Delta-Neutral

Hedging is a key component of our protocol.

When users purchase our ascentBTC with ETH, to ensure that the value of ascentBTC remains consistent with the native BTC value, we need to implement some hedging mechanisms. This ensures that the value of ascentBTC always matches BTC when users buy and sell ascentBTC.

Two methed to get ascentBTC

When users mint ascentBTC, we need to open corresponding positions on centralized exchanges to hedge against the relative price changes of ETH/BTC. Similarly, when users redeem ascentBTC, we close the related positions and return the corresponding assets to the users.

For example, we need to maintain the following mechanism:

1. At a certain time, the value of ETH is 2000 USD, and the value of BTC is 50000 USD.

2. At this time, a user uses 1 ETH to purchase our ascentBTC. The system quotes the user 1 ETH = 2000 / 50000 = 0.04 ascentBTC based on the current price.

3. The user agrees to the quote and receives 0.04 ascentBTC.

4. After a period of time, market prices fluctuate, with ETH priced at 3000 USD and BTC priced at 60000 USD.

5. If the user redeems 0.04 ascentBTC for ETH at this time, they can receive 0.04 * 60000 / 3000 = 0.8 ETH based on the market price. In other words, if the user can sell 0.04 ascentBTC to obtain 0.8 ETH, it proves that the price of ascentBTC is pegged to BTC.

As we can see, what we need to do is ensure that the user's ascentBTC remains equal to BTC despite market fluctuations in ETH and BTC. We can achieve this by shorting the ETH/BTC pair when we receive the user's ETH and minting ascentBTC of corresponding value for the user. Let's illustrate this with an example.

1. At a certain time, the value of ETH is 2000 USD, and the value of BTC is 50000 USD. Meanwhile, the value of the ETH/BTC pair is 0.04 BTC.

2. At this time, a user uses 1 ETH to purchase our ascentBTC. The system quotes the user 1 ETH = 2000 / 50000 = 0.04 ascentBTC based on the current price. This price also matches the value of the ETH/BTC pair.

3. The user agrees to the quote and receives 0.04 ascentBTC. Meanwhile, the system uses the received 1 ETH (2000 USD) as margin to short an equivalent value of the ETH/BTC pair, i.e., shorting 0.04 BTC worth of the ETH/BTC pair.

4. After a period of time, market prices fluctuate, with ETH priced at 3000 USD and BTC priced at 60000 USD. The value of the ETH/BTC pair rises to 0.05.

5. It can be seen that the ETH/BTC pair has increased by 0.01 BTC (from 0.04 to 0.05). However, since we initially shorted 0.04 BTC worth of the ETH/BTC pair, we have incurred a loss of 0.01 BTC. Thus, we are left with a position of 0.03 BTC.

6. At this time, the user wants to sell their 0.04 ascentBTC. According to the above calculation, they should receive 0.8 ETH. We then close our 0.03 BTC position in the ETH/BTC pair, incurring a loss of 0.01 BTC, which is valued at 600 USD. Meanwhile, our collateral of 1 ETH has appreciated to 3000 USD. Therefore, we can obtain 2400 USD, which is equivalent to 0.8 ETH, and return it to the user.

Sell

Therefore, by shorting the ETH/BTC pair, we can ensure that our ascentBTC remains pegged to the value of BTC. If the exchange does not support the ETH/BTC pair, we can achieve the same effect by shorting ETH/USDT and simultaneously going long on BTC/USDT. We will not go into further details here.

As we can see, our goal is to ensure that the price of ascentBTC is consistent with BTC. In fact, we could achieve the same effect by directly selling ETH on a centralized exchange to buy BTC. However, by using hedging, we still hold the user's ETH, which we can then use as collateral to generate additional returns.

Positions Management