Hexaven is a decentralized infrastructure that provides counterparty default protections.

Hexaven contracts can be used either for hedging against crypto default risks or for investing in so-called crypto credit.

The main components of Hexaven are:

• Hexaven Markets: a decentralized marketplace where buyers and sellers can transact Protection Contracts with standard terms tailored to default management;

• Hexaven Default Management system: a decentralized system which manages the reporting and qualification of default events, and the default payout of Protection Contracts;

• Hexaven Default Risk Services: a hub connected to a wider ecosystem which provides default risk analytics, pricing discovery and modelling.

More than $450bio of digital assets are held in custody, either on centralized exchanges and custodians, which exposes the whole crypto industry to systemic risks in case of the default of major players, which are often not regulated and don’t provide any transparent financial disclosures.

There is currently no liquid, efficient solution helping for management of crypto default exposures. Existing solutions mostly provide assessment tools but no hedging solutions which can be directly used to offset actual losses incurred upon default.

The lack of transparent, reliable information about crypto industry players acts as an impediment for risk hedgers/takers to take advised trading decision. Particularly, investors willing to underwrite default risks are not incentivized to supply liquidity in more adverse market conditions.

Capital efficient models for crypto lending activities encounter many challenges to scale, because of the use of credit risk models which are more tailored to traditional corporate credit rather than the crypto borrower profiles. The crypto lending industry lacks of a risk management primitive to bring on-chain credit and attract traditional institutional capital.

Hexaven Markets provide the marketplace where Protection Contracts can be transacted. These Protection Contracts can be used for active risk management as they compensate hedgers with a payout upon a default event. Protection Contracts, automatically managed via smart contracts, have standardised features tailored to default protection, such as a Reference Entity and Default Event Triggers.

Protection Contracts enable Hexaven users to customize their trading strategies: e.g. macro hedging against a Reference Entity for a specific amount which does not necessarily coincide with assets at risk; or synthetic exposure by selling protection on a specific Reference Entity.

Compared to liquidity pool models used by decentralized insurance protocols, the peer-to-peer model used by Hexaven Markets offers more flexibility: trading across reference entities market for hedging or investment purposes, secondary market liquidity, market-driven pricing mechanism.

The decentralization nature of the Hexaven platform ensures buyers and sellers of Protection Contracts are not exposed to a default of the marketplace itself, let alone censorship. Centralization in traditional finance via Financial Market Infrastructures (FMIs), such as clearing houses, have their own benefits but entail capital costs for members and constitute single point of failure.

Hexaven aims to promote transparent, better-quality information on crypto default risks. Hexaven Default Risk services aim to provide default analytics in an open architecture so that a large ecosystem of default information and service providers could enrich the offering for benefits of the platform users.

Hexaven uses Default Oracles to report default events, together with a decentralized Default Management system.

Default Oracles are decentralized third-party oracles in charge of reporting events, either off-chain or on-chain, based on Default Event Triggers. These Default Event Triggers aim to be objective, transparent, manipulation-resistant criteria which establish what event qualifies as a default event.

They apply across all Protection Contracts traded on Hexaven, and are not specific to any Reference Entity, but can be specific to Default Risk buckets due to some idiosyncratic risks.

The decentralized Default Management system not only deals with the reporting of the default event via the Default Oracles, but also manages the qualification of the event as a default event according to the key attributes of the Hexaven contracts. A Dispute Mechanism helps to identify

i) the events which are reported by the Default Oracles but should not be, and

ii) the events which are not reported by the Default Oracles but should be. Such a mechanism helps to safeguard against technical reporting issues at the Default Oracles level, or market manipulation or loose definition of Default Event Triggers.

Reference Entities can be classified according to different Default Risk buckets: centralized exchanges, qualified custodians, trading counterparties, DeFi. Contracts on Reference Entities belonging to each specific Default Risk bucket share the same key attributes, particularly Default Event Triggers.

At inception, Hexaven aims to provide Protection Contracts on Reference Entities which are primarily centralized exchanges and qualified custodians.

But the Hexaven infrastructure is capable to manage the lifecyle of counterparty default protections for any type of Reference Entities. Hexaven’s long-term ambition is to present itself as the alternative infrastructure to operate the traditional credit default swap (CDS) markets for non-crypto default risks. The Hexaven infrastructure was natively designed with mechanisms and rules which could help solve many inefficiencies of the traditional CDS markets, particularly the Credit Derivatives Determinations Committees process.

Hexaven initially focuses on the development of Hexaven Markets, which is composed of Protection Contracts, order book and matching engine, decentralized collateral management system. Initial use cases comprise centralized exchanges and qualified custodians – related contracts.

These core markets functions will be complemented by an initial version of Hexaven Default Management which will focus on Default Oracles and Payout management system, without the Dispute Mechanism.

The Dispute Mechanism, and the associated Utility Token (EXA) will be delivered at a later stage, together with an expansion of the coverage universe.

Hexaven offers decentralized services which are fuelled by the native Utility Token (EXA), which give certain rights and benefits to its holders:

• Right to initiate a Dispute and/or take part to voting to validate a Dispute as part of the Default Management System

• Governance rights to propose and vote on features of the Hexaven platform (e.g Reference Entity coverage, Default Event Triggers);

• Benefits to Hexaven transaction fee redistribution

• Premium access to some Hexaven default risk services

As such, EXA can be regarded as a membership token, with access and voting rights, and is meant to be only available to Hexaven users and contributors.

While EXA aims to fully power Hexaven as a DAO, Hexaven will operate as a DAO from inception. So that the primary utility of EXA will be to support the decentralized Default Management system.

Typical users of Hexaven Markets divide into 3 main categories: buyers and sellers of Protection Contracts, and users of Default Risk services. Initially, Hexaven will be only available to institutionals (i.e. not retail investors).

• Protection buyers include crypto market-makers, crypto prime brokers, centralized exchanges, crypto hedge funds and asset managers. Buyers are expected to hold assets with custodians (centralized exchanges or qualified custodians) and seek to hedge against the default of such parties. But buyers could also buy protections for proxi-hedging or speculative purposes - thanks to the synthetic nature of the Hexaven contracts - e.g. if they want to monetize a market view on a specific crypto credit. Assets under custody are not necessarily crypto currencies, but could represent derivatives positions held with exchanges.

• Protection sellers include crypto hedge funds and asset managers, crypto distressed funds, traditional credit funds. Particularly, traditional credit funds regard Hexaven investment as an opportunity to get synthetic exposures to crypto credit, an extension of their traditional distressed/high-yield asset mandate.

• Other Hexaven users may not use Hexaven Markets for transactions, but may only be interested in Hexaven Default Risk Services and data collection on crypto default risks.

To be able to trade on Hexaven Markets, users need to go through a compliance/KYC process as part of a membership onboarding. Whereas users are not required to hold EXA tokens to trade on Hexaven Markets, they have to hold EXA tokens to participate to the decentralized Default Management system and have other access rights.

Following the initial onboarding process, users only need to connect with their authorized wallet address to get access to the Hexaven platform. Trading a Hexaven contract works as follows:

• Protection sellers: sellers will be required to deposit collateral when placing an order in the Hexaven trading venue. Such a collateral will be maintained in smart contracts and pledged against the potential payout of the Protection Contract upon default event. Protection sellers will receive a Collateral Token (CT) to recognize their redemption rights when the Hexaven contract expires. Sellers can exit their short position either by unwinding their position via an opposite “buy order” transaction or by selling the CT to another protection seller.

• Protection buyers: buyers will not be required any collateral to place a buy order. Buyers will pay a premium upfront to sellers when both orders are matched and will receive a Protection Token (PT) to recognize their rights to a potential payout upon default event.

The lifecycle of the Protection Contracts will then be managed automatically via smart contracts, including the payout management that is part of the Hexaven Default Management system.

The crypto market lacks of transparent, quality information on crypto default risks, even for major crypto players. This is a deterrent for investors to allocate liquidity on default protection markets. Hexaven Default Risk Services aim to fill this structural gap.

In addition to market analytics which will be available on the Hexaven trading interface, Hexaven will offer early indicators (“Insights”) to help for risk assessment, across financial, technical, regulatory, governance and reputation risks. These default analytics, initially based on on-chain data, will be augmented by off-chain data leveraging privacy preserving technologies and third-party credit oracles.

At a later stage, other services will be offered such as pricing benchmarks and then default pricing and modelling.

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