investor then pays for options of protection against rate decrease using DeHedge tokens or ETH.
- When the token rate decreases, a refund is paid automatically. DeHedge enables personal payment settings.
The platform’s products may be of interest to the following crypto market participants:
- ICO Investors
- Investment and crypto funds
- Hedge funds
- ICO projects
It is worth mentioning separately that the project has an MVP and already enables hedging the risks of participation in several ICO projects.
We highly appreciate the thoughtfulness and potential of the products and services offered by the project. The audience’s needs were studied and a lot of work has been done done to create a unique trade offer.
The crypto world and the ICO market were booming in 2017. Previously there were isolated cases which immediately gained publicity, but in 2017 crowdsales gained a much wider popularity among start-ups, including those not directly related to the crypto ecosystem, and investors followed suit.
The number of token Ssales launched in 2017 was 382 - more than one ICO per day. Currently, a number of research studies of the ICO market have been published, in particular Coindesk’s and Autonomous reports. Summarizing these reports, we note the following:
In the first half of 2017, blockchain projects attracted $797 million via ICOs, while only $235 million was raised by traditional venture capital investment. In the first three quarters of 2017, 201 ICO projects raised about $3 billion. There are already more than 100 institutional investors participating in token sales.
In total, $6,037 billion was raised via ICOs in 2017. Average amount of funds raised was $16 million per project.
It is worth noting that the proportion of ICOs not reaching their goal is increasing: in June this was 7% of projects, in August - 54%, in September - 66%. With an increase in the number of ICOs, the share of failures also increases. In addition, it should be noted that not all successful ICOs are successful in the future development of their product or with increase of their token rate.
We see a certain potential in the development of hedging in such a rapidly growing market. Despite the cooling seen during Q1 2018, we think that the business cycle will return to a growth phase and we will see the continuation of the trend for ICOs as a source of financing for companies.
In this regard, if we cover ICO projects for hedge at 10-15% and keep the same indicators for ICO revenues in future years, we believe that the project could count on a market volume of $30-100 million annually. In our calculations we take into account a market volume of 6 billion dollars, 10-15% coverage for projects and 5-10% of consumers willing to insure their risks in these projects. In general, this figure may be greater with the development of derivational desks and an increased emphasis on hedging the price risks of cryptocurrencies and tokens.
There are few competitors due to the relative novelty of the crypto market. At the same time, the insurance of ICO risks has been present for a long time; it is offered by investment companies to its clients in the form of options for the sale of purchased shares. Likewise, there are a large number of derivative instruments enabling consumers to flexibly manage their positions and risk in futures markets.
There has been no wide range of instruments in the crypto industry enabling investors to hedge their positions in cryptocurrencies and there are no companies that offer investment insurance in ICO projects. Nevertheless, we distinguish several companies and projects that have functions partially resembling DeHedge’s and which may compete with it for market share.
BitMEX is a trading platform for creating derivatives. The platform enables its users to conclude contracts with a large leverage on different assets, which enables having a large position in one direction or another for a smaller security. BitMEX offers various types of derivative contract; all purchases and payments are made in Bitcoin. The platform has sufficient popularity and a good liquidity in many instruments. One of its key features is an ability to bear the market, which can theoretically be viewed as an insurance position.
Derebit is a trading platform that enables trading options and futures. There are also "leverages" for trading, and insurance against the fall or growth of crypto assets. The platform positions itself as a service for professionals with good liquidity support and a risk management system. The option desks appear alive and relevant but there is a serious counterparty risk for the platform itself. It also offers only the larger cryptocurrencies, with no altcoins.
Tokenbox is a platform that combines crypto funds managed by professional portfolio managers and investors. Investors are given access to the best management strategies in the crypto market with a high degree of safety for these processes. Portfolio managers and traders, including teams of professionals, receive a ready-made "box" solution for creating their own tokenized fund operating professionally and openly, within the legal framework. The solutions offered by Tokenbox make the fund management process and its development efficient and safe. The project offers "Access to the marketplace of ICO campaigns: centralization and a corporate approach enable you to purchase project tokens at the best prices (bonuses, discounts and guaranteed purchases). Tokenbox provides projects access to the platform and also offers tokenization, processing, escrow, security audit, and legalization services." This enables us to talk about potential competition mainly in the interaction with crypto and hedge funds.
Tether (USDT) is a cryptocurrency asset released on the Bitcoin blockchain via the Omni Layer protocol. Each USDT block is supported by the US dollar, the entire amount of which is held by Tether Limited. The technical documentation for the project states that USDT is issued when the dollar equivalent is paid to the company's account and that tokens are redeemed when money is withdrawn. USDT enables using "fiat money" when trading with cryptocurrencies, thereby reducing risks of their ownership. However, regulatory risks often arise around this company, and it is not as transparent and open as it could be for maximum credibility.
CME and CBOE - US exchanges launched futures trading on Bitcoin in 2017 (Cboe Global Markets - December 10, 2017 and CME Group on December 18, 2017), which suggests potential competition in hedging the risks for Bitcoin price decreases.
It should be noted that the project has a number of competitive advantages and offers the market a wider range of solutions than its competitors. However, future development of the crypto industry will entail the appearance of new competitors both in the crypto environment and in traditional investment markets (mutual funds, structural notes, options, etc.). DeHedge needs to evolve a step ahead of changes in the competitive environment to achieve success and capture its estimated market share.
Team and Stakeholders
DeHedge has a strong team featuring many specialist professionals. There is a high level of experience offered in relevant investment and management areas. Let us consider some key members of the DeHedge project team, their positions and competences.
Founder and CEO
Founder of several IT companies. Mikhail has been investing in the stock market since 2007. He was a mentor for Sberbank in the Google Business Class program. Skolkovo school graduate. Specialist in Corporate Economics, Crisis Management and Evaluation.
Skolkovo Moscow School of Management graduate.
Co-Founder and CCO
Has more than 20 years of experience in the development of client relations in the investment banking sector. Bogdan has occupied executive positions for large banks including being the former vice-president of Military Industrial Bank.
Skolkovo Moscow School of Management graduate.
Co-Founder and COO
Has more than 12 years of experience in the investment business, the major portion of which he gained working for Troika Dialog and Sberbank CIB. Has a Ph.D. in Economics; a professional in investment banking.
Graduate of the Executive MBA of the Moscow School of Management Skolkovo.
Investment banker with more than 25 years of experience. CEO of Standart Capital Group.
From 1991 to 2001 he was Partner and Managing Director of investment corporation Prime Charter Ltd.
Mark graduated from New York University and completed an Executive MBA program at Wharton School of Business.
Has more than 10 years of experience in Software development. Participated in the creation of mobile applications for a wide range of users. Developed a security system for cloud computing platform. Designed the architecture of a distributed storage system. Developed the concept of the MTS incubator for the formation of product teams and the development of staff competencies.
Received a Master of Science degree in Software Engineering from Carnegie Mellon University.
Has more than 8 years of experience in marketing. Kamil is the founder of the online marketing agency Rise24 and IT company Sapron.
Head of Legal
12 years of experience in law, including eight years in consulting (Baker Botts LLP, Chadbourne and Parke LLP), including major international projects and four years in senior positions in multi-profile holdings (AltraVita).
London University of Queen Mary, specialization - international commercial law.
In our opinion, the team has sufficient competence in its field. Team members have experience that enables them to create a product based on the strengths and weaknesses of solutions available in the investment market. However, in our opinion, very little attention is paid to blockchain development; there are only a few specialists who are capable of implementing complex solutions such as the ones planned.
The team includes other specialists with positions that presuppose management, marketing and development.
In general, we rate the team highly, and note its high motivation and openness for potential investors and users. The team’s high level enables us to predict the successful development of a complex investment product with a high degree of probability.
Key project advisors
Manager with more than 20 years of experience. He has been dealing with cryptocurrencies since 2013. Over the past few years, Jack has worked as a director of Rock Financial Associates, as a senior partner in the management and partnership of Belgravia Wealth Management and as a partner in the Moscow office of the DeVere Group.
Jack is also an entrepreneur and financial advisor for insurance and investment insurance.
Taras has 17 years’ experience in banking and investment. He has been engaged in management of credit and counterparty risk for Corporate & Investment Banking and Global Markets in large commercial and investment banks, including MDM Bank, Troika Dialog and Sberbank CIB.
Harold is an entrepreneur, a crypto investor, and the founder and CEO of a crypto data analysis company located in Seoul, Korea. He has 8 years of experience at Hyundai Capital and HSBC. He is an expert in the trading and analysis of foreign currency, securities and bonds.
The project’s advisory board includes highly-qualified specialists, and even stars of the industry in some instances. Its composition is multidirectional. The fact that professionals of this level are involved indicates the seriousness of the project and its high appreciation by industry participants.
DeHedge uses DHT tokens on its platform.
DHT is required to use the platform’s services. It is necessary both for hedging the risks of ICO projects and for insuring price changes of listed tokens and cryptocurrencies.
A user enters the project website and selects the projects available from a list of ICO projects that can be hedged via a special web interface. Each project has several temporary options (validity periods) for hedging and a corresponding price. A holder of DHT tokens can choose a project, the risks he wants to hedge and the hedging period. The user pays for the hedge by transferring DHT tokens to the DeHedge platform.
During the crowdsale, the DeHedge platform is creating a reserve fund, designed to offset losses for investors, if applicable. When a smart contract is concluded and DHT tokens are transferred to the platform, the following parameters are written on blockchain:
- The client to be hedged (the wallet number from which DHT was sent)
- A hedged item (a project whose tokens have been hedged)
- The price for hedging
- Coverage (amount to be paid out in the event of hedging)
- Duration of the hedge
- Conditions for the occurrence of a hedging event
An investor can track the size of the compensation reserved at any time through the blockchain. It is worth noting that when a smart contract is concluded, a special security is created which can be monitored.
The cost of hedging in tokens is worked out using the company's internal calculation models, including use of the Black-Scholes model but with certain modifications necessary to adequately reflect cryptocurrency’s particular features.
In general, we consider the introduction of the token to be justified. Theoretically, it could be replaced by other cryptocurrencies. However, in this case, the flexibility of managing the reserve fund and the token itself for future services and the needs of investors will decrease. Tokens and the use of smart contracts enable users to record important hedging parameters and the provision of a reserve fund is designed to guarantee execution of all contracts for holders of the hedge.
However, many aspects of the token economy are still unclear. For example, when hedging changes in the rate of tokens and cryptocurrencies traded on exchanges, the question arises regarding how to cover the risk that the platform assumes on third parties. Taking on market risks can jeopardize the existence of a reserve fund, especially since this fund consists of cryptocurrencies that have their own dynamics. It turns out that when hedging, for example, Ethereum from decrease, the platform has a double risk: a decrease entails a payment to the investor, plus the provision of the guarantee fund itself is reduced.
Analysis of Factors Affecting the Future Value of the Token
In the process of analyzing the factors affecting value of tokens, we note that the project is implementing a complex product that is challenging to evaluate in full.
There are many factors; we distinguish what we consider to be the most important ones:
- Sufficient number of ICO projects possible for hedging. The question of scaling the service is extremely important. There are a large number of different projects that conduct crowdsales every month and for the full success of the project, we think it is necessary to cover a large number of them. In the event that this coverage is not sufficient, the community will quickly become disillusioned with the platform, which will complicate its future development.
- Listing on major exchanges and liquidity of the token. Since the price of hedging and other services will be calculated in tokens, listing on major exchanges will be an important element, where users will not be afraid to store funds and will enable a market-making program creating almost instant liquidity, at least on a small scale. This is necessary for easy "entry" to the service without volatility and long transaction times.
- The success of the platform as it develops and releases new products in accordance with the roadmap. The launch of a derivatives platform with full functionality for hedging positions and a developing product line looks especially interesting. The successful introduction of new services will positively affect the long-term value of the token.
- Demand for hedging and the platform’s services. The demand for services that the project assumes is very difficult to estimate at the current moment. Important factors will be the pricing of the hedge and the state of the crypto market. Participation in an ICO is inherently very risky; it is often difficult to imagine that ICO investors really want to hedge those risks.
- Sale of tokens in the market by the team and advisors. The team and advisors are given 17% of the total crowdsale. This is a fairly large amount that would affect prices if sold.
- Investors selling at the pre-sale stage – traditionally investors want to sell a portion of funds when tokens are listed on exchanges.
- The platform selling its own tokens. The platform, in the process of collecting tokens for its services, accumulates a certain number of tokens which could cause strong depreciation when selling in order to maintain current operations.
- Buyback. In the event that the accumulated tokens are not sold by the platform to the market, there will be a gradual buyback from the market, which will reduce the market supply and cause the price of the token to grow in the future.
- Increased volatility of cryptocurrency and its dynamics. The dynamics of cryptocurrencies have a serious impact on the ICO market, its popularity and the popularity of related services. The market will make adjustments to the number of ICOs, and volatility will determine the price to be paid for hedging.
- New rounds of token placement. As far as we understand, new placements are possible when the reserve fund is exhausted. It is difficult to answer unambiguously how this will affect the price of the token; however, we see a huge risk for price changes during a period of additional placement.
Investment Risk Analysis
As with any ICO project, investment in DeHedge carries a large number of risks. However, we distinguish several key risks that could affect the project and its development in the future, namely:
- Business risks of an unclaimed product
We have already noted that investing in an ICO is already a bet on success. When investing in the initial stage, a traditional investor expects to increase the price several times or "write-off" his investments. Additional hedging may become redundant for him and may not find a takeup. For institutional investors, there may not be enough credibility for the platform to fulfil their obligations; they usually invest large amounts, the hedging of which would carry major risks for the hedge seller, i.e. the DeHedge platform.
- Legal risks
The platform’s role, in fact, is to create options and trade them, where the project itself is one of the parties to this transaction. Despite the fact that the project does not accumulate funds and has conducted an independent analysis of its own legal risks, leveling some of them out (which we consider to be a huge plus), in developed markets such activities could be classified as intermediation in financial markets, which certainly should be licensed and may create obstacles in the future development of the platform.
- Strong dependence on the dynamics of the crypto market. As the project’s main services are pegged to the dynamics of cryptocurrency, a decrease in volatility and / or a decline in rates for cryptocurrencies will greatly affect the project’s indicators. In this case, we see two principal points: 1) a decrease in currency rates and / or their volatility will cause a decline in the ICO market. There will be fewer projects and, accordingly, the product will lack takeup. 2) Low volatility will not facilitate the purchase of hedging positions on cryptocurrency, as there will be a decline in demand for cryptocurrency from speculators.
- Exhaustion of the reserve fund. The project sells options and accumulates a certain risk. The lack of mechanisms for overlapping (rehedging of own risks) creates additional market risks, as well as errors in models, the influence of "thick tails" of probability distribution, credit risks, counterparty risks and other factors.
- Regulatory and political risks. If obstacles for staging ICOs in different countries occur, the popularity of this method of attracting financing will rapidly fall. There will be not only fewer projects but declared amounts of funds raised (softcap and hardcap) will be smaller. This will create a strong decline in demand for products similar to those developed by the project.
The information contained in the document is for informational purposes only. The views expressed in this document are solely personal stance of the ICOrating Team, based on data from open access and information that developers provided to the team through Skype, email or other means of communication.
Our goal is to increase the transparency and reliability of the young ICO market and to minimize the risk of fraud.
We appreciate feedback with constructive comments, suggestions and ideas on how to make the analysis more comprehensive and informative.