#arbitrum #DeFi #期权 #Dopex #JonesDAO

background

Recently, many project officials tweeted "Monday" activities, which triggered everyone's speculation about the Arbitrum airdrop. Although the marketing activities caused short-term emotions, Aribitrum still has a solid fundamentals of ranking first in L2 with a TVL of 1.8 billion US dollars. There are many high-quality DeFi projects on Arbitrum, which are the key to attracting funds: GMX’s good on-chain contract trading experience attracts a large number of real users to enter transactions, and the increase in transactions requires better liquidity: innovative passive income products are to attract liquidity Another flywheel for providers: including income strategies around GLP, providing real income through option premiums, etc.

This article will introduce Arbitrum’s on-chain options ecosystem. Options refer to the right to buy or sell a certain amount of an underlying asset at a specific price at a specific time in the future. To obtain this right, the option buyer pays a premium to the seller, who in turn assumes performance obligations when the option is exercised. Figure 1 shows how the return of an option changes with the underlying asset:

Options are so important: if trading is a hammer, then options are a toolbox: options can not only gain greater returns with limited principal, but will also break the status quo of only long and short directional bets, like Lego bricks The combination allows for more flexible hedging and increased returns, so a liquid options market is crucial to the development of DeFi.

In 2021, options trading volume reached US$460 billion, a six-fold increase from 2020, of which Deribit accounted for the vast majority of the trading volume. The TVL of the on-chain options market also expanded three times in 22Q1, and the growth far exceeded the entire DeFi. Options are more complex than trading and lending, so they take longer to be accepted by users, but the user transactions that complete options transactions are therefore of great significance: Robinhood, an Internet brokerage for retail investors, achieved 1.8 billion in 21 by lowering the operating threshold for options. The vast majority of U.S. dollar revenue is contributed by users’ options trading.

Currently, the participants of on-chain options include options market (sub-order book and AMM model), structured products, market makers, etc.

As early as 2019, Opyn began to launch an option market based on the order book in ETH. However, due to high gas fees and very large bid-ask spreads, there were not many active trading users, and it has turned to the development of structured products. Other options markets that use order books include Zeta Markets on Solana, and Lyra, an AMM-type options market on Optimism.

Structured products replace complex option pricing with simple deposits to earn income, and combined with the options market promote the adoption of on-chain options. Represented by Ribbon Finance: users deposit funds in option vaults (DOV), and each vault implements an established option-based income strategy. Take the most common covered call option strategy as an example:

1. User deposits ETH into the vault

2. Ribbon Finance sells deep-priced ETH call options on Opyn

3. Opyn mints tokens representing call options and auctions them among market makers

4. The buyer who wins the auction gets the whitelist to buy the call option and pays the premium.

5. If the exercise price is higher than the market price on the expiration date, DOV investors can receive the premium. If the ETH price rises above the exercise price (ITM), the investor's loss will be the increase above the exercise price.

On the one hand, the Options Vault (DOV) effectively solves the problem of lack of liquidity in the options market, and on the other hand, structured products based on options provide users with real income. But there are still many areas for improvement: such as option pricing, centralized auctions and expiration that reduce returns, and high user thresholds.

As a pioneer in options protocols, Opyn still has the highest TVL, but its funds are mainly in ETH. In contrast, Dopex's advantages lie in lower gas on L2, product innovation, and the ability to cooperate with Arbitrum's rich DeFi projects; Jones DAO uses options to enhance the income of various LP assets as a structured product, further lowering the threshold for investing in options. .

Dopex

Dopex is not only a decentralized European options market, but also provides users with structured products such as single currency pledged options library (SSOV), Atlantic options and other strategies.

product design

Single stake option vault (SSOV)

SSOV is a low-risk covered call option strategy: investors deposit a single currency and sell the corresponding European call option, and choose the exercise price. If the underlying price < the exercise price at expiration, you can receive the premium. If the underlying price > the exercise price, you will receive the premium, but the loss will exceed the increase in the exercise price (there will be a loss on the currency basis). Since it is a European option, the principal and rewards cannot be withdrawn before expiration (usually 1 month). If you want to transfer it before expiration, you can sell it on the Dopex platform, or use the Jones DAO solution.

Atlantic Option (hereinafter referred to as AC)

The innovation of Atlantic Options is that it allows the option seller's collateral to be loaned to the option buyer. For example: If you buy an ETH call option, you can lend the ETH collateralized by the option buyer. By buying an ETH put option, you can borrow the collateralized stablecoin. There are two benefits for option sellers: 1. More efficient use of funds; 2. There is only a risk of loss if the price goes down.

Atlantic Options currently has two available applications: long straddles and perpetual contract insurance.

A straddle is a strategy in which both upside and downside option buyers can profit. It generally consists of an in-the-money call option and a put option with the same strike price, expiration date, and underlying asset. In Atlantic options, the buyer only buys one option and then borrows 50% of the collateral to buy the underlying asset. This achieves the characteristics of limited losses in straddle options and profits in both rising and falling prices. As shown in the figure below: Buy a put option for 1 ETH unit and borrow 50% of the collateral to purchase a straddle of 0.5 ETH. The buyer can make a profit if the price fluctuates by more than 11%.

GMX’s perpetual contract insurance

Atlantic Options has cooperated with GMX as insurance for perpetual contracts: Assuming that my long contract will be liquidated when ETH drops to 1500, I can deposit enough ETH to supplement the margin, or I can buy a put option with an exercise price of 1550 on Dopex as Insurance: When the price drops to 1550, the robot will deposit the option seller's collateral into the GMX contract to ensure that it will not be liquidated and occupy less funds. Dopex will charge about 1.5% of the contract trading volume that provides insurance for GMX as a handling fee, and GMX’s monthly trading volume is about 4 billion US dollars. Assuming that 10% of the contract trading volume uses Dopex’s Atlantic options insurance, it will bring every Monthly revenue of $6 million.

Token economy

Dopex adopts a dual-token model. DPX is the governance token and participates in income distribution; rDPX is the token to compensate for losses.

The total number of DPX is limited to 500,000, and 48% of them have entered circulation. Being locked to veDPX can participate in income distribution and governance voting (enabled in v2 version). Currently, 100% of the protocol fees are allocated to veDPX (issued in DPX).

rDPX is a compensatory token originally minted to compensate option sellers for losses. Now that emissions have been discontinued, it was announced in January that rDPX would be used to mint synthetic assets in v2.

Jones DAO

Jones DAO is an automated income product that allows users to invest in options without understanding option knowledge. There are three income strategies: Option Vaults, MetaVaults, GLP & USDC vaults. Jones DAO and Dopex cooperate closely because the founder of Dopex @witherblock is also an investor in JonesDAO. The main investment strategy of Option Vaults and MetaVaults is to purchase options on Dopex.

product design

Option Vaults

Investors can pledge single currencies (ETH, GOHM, DPX, RDPX) to the option vault to earn interest and obtain JAssets. When withdrawing, the JAssets tokens are destroyed and the assets are returned. Jones DAO's option vault still invests in Dopex SSOV, but its return rate display is more intuitive than Dopex. And Jones solved the problem of European options being unable to exit midway. JAssets uses a concept similar to the net value of a fund to allow shares to be transferred before expiration, improving liquidity.

Metavaults

Investors can deposit interest-earning LP assets into Metavaults. Users can choose "Bull or Bear", which corresponds to using the LP proceeds to purchase call or put options with an expiration time of 1 week. According to the official backtest data, whether buying call or put options, metavaults’ returns are better than just holding LP assets.

Jones GLP & USDC vaults

Using GLP as the underlying asset allows users to invest USDC into jUSDC to obtain lower-risk returns, or GLP to jGLP to obtain high-return but high-risk returns. The principle is that the jUSDC treasury lends money to the jGLP treasury to enlarge the leverage to purchase GLP to increase profits, and the jGLP treasury shares part of the profits with jUSDC. The strategy’s launch in January increased the protocol’s TVL by 9 times.

Summarize

In addition to continuous innovation at the product level, the rise of Dopex is also related to the increasing application scenarios of providing insurance for GMX contracts. This is an advantage that the ETH mainnet option protocol that started earlier does not have. It can be said that the integration of options into other DeFi protocols as a tool is also the development direction of options on the chain in the future.

Reference Information

https://tokeninsight.com/en/research/reports/tokeninsight-2021-crypto-trading-annual-review

https://dopexanalytics.io/

https://docs.jonesdao.io/jones-dao/

https://jonesdao.ghost.io/tokenomics-revenue-fee-structure/

https://www.paradigm.co/blog/ribbon-explained-super-simply