A paradigm shift is happening right now. A vibrant community of intrinsically motivated engineers and designers are re-building the financial world on top of a mountain of cryptographic research that dates back to World War II.
The tipping point of crypto finance will be another black swan event.
But the aftermath will yield a more open, accountable and distributed financial world that runs on distributed public ledgers, called block chains.
This tack in trajectory is already being compared to the rise of the internet. Therefore it’s not unreasonable to believe its effect will have similar results.
Still, somehow after twenty years, the internet has left many industries relatively untouched — the financial sector being one of the last remaining unchanged. Just as the internet disrupted media, information and communication — block chains are disrupting finance, contracts, data storage, law and even creating new unexplored markets.
However, the promise and hype of block chains (Bitcoin in particular) has long overshot the current development cycle. Bitcoin hasn’t even hit version 1.0 and the media is already hailing 2.0 as the next big thing. It’s important to remember the foundation for block chains is still being built and we are excited and inspired to be a part of it.
Today, we’re proud to share our mission, show our vision and explain why we founded Hedgy.
Our mission is to create a more open, accountable and distributed financial world.
By leveraging the block chain technology underlying bitcoin, we are redesigning critical pieces of global markets and reducing the need for trust in financial contracts. We believe that when building something truly innovative it’s important to start with first principles. That’s why we traced back the roots of financial derivatives in the U.S. — the backbone of a $700 trillion market — and discovered an opportunity to redesign the very first derivative instrument, the forward contract.
Enter the first derivative contract.
1848: The first derivative contract in the U.S. was between a grain farmer and a Chicago Banker
Due to its prime location on Lake Michigan, Chicago became a major center for the storage, sale and distribution of Midwestern grain. Due to the seasonality of grain, the storage facilities were unable to accommodate the drastic increases in supply. This caused the price of grain to change on a daily and weekly basis. For a grain farmer, a significant price drop was the difference between a profitable year and going bankrupt.
To protect themselves from the fluctuating grain price, the farmers created a “to-arrive” contract with their buyers, allowing them to lock in a price now and deliver the grain at a future date. These contracts became known as forward contracts and are widely regarded as the first derivatives traded in the U.S.
Similar to how grain farmers sought protection from the fluctuating price of grain, bitcoin miners also need to hedge the price volatility of their future bitcoin earnings.
Miners are at ground-zero of the bitcoin economy and as a result, often absorb huge price risk in order to maintain their mining operations.
Increasing electricity costs, hardware obsolescence and fluctuating bitcoin valuations are wreaking havoc on miner profitability. Some have already gone bankrupt and many more will surely fail.
This is a crisis in bitcoin that we are tackling head on.
We are solving this problem of bitcoin volatility by taking the first principles of derivatives and marrying them with the novelty of the block chain, to create a completely new type of derivative contract. One that reduces the need for trust, enforces itself based on external data and protects participants from dealing with bad actors.
We call it a financial smart contract and we believe it’s the future of finance.
We envision a world where commercial contracts are executed and enforced by the laws of math — not the flaws of man.
Where individuals and businesses are able to transact with one another from anywhere in the world without the risk of default and free from the tyranny of misguided middlemen.
We believe in a more open, accountable and distributed financial world. That is why we have chosen to build Hedgy right on top of the Bitcoin block chain. Delivering on this vision will require continued support from the bitcoin community, intense focus on our part towards solving new problems and relentless courage to challenge conventional wisdom about how the current financial world should operate.
That is why we founded Hedgy.