In traditional finance, hedging against real-world risks like inflation, currency devaluation, and unforeseen events is often limited to large institutions with access to complex derivatives, structured products, or offshore banking solutions. Retail investors, everyday users, and businesses in high-inflation economies face significant barriers to protecting their wealth. Existing solutions are fragmented, highly regulated, and inaccessible to most people.

Web3, on the other hand, has built sophisticated financial instruments, but many are designed for on-chain speculation rather than real-world economic security. DeFi has revolutionized lending, borrowing, and trading, yet there is no unified, flexible protocol that allows individuals to hedge against real-life financial risks in a permissionless, decentralized way.

Our ERC-4626-based Risk Hedge Protocol addresses this gap by offering a flexible framework that enables users to create structured hedging instruments for various real-world risks. The first proof of concept focuses on hedging against inflation, specifically the depreciation of the Turkish Lira. By leveraging decentralized finance, users can deposit stable assets and gain exposure to structured products that protect against currency devaluation. This model can be extended to other inflationary currencies like the Argentine Peso, as well as broader risk markets, such as stablecoin de-pegging and weather-based insurance.

By making risk hedging accessible, transparent, and decentralized, our protocol empowers users worldwide to safeguard their assets against economic volatility. Unlike centralized financial products, it is censorship-resistant, globally accessible, and eliminates reliance on traditional intermediaries. This is the next step in bringing DeFi closer to real-world use cases—providing financial security, not just speculation.

Data Flow of a Risk Hedge Vault

The Risk Hedge Vault enables decentralized hedging against real-world risks (inflation, FX devaluation, weather events, etc.). Users take both sides of the bet—either as Hedgers (seeking protection) or Risk Takers (providing liquidity). Settlement is determined by oracle data at maturity.

1️⃣ Market Creation & Oracle Setup

• A Risk Market is created (e.g., “Turkish Lira inflation > X% in 6 months”).
• Parameters are set:
  • Asset Pair (USDT, USDC, ETH)
  • Hedge Metric (Inflation rate, FX rate)
  • Maturity Date
  • Oracle Source (Acurast, Chainlink)
• Two ERC-4626 Vaults are deployed:
  • Hedge Vault (for hedgers)
  • Risk Vault (for risk takers)

2️⃣ Deposits & Position Taking

• Hedgers deposit into the Hedge Vault to buy protection.
• Risk Takers deposit into the Risk Vault to provide liquidity and earn yield.
• Vaults issue ERC-4626 receipt tokens.

3️⃣ Maturity & Oracle Settlement

• On the maturity date, the oracle fetches real-world data.
• The smart contract compares the fetched data with the hedge condition:
  • ✅ Condition Met → Hedge Vault wins, paid from Risk Vault.
  • ❌ Condition Not Met → Risk Vault wins, funds remain with risk takers.

4️⃣ Liquidation & Payout

• The contract automatically settles payouts.
• Users withdraw their shares based on the oracle result.
• The vault resets for future hedging rounds.

Key Features

✅ Non-custodial & trustless – Funds remain in smart contracts.
✅ Permissionless access – Anyone can create or join a hedge.
✅ Scalable – Supports inflation hedging, FX risk, stablecoin de-pegs, weather insurance, etc.

This ERC-4626 Risk Hedge Protocol bridges DeFi & real-world risk management, offering decentralized protection against economic volatility. 🚀

🏗️ Architecture & Development Process of the Risk Hedge Protocol

The Risk Hedge Protocol is a modular, ERC-4626-based framework enabling users to hedge against real-world risks like inflation, FX devaluation, and market instability. We deployed across Sepolia, Hedera Testnet, and U2U Testnet (Nebula) to test adaptability across different blockchain environments.

🔧 Architecture Breakdown

1️⃣ Smart Contract Design

• ERC-4626 Vaults: Two vaults per hedge market—Hedge Vault (protection seekers) and Risk Vault (liquidity providers).
• Oracle Integration: Contracts fetch real-world risk data via Acurast TEE oracles for automatic settlement.
• Liquidation Logic: At maturity, the contract calculates payouts based on oracle results.

2️⃣ Multi-Network Deployment & Stablecoin Challenges

💠 Sepolia (Ethereum Testnet): Used RLUSD (Ripple Labs USD) as the stablecoin for deposits, ensuring a real-world test scenario.
💠 Hedera Testnet: Used mock tokens, as we didn’t integrate HTS (Hedera Token Service) at this stage—native Hedera token handling is a future upgrade.
💠 U2U Testnet (Nebula): No suitable stablecoin was available, so we deployed mock stablecoins for initial testing.

🔗 Product Integration Overview

The Risk Hedge Protocol integrates real-world financial data with on-chain smart contracts to enable seamless risk hedging.

• Forex API Integration: We fetch currency exchange rates & inflation data from sources like XE.com, ensuring accurate real-world pricing.
• Acurast TEE (Trusted Execution Environment): The Acurast network securely retrieves and forwards API data to our smart contracts, minimizing trust assumptions.
• Multi-Chain Smart Contracts:
  • Hedera – Deployed with mock stablecoins, pending HTS integration.
  • Sepolia (Ethereum Testnet) – Uses RLUSD (Ripple Labs USD) for real asset testing.
  • U2U Testnet (Nebula) – Runs with mock stablecoins until a suitable stablecoin is available.

This decentralized architecture ensures secure, trustless, and automated risk hedging, bridging off-chain financial data with on-chain execution. 🚀

🌍 Uniqueness of the Risk Hedge Protocol

Unlike typical on-chain degen apps, this is a Real-World Asset (RWA) project, bridging DeFi with real-world risk hedging.

• Real-World Data Integration: We utilize Forex APIs (e.g., XE.com) to fetch live financial data, ensuring on-chain hedging is backed by real market conditions.
• TEE-Powered Oracle (Acurast): Our Trusted Execution Environment (TEE) fetches and verifies off-chain data before securely relaying it to smart contracts, eliminating reliance on centralized oracles.
• Multi-Chain Deployment: Smart contracts on Hedera, Sepolia, and U2U ensure interoperability across different blockchain ecosystems.

This is more than just another DeFi protocol—it’s a next-gen risk hedge solution, integrating real-world finance with decentralized infrastructure to provide trustless, automated risk protection. 🚀

We deployed our own token to act as standin stablecoins for Hedera and u2u network