SaucerHedge

SaucerHedge is an AI-powered DeFi protocol that protects liquidity providers from impermanent loss through automated, non-custodial hedging strategies on Hedera. The protocol addresses a critical problem in DeFi: liquidity providers on concentrated liquidity AMMs like SaucerSwap V2 face amplified impermanent loss that often exceeds earned trading fees. Our solution integrates Lit Protocol's Vincent framework to enable trustless automation while users maintain full asset control through PKP vaults. The protocol employs a mathematically optimized 79/21 capital split strategy - allocating 79% to concentrated liquidity positions on SaucerSwap V2 and 21% as collateral for leveraged short positions on Bonzo Finance. This configuration achieves ~85% impermanent loss protection while preserving full fee-earning potential. Key innovations include custom Vincent abilities for Hedera services enabling seamless interaction with Hedera Token Service for native token operations and Hedera Consensus Service for immutable audit trails. The protocol uses Bonzo Finance flash loans to open hedged positions atomically in single transactions, reducing gas costs by ~70%. Vincent abilities continuously monitor positions, automatically rebalancing when IL deviation exceeds 2% thresholds. All actions execute within user-defined delegation scopes, ensuring users can pause, modify permissions, or withdraw assets anytime. The protocol leverages Hedera's predictable low fees (~$0.0001 per transaction) and MEV-resistant architecture, making automated rebalancing economically viable unlike Ethereum where hedging costs often exceed IL itself. By combining concentrated liquidity mathematics from Uniswap V3 with automated short position management, SaucerHedge delivers institutional-grade IL protection accessible to retail users, transforming how liquidity providers manage risk in DeFi.

SaucerHedge leverages a sophisticated multi-layer architecture built with Hardhat 3, integrating cutting-edge DeFi protocols and custom blockchain automation tools. Smart Contract Layer: We developed four core contracts using Solidity with OpenZeppelin standards - SaucerHedger.sol (main protocol entry), Leverage.sol (short position management), SaucerSwapV2Provider.sol (LP management), and HTSAdapter.sol (HTS bridge). These contracts implement Uniswap V3 concentrated liquidity mathematics, calculating optimal hedge ratios using the formula: s = P × (V_upper - V_lower) / (Pb - Pa). We use ReentrancyGuard on all external functions and achieved >90% test coverage with Hardhat's testing framework.

Lit Protocol Integration: The game-changer is our custom Vincent abilities framework. We built four specialized abilities: HederaLPManagerAbility handles concentrated liquidity positions, HederaHedgeAbility manages leveraged shorts via flash loans, HederaHTSAbility bridges ERC-20↔HTS token operations, and HederaConsensusAbility logs all actions immutably. These abilities execute within user-defined PKP vault permissions, enabling non-custodial automation - users deposit to PKP vaults they control while Vincent handles strategy execution. Flash Loan Innovation: We implemented a particularly clever hack using Bonzo Finance flash loans. Instead of requiring users to have full collateral upfront, we borrow HBAR via flash loan, sell it for USDC, then use the proceeds plus user collateral to maintain the short position - all in one atomic transaction. This reduces capital requirements and gas costs by ~70%. Hedera Services Integration: We deeply integrated Hedera's unique services. HTS enables native token operations without expensive ERC-20 wrapping. HCS provides immutable audit trails for every automated action.

Frontend Stack: Built with Next.js, integrating HashPack, Kabila, and MetaMask wallets. The UI enables delegation scope configuration, letting users set allowed contracts, transaction limits, and approval thresholds. Partner Technology Benefits:

Lit Protocol's Vincent framework solved the custody problem plaguing automated strategies SaucerSwap V2's concentrated liquidity provided capital efficiency for LP positions Bonzo Finance's flash loans enabled capital-efficient position opening Hedera's low fees and MEV resistance made high-frequency rebalancing viable

The architecture achieves trustless automation with user control, delivering institutional-grade IL protection at retail-accessible costs.