How does Abra's hedging system work today?
The way the system works today is very simple. In the first iteration of the app, users that want to denominate their wallet in fiat currency are automatically hedged by Abra. This hedge is programmed into the Abra wallet so that funds can be directed where they need to go as the price of bitcoin fluctuates.
Alice has her wallet currency set to USD and deposits $100 into her Abra wallet. The price of bitcoin at the time of the transaction is $1000. She will receive a deposit of Ƀ0.1 into her wallet, which will show up as $100 in her Abra wallet.
Alice sends $10 to her friend Carol to pay her back for lunch. The price of bitcoin at the time of the transaction has dropped to $900. First, Abra sends Alice Ƀ0.01111111 to ensure that she has exactly $100 worth of bitcoin in her wallet before sending money to Carol. Then Alice’s wallet will send Ƀ0.01111111, or $10 worth of bitcoin at current prices, to Carol.
Doesn't this mean Abra is taking all the risk if the price of Bitcoin falls?
No, while Abra is committed to fully hedging any user who chooses to hold their balance in fiat against fluctuation in the bitcoin price, Abra also hedges itself to remove this risk from its business model.
Why does this sound different from the way it’s been explained before?
Like all products, Abra is evolving over time. Although we’ve always been excited to share our plans to implement advanced smart contracts - and we are working on this right now - the way that Abra works as explained here is the same way it has always worked in production. In the past, some news outlets may have published inaccurate or incomplete descriptions of the way Abra works, and while we do what we can to correct inaccuracies in the press we can’t catch and fix every mistake. For the most up-to-date explanations of how Abra works, please refer to our website, blog and this FAQ.
When will advanced smart contracts be implemented?
We are still working on our advanced smart contract system and will be releasing a white-paper and summary blog post when it is ready.
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