Hedgehog, a crypto transaction fee hedging protocol, raises a pre-seed round

Hedgehog, a protocol providing tools to manage price fluctuations in crypto transaction fees, has raised $1.5 million in a pre-seed round.

Venture capital firms Marshland Capital, Tenzor Capital, Prometeus Ventures, 3Commas Capital and Nothing Research participated in the round.

Angel investors included Vasiliy Shapovalov, co-founder of Lido Finance; Banteg, a pseudonymous developer at Yearn Finance; and ivangbi, a pseudonymous Gearbox senior contributor.

Hedgehog aims to solve the problem of wildly fluctuating crypto transaction fees, which can be very costly for protocols and businesses. While Ethereum transaction fees have been as as low as a dollar sometimes they increase significantly during periods of high demand. The current fee is $25 for a single transaction and more than 100$ for more complex transactions.

The main goal of Hedgehog is to create an asset whose price reflects current transaction fee prices on Ethereum. More specifically, it will reflect the moving average price over the last 50 blocks on the blockchain. Once such an asset is created, anyone can buy or short sell it to protect against future trading fee prices.

How it works?

The idea behind Hedgehog is similar to that of DAI, a decentralized stablecoin whose value is pegged to a dollar.

DAI is created when crypto tokens are locked in a vault. It is oversized, meaning the value of the crypto in the vault is much higher than the value of the amount of DAI created. It also has a minting and redemption process that creates an arbitrage opportunity designed to keep the value of the asset fixed at $1.

Hedgehog works in a similar way, using overcollateralized vaults to create a derivative token called BaseFee. The only difference is that instead of pegging the asset to the dollar, it uses the arbitrage mechanism to keep it tied to the average price of transaction fees.

Although the protocol is currently designed to mirror transaction fee prices, it can be applied to create other on-chain derivatives, provided there is sufficient demand.

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