Preface

Options are a kind of choice, a right contract in which the buyer and seller agree on the delivery conditions and delivery categories. The emergence of smart contracts allows contracts to be automatically executed without human intervention on the chain. The conditions and processes for contract execution are clear and transparent, which is a good environment for options to operate. Since the DeFi summer of 2020, countless teams and projects have begun to move towards decentralized options. Over the past three years, the development of the industry has once presented a flourishing scene, whether it is accounting infrastructure, general categories of options, or market-making algorithms, there have been great advances.

As the market enters a bear market, token incentive costs are increasing day by day. The artificially high decentralized options activity began to fall. Except for a few projects, innovation focuses on micro-innovations in financial products. The market rewards breakthrough innovations that fit the blockchain architecture and decentralized environment. Projects like Lyra that stand on the shoulders of giants form a DeFi matrix and form a unique algorithm system in option pricing. Although the market size is shrinking, Aevo and Lyra occupy the absolute top market share.

Compared with the off-chain transaction volume that easily amounts to tens of billions of dollars, the current scale of on-chain options cannot even keep up with it. In the traditional market, the nominal trading volume of options is basically of the same magnitude as that of futures. From this data we can know that the on-chain options market is in its early stages. In the second half of 2023, the technology of the second-layer network gradually matures, and the low-cost infrastructure technology equipped with the trading book-style options market has caused new growth in the on-chain options market.

We have already passed the DeFi summer of "decentralization is good", and all decentralization will be questioned: WHY!

01

The background to decentralized options

What are options

To understand decentralized options, two questions must be answered: What are options and why should they be decentralized?

We simply explain that an option is an option, and the buyer and seller determine the time and price of the exercise. The option holder has the right to execute the contract according to the agreement.

Options are a special type of financial contract and a financial instrument related to price fluctuations. From a purely qualitative analysis, options not only reflect the price changes of the underlying assets, but also reflect the rate of price changes, the difference in exercise time, etc.

Options are a financial instrument related to risk pricing. Changes in option prices can reflect price attributes that spot and futures cannot express, providing investors with more dimensions and tools to hedge risks and design asset portfolios.

Additionally, options are versatile. Understanding the uses of options helps us find precise users of option products. In the traditional world, options have many uses besides being leveraged tools:

1. Risk management tools

Options are a risk management tool that can be viewed from two dimensions: business and compliance. Enterprises or projects are always faced with price changes of raw materials and products. In addition to using futures to lock in cost income in advance, they can also buy options to obtain the right to buy and sell at a specified price within a specified time. This is equivalent to locking in the upper and lower limits of expenditure and income, and obtaining a minimum profit guarantee. For financial institutions, derivatives are a new thing, and their types and complexity are higher than stocks and bonds. Options can often play unexpected roles in circumventing regulation. In terms of trading, some traders hold a large amount of chips and may face high liquidity losses when dealing with some risk control liquidations. Then, holding some corresponding options at times of low volatility can convert the risk of liquidity loss into fixed costs.

2. Financing tools

In finance, options are also an important financing tool. We do not talk about convertible bonds as options + bonds. Historically, many companies have also sold options to finance their companies. In October 2022, Tesla raised US$2.2 billion by selling 5 million call options. The option allows the holder to buy Tesla stock in January 2024 at a price of $1,100.

3. Organizational motivation tools

In many traditional large organizations, the middle and senior management of the organization are also motivated through options. This kind of behavior is already common in the traditional world. There are already numerous corresponding papers on the pros and cons of option incentives.

4. Leverage and Speculation Tools

Many investors use options to speculate. Use small capital to leverage big profits, and even gamble on some trading opportunities in the time cost dimension or volatility dimension. This is a feature that many other financial instruments do not have.

In 2020, with the implementation of spot DeFi, decentralized derivatives have been mapped from traditional finance. We hope that on a decentralized platform, we can profit from the options business of centralized financial institutions. So how do you define decentralized options?

In traditional finance, options have different circulation markets. In addition to over-the-counter trading on exchanges, there is also the OTC market.

What are decentralized options?

Decentralized options refer to smart contracts issued on the blockchain with option attributes. Compared with the traditional options market, it does not require permission, is open and transparent, has no default risk, and has stronger compatibility with other decentralized products. Compared with traditional options on centralized exchanges or over-the-counter options. The execution of options is guaranteed by blockchain smart contracts and is automatically executed. This is the only difference between decentralized options and traditional options.

The decentralized options project comes from the mapping of the centralized options market. In the traditional financial market, the derivatives market is much larger than the spot market, and the options market is equivalent to the spot market in terms of scale. The success of a number of decentralized spot exchanges such as Uniswap and Curve has demonstrated the potential of smart contracts in the financial industry. Many teams have seen the future of decentralized futures and even options. Under the halo of DeFi summer, the disadvantages of decentralization have been covered up, and many teams have invested in the hot construction of decentralized options.

Why decentralized options matter

The advantages of decentralized options over centralized options are mainly reflected in: 1. Eliminating default risks; 2. More fairness; 3. Deeper and closer capital collaboration.

Compared with centralized options, decentralized options have no counterparty risk. Risk is uncertainty. The execution environment, processes and conditions of options on the chain are open and transparent, and there is no uncertainty from the perspective of liquidation. How to liquidate a contract, the result of liquidation is clear at a glance. Without uncertainty in liquidation, there is no counterparty risk.

In traditional finance, in order to prevent evildoers, regulatory authorities have set up various entry barriers. On the one hand, this protects the rights and interests of users, but objectively, it is inevitable that some people will lose the opportunity to participate. At the same time, both the founder and the participants of the smart contract can only participate in the game under the smart contract. The founder and the team have no privileges. Therefore, decentralized options are fairer.

Decentralized options are an integral part of decentralized finance. Decentralized finance is inclusive, convenient, and can even reduce regulatory requirements. On the one hand, it has the possibility of replacing centralized options. On the other hand, the decentralized world needs the services of options.

The prosperity of the decentralized options market requires the demand for decentralized options to flourish. At present, on the chain, options are mostly regarded as gambling tools. In simpler terms, options can become leverage tools or volatility targets, while in more complex terms, they can become a component of certain investment strategies and form structured investment products.

02

A market for decentralized options

New things and traditional things differ on many levels. Different from traditional finance, whether from targets to users or channels. There are differences between decentralized options and traditional markets, and there is the possibility of differentiated competition.

Decentralized finance is always a purely on-chain data operation. The best target is of course the assets on the original chain. If you need to process off-chain assets, you will inevitably have to come into contact with centralized powers and organizations. This business belongs to RWA business, which is subject to compliance and cannot avoid the disadvantages caused by centralization.

Beyond that, options users are different.

First of all, the users of traditional options are very clear, while the target users of the decentralized options market are unclear. In traditional business, industrial capital will participate in the options market. As in the futures market, industrial capital is an important player in the traditional futures and options market. They even have some say over the price of the underlying asset. The financial market is a two-sided market for risk and return transactions, and industrial capital is responsible for providing risks and risk funds. In the decentralized options market, the business involving underlying assets is simple and the business volume is not large. The decentralized industry that can truly form a business consists of infrastructure such as chains, oracles, data retrieval, and some DeFi projects. Taking the largest among them, BTC, as an example, the current output per year does not exceed 400,000, and the underlying value risk that needs to be hedged is less than 10 billion. Without a strong on-chain industry, it is actually difficult to obtain sufficient industrial demand. This means that we do not actually have a decentralized options market with rigid demand.

Users of on-chain options should prefer procedures over manual labor. The threshold for using on-chain options is low for programs and high for people. The design of on-chain option buying and selling products should increase the interaction between smart contracts and reduce the interaction between manual accounts and smart contracts.

Second, differences in compliance preferences. Centralized options have a complete risk control and compliance system and can accept a variety of qualified investors clearly defined by law. However, decentralized options have incomplete compliance and risk control systems and they engage in businesses that are not prohibited by law. , attracting individuals who do not have high compliance requirements.

Third, decentralized options allow for more option targets. The underlying crypto-assets are highly volatile, resulting in expensive option prices. Many digital encrypted assets are not subject to legal supervision, their holdings are highly concentrated, and the risk of price control is difficult to estimate. Therefore, for digital encrypted assets, it is difficult for centralized exchanges to expand the business of the underlying digital encrypted assets. Except for some stable coins, ETH and BTC, it is difficult to develop suitable option targets. Some decentralized exchanges have designed the concept of "private pools" to allow market makers to independently bear the exercise risk of certain options, allowing the decentralized options market to compete differentiatedly with the centralized options market.

Fourth, due to the difficulty of using the product, the high threshold, and the high compliance risks, even if many projects adopt marketing strategies such as token airdrops and transaction rewards, participating funds and product users are still scarce. If the product is not active, it will face the dilemma of poor liquidity. On the one hand, decentralized exchanges reduce the option exercise price and the optional range of exercise time. Opyn even created perpetual options to further centralize liquidity.

Fifth, although decentralized exchanges achieve no default risk through smart contracts, no default under such smart contracts requires that the value of the assets controlled by the contract is higher than the risk of loss faced by options. The insurance money in the contract is over-collateralized. Fund utilization efficiency is generally low.

03

Bottlenecks in the development of decentralized options markets

The decentralized options market is an exciting new asset class but is still in the early stages of development. Therefore, many bottlenecks need to be addressed before its full potential can be realized.

high cost

One of the biggest bottlenecks is the high cost of using decentralized options markets. This is due to a variety of factors, including operating expenses, risk costs, and education costs.

Operating fees are fees that users must pay miners in order to have transactions processed on the blockchain. On popular blockchains such as Ethereum, gas fees can be particularly high, and some projects may require oracle quotes. This could make decentralized options markets too expensive for some users.

The cost of risk is another factor that makes using decentralized options markets expensive. The decentralized options market is a relatively new industry. Compared with the traditional options market, it lacks sufficient historical practice. In terms of technology and design framework, we cannot use induction to prove that this system is safe enough. The potential risk cost is the gap in massive adoption.

Finally, education costs are another factor that makes using decentralized options markets expensive. Decentralized options markets are complex and difficult to understand. Users need to fully understand how they work to use them effectively. This may be a barrier to entry for some users.

The market is immature

Another bottleneck is the immaturity of the decentralized options market. This not only means greater risks compared with the traditional options market, but also, as mentioned above, there is no stable and necessary demand. This can make it difficult to find buyers and sellers of options, resulting in insufficient liquidity. If sufficient liquidity cannot be formed, liquidity must be gathered by reducing the choices of participants, which in turn will cause inconvenience to transactions.

The immaturity of the market is also reflected in the uses of options. The functions of traditional options are often divided into multiple functions. In decentralized options, there is no demand for options based on compliance requirements (traditional institutions have the habit of using derivatives to circumvent regulation); there is no project financing or incentive through options; the option design based on business risk hedging is not like traditional options. Financial markets are mature.

Capital efficiency is low

Another bottleneck is the low capital utilization of option margin. In traditional financial markets, platforms allow users to have certain margin risk exposures. This is based on centralized credit. The platform masters user information and can pursue legal action against users in the event of a shortfall in derivatives. However, in the decentralized options market, not only are users semi-anonymous, but the platform has no prosecution function. Once the margin cannot cover the losses caused by the transaction, the losses must be borne by the platform.

In a centralized trading platform, all the user's assets are under the management of the platform, and other non-monetary assets can also be used as a type of collateral to provide a basis for credit. However, in the current decentralized platform, the ownership of the assets must be transferred first. become collateral.

Decentralized platforms cannot pursue excessive losses from users, so they must reduce the risk of liquidation. Increasing the risk margin ratio or increasing the risk fee of options is a helpless move.

Infrastructure is immature

Decentralized options markets also rely on immature infrastructure such as wallets and exchanges. These infrastructures can be complex and difficult to use, and are not always reliable. For example, saving private keys can be difficult, and wallets can sometimes be hacked. Additionally, the trading interfaces of decentralized options exchanges can be clunky and difficult to use, lacking adequate analytical aids and software.

Despite these bottlenecks, great progress has been made in developing decentralized options markets. Many new projects are working to address these challenges, and the market is growing rapidly. As the market matures, we can expect to see bottlenecks resolved and the decentralized options market becoming more accessible and user-friendly.

03

Decentralized Options Track Pattern

According to the problems and methods that need to be solved, the decentralized options track can be divided into option issuance, option market making, and structured products under option instruments.

Decentralized options are divided into different categories according to different dimensions.

From the dimension of option price formation, it can be divided into the "point-to-pool" model with centralized quotation by the algorithm and the "point-to-point" model with independent quotation by the counterparty. The "peer-to-pool" model is divided into two types: public pool and private pool. The public pool maintains consistent algorithmic quotes. The private pool can be understood as, each private pool is a set of algorithmic quotations, and the market quotation is the sum of the private pools. The "point-to-point" model will also differ due to different transaction processes. It can be a transaction book or an auction.

If divided by option type, it includes ordinary options and exotic options. To address the lack of liquidity on the chain, on-chain options create a perpetual option. In perpetual options, there is no deadline for exercise. The disadvantage is that this option is not sensitive to time value.

Depending on the size of the deposit, some projects only allow full deposits, while others allow partial deposits. Partially margined programs increase the flexibility of option issuance. In my opinion, undermargin options are more like an option spread strategy. The design of the joint margin (cross margin) increases the utilization rate of funds. For insufficient margin, the smart contract will arrange liquidation steps. Even if full repayment cannot be made, the profit and loss of each participant is clear under known conditions.

Automatic classic options market making

Asset pricing has always been the core of the financial industry. How to price options and form a pricing mechanism is the crown jewel of the on-chain option model. Pricing that is approximately close to the equilibrium price can stimulate transactions, thereby improving capital utilization and bringing more generous returns. The market making mechanism is to solve the pricing problem. Years of practice have shown that exchanges and market makers are a highly profitable business, and are of course also sought after by capital and projects.

Automated market makers are an innovation in the DeFi industry. From the first-generation Spot market to the futures market, it has been continuously iterated, and even market maker algorithms have appeared in the options market. Chief among them is Lyra.

Lyra

Lyra's option market making has absorbed the successful experience of DeFi predecessors such as Synthetix and GMX, established a capital pool as the counterparty for all option traders, and used collective funds to absorb potential risks. Lyra splits the risk of options into Delta risk, which is caused by changes in the underlying asset's price, and Vega risk, which is caused by changes in the volatility of the underlying asset's option price. Delta risk is put into the futures pool for hedging, while Vega risk is absorbed by the capital pool, and fees are charged accordingly. In Lyra's design, an option quote eventually becomes the basic pricing + risk premium adjustment of the BS model. The adjustment of the risk premium will change with the net risk exposure of the capital pool.

Lyra's market making method can well solve the option pricing of highly liquid assets. Highly liquid assets are at the top of the market and occupy the mainstream of the market. The market value of BTC alone exceeds 75% of the total market value of fungible tokens. Whoever can occupy the top market will dominate the entire options market. The disadvantage is that these major categories have long been marked by centralized exchanges. The disadvantages of centralized risk will only be exposed when there is risk. Long-term usage habits make people rely on convenient and practical centralized exchanges.

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Deri is also a comprehensive financial trading platform. The role of the platform is that of a market maker. The quotation adopts the DPMM model. In short, it is similar to Lyra. First, the BS model is used to make a standard quotation for the option, and then the platform's position is introduced as an adjustment parameter. The price guides the net position close to 0.

Optix

The design of Optix favors the structure of market makers + traders, and adopts the idea of ​​independent funds, responsibility for profits and losses, and equal competition. The Optix platform allows multiple fund pools, and each fund pool is associated with a set of oracles, which are responsible for independently determining the pricing of the products it covers. An asset pool can serve as collateral for multiple products. In this way, Optix hands over the pricing power of its products to an asset pool with independent strategies. An asset pool is equivalent to a market maker. Optix is ​​more like an option collateral asset management tool that solves the management of option fees and compensation.

Because the asset pool is responsible for its own profits and losses, Optix's tolerance for risk will be higher. It not only accepts highly decentralized and liquid underlying assets such as BTC and ETH, but also other ERC20 assets. If Lyra's quotation uses mathematics to activate the liquidity of the mainstream market, then Optix uses gaming to activate transactions in the long-tail market. Pricing of mainstream assets is very important, but providing quotations for long-tail assets is also a guarantee that options can perform their functions.

Looking at Optix’s targets, many small coins are still difficult to get on the platform, and the target expansion is limited. The reason is still that there is no motive for market making in small currency options.

Urgent

Premia's design philosophy treats all traders equally. Quotes and transactions are made in the form of an order book. It not only provides automatic market making algorithms for ordinary investors without market making experience, but also provides professional asset pool services for institutional investors and professional investors.

I believe that accurate quotes from market makers are a necessary condition for efficient liquidity creation. Therefore, the automated market maker's quotation algorithm is its core asset. Although Optix and Premia have centralized elements, such as the quotation data connected to the oracle machine may come from private individuals, we have no way to prove that a mixed system cannot produce efficient liquidity.

Panopic

Panopic is a strategy that uses LP on Uniswap as an option replica. If you need to create options, provide liquidity to the public pool; if you need to hold options, withdraw liquidity from the public pool.

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Panopic also uses a deficiency margin system. Compared with closed centralized options, there is no risk of liquidation until liquidation. Traders reading on-chain data combined with clearing plans can actually help them measure counterparty risk. In other words, option prices can better incorporate counterparty risk. The relevant practice has just begun, let the bullets fly for a while.

Hegic

Founded in 2020, Hegic is considered a pioneer in decentralized options. Unlike rising stars, Hegic was born in an era where on-chain costs were very high and it was ideologically difficult to compromise on centralization. Therefore, in the quotation model, Hegic simplifies the complex option price related to time, exercise price, and volatility into a model related only to market price and interest rate. The longer the exercise period, the higher the interest rate. There is no doubt that this design has great limitations. When volatility is high, the fair option price should be higher than the Hegic quote; when volatility is low, the opposite is true. Quotes for options do not reflect supply and demand.

In terms of risk dilution, Hegic pits the buyers and sellers of options against each other, and the losses of options need to be fully borne by the provider of the capital pool.

Age

Aevo uses a second-tier network to replicate the business of traditional centralized options exchanges. Adhering to the business logic of performing complex calculations off-chain and recording the final results on-chain, Aevo is considered a hybrid exchange. As a second-tier network + order book-style options exchange, Aevo has a joint margin function, and the clearing process is similar to that of a centralized exchange. Priority will be given to liquidating assets. When the margin is insufficient, the positions of the profitable parties will be liquidated. The shortfall will also be covered by the platform's insurance. It should be noted that Aevo is also a mixed business platform. In addition to options, it also has many businesses such as perpetual futures and lending. In addition to its basic business, Aveo has also built financial products. Like Lyra, a financial matrix is ​​formed.

More than three years and a long journey. We see decentralized pricing systems becoming more sophisticated and more efficient. With the completion of infrastructure, the on-chain options track has gradually matured. Like most current on-chain projects, the end point of decentralized projects is not to be as good as centralized projects. There are also some aspects that centralized projects cannot achieve. We are almost as good as we can, and we need to find needs that centralized projects cannot.

structured products

With the development of the decentralized options market, decentralized structured products based on options are also innovating and changing with each passing day. However, current innovation has little to do with decentralized attributes and blockchain architecture. The product itself also has similar shadow products in centralized options tools.

Structured products use smart contracts or other programs to replace manual interactions with decentralized options.

We know that options have important value as hedging tools. Just like buying insurance, users with hedging needs are willing to pay excess deposits for hedging. But the premise is that the design of option products can solve the actual risks faced. For example, if someone participates in AMM, it is estimated that the annualized return will be 20%, and the risk of unilateral asset price fluctuations will be hedged through futures, and there will be free losses. If you put in some money, you can offset the free losses and make the remaining annualized income higher than that of U.S. Treasury bonds. Then this is a risk-free arbitrage mechanism. This mechanism can provide option sellers with a steady stream of profits, rather than a zero-sum game of betting.

Ribbon finance and thenuts finance are both obsessed with raising funds for a single covered call+put selling strategy. Yield-enhancing products benchmarked against centralized exchanges. By selling options, funds can obtain continuous positive cash flow in the long term. Because the options sold are short-term out-of-the-money options, there are few opportunities to exercise them. As long as you control the design of options well, you can achieve sustained profits in the short term. The reality is that Ribbon Finance has lost the pricing power of options through the auction option pricing of external institutions. Currently, many structured products are losing money.

Cega provides structured financial products. If within 27 days, the underlying asset portfolio does not touch extreme prices (falls by 50%). Then, the funds in the asset pool will grow, and conversely, compensation will be paid to the betting parties. The essence is also bond + out-of-the-money short option.

BracketX provides a short-term (2-day) product that bets on the fluctuation range. Within the agreed time, whether the underlying asset triggers the boundary of the price channel. Triggering or not triggering determines who pays whom. This product is a portfolio of simple options. In this way, the tools of the game are added and the difficulty of the game operation is reduced.

There are also front-end platforms such as Hegic that provide one-click deployment of corresponding option portfolio strategies.

The birth of a large number of structured products highlights the trustless and regulatory-free nature of on-chain derivatives. It broke the monopoly and lowered the threshold for issuing options derivatives. But it is not difficult to find that the design of structured products itself has nothing to do with decentralization and blockchain. We can also see twin financial products in centralized exchanges. The intelligence of structured products needs to be strengthened.

Exotic option design

Regarding options issuance, general options trading platforms come with their own option issuance. It is worth noting that options trading platforms focus on head traffic and may not be able to effectively cover market segments such as exotic options, so a number of exotic options projects have been produced.

Exotic options are largely ecological in the service chain, the most prominent of which is Y2K finance. It is mainly aimed at gambling binary options established for the unanchoring of stable coins, and determines the pricing of the options based on the distribution of chips at both ends of the options. The disadvantage of Y2K finance is that its rate of return is not clear, and it will constantly adjust the option quotes based on the size of the bets between buyers and sellers. For investors, it means participating in a gamble with unknown odds.

In addition, some projects competing for top assets have created perpetual options in order to pool liquidity and reduce the complexity of options. The birth of perpetual options means more radical exploration in exercise time. If American options extend the exercise window of European options, perpetual options simply smash down the entire wall and can be exercised at any time period. Correspondingly, perpetual options give up the sensitivity of options to time risk. It is no longer appropriate for people to use perpetual options to speculate on fluctuations in the option's time value. Perpetual options are a brand new product. Although they have a higher degree of freedom and avoid direct competition with centralized exchanges, auxiliary pricing tools have become rare and the learning cost is high. At present, the effect of onboarding is not ideal. Without sufficient benefits, users are less motivated to learn. Among the perpetual options projects, Opyn and Deri are more famous. Opyn is the originator of perpetual options, and its owner Paradiagm helped it wave the flag and take the lead. Deri relies on the perpetual futures business to expand into perpetual options, using a strategy similar to synthetix to provide "comprehensive" financial services.

Smilee finance has been developing products for free loss risks, hoping that through the products, free risks can be priced and traded. The design of the product adopts the design of perpetual options, and uses the BS model to measure the price of perpetual options. For products, segment the entire smile curve into bull, bear, and full segments. When choosing bulls and bears alone, you can double the speculative leverage.

Opyn uses options to add tools for risk hedging. Compared with smile, it directly points the finger at uncompensated losses. opyn hopes to use Squeeth+traditional financial instruments to fit free losses. Squeeth returns have curvature. Like other new financial tools created, Squeeth faces the dilemma of high learning costs and difficulty in promotion.

04

The track ecological niche of decentralized options

The decentralized options track has very little user presence. For the ecosystem, either the flow of people or the cash flow is pursued. The flow of people is the specialty of social and games, and various wallets are used to enhance the user experience. Traditional option users are high-net-worth users, and their number only accounts for about 1% of spot users. Therefore, options cannot be used as a tool to attract users. As for cash flow, it is either trading or lending. In terms of trading, decentralized perpetual options have opened contracts with 200 times leverage, leaving no way for options to be leveraged.

So, don’t options have functions that can attract the ecosystem? actually not.

As mentioned before, the characteristics of options lie in the pricing of volatility and risk management. The current blockchain market is still in the wilderness and has not yet evolved to carefully control risks.

When decentralized options approach centralized options platforms in terms of capital efficiency, and today with the accelerated integration of traditional capital and blockchain, RWA is gradually moving from ideal to reality. As the composition of investors changes, the preference of capital will shift from high risk and high return to low risk and medium return. Perhaps now is the critical time for change.

We are currently in a period of Layer 2 wars, and it is even more difficult for various infrastructures to stand out by relying on traditional and successful applications. Controlling risks and forming a financial system with different risk preferences may be the key to winning the DeFi battle in the Layer 2 war. Who still remembers UST's contribution to Luna? Not all investors like ups and downs.

Spot has been successful, and futures have also been successful. Can the spring of options be far behind?

05

Summarize

After DeFi summer, the decentralized derivatives track has developed rapidly, and has now formed a series of projects with BTC and ETH core underlying classic options as the main body, and various ERC20 options and exotic options as the flanks. There is a lack of correlation between projects and no options trading aggregators were found. At present, we have not found many opportunities to collaborate with other blockchain industries. There are some projects that hope to open up liquidity between options and spot, and between options and futures. In an era of high traffic prices, DeFi matrix operations will significantly reduce operating costs.

Regarding option pricing, I personally believe that the future of decentralized options should be a point pool model, an automated market maker model, a model where the platform and individuals gamble, and all participants share extreme risks. The structured products formed by options are still evolving. Creating low-risk, medium-low-yield on-chain products is the key to winning or losing structured products.

In the use of decentralized options, on-chain features have not yet been highlighted. On-chain options players are nowhere near as popular as centralized exchanges. Without significant dividends, players have no incentive to learn the decentralized system. The industry on the chain has not formed a scale, and there is no obvious need for risk management. In addition, traditional functions such as option financing and option incentives are not reflected in on-chain business: this is one of the manifestations that DAO is still in its infancy.

Compared with decentralized spot exchanges that allow tokens to be traded on-chain at low cost, decentralized futures exchanges allow users to directly form up to hundreds of times leverage on the chain without borrowing. Options are not in the current second-tier network competition. at the core of demand. Competition at the chain level is in the flow of capital and people. How to issue more credit is a more important function now. However, we should not underestimate ourselves when it comes to risky instruments - options. Options give us the opportunity to redefine the properties of assets on the chain.

references:

https://medium.com/smilee-finance/pt-1-introducing-smilee-v1-69-synthetic-amm-directional-impermanent-gain-redacted-dca97cef13b1

https://medium.com/smilee-finance/smilee-the-first-primitive-for-decentralized-volatility-products-dvps-9a7584b13d42#ad2f

https://www.theblockbeats.info/news/32903?search=1

https://www.theblockbeats.info/news/34380?search=1

https://medium.com/@polygontech/best-practices-for-building-decentralized-option-vaults-5ff254687ab2

Lyra: Accurate pricing of on-chain options:

https://www.theblockbeats.info/news/24899?search=1