8 questions about the crab auction

3 min readNov 6, 2023

Hot crab served 4 times a week

What is the Crab auction?

The crab auction trades oSQTH ←→ WETH on M/T/W/F at 16:30 UTC.

The crab auction is the best place to trade oSQTH in size. It trades significant quantities in both directions and bidding is gas free.

oSQTH is an option-like instrument, so the auction may also be suited to option market makers, delta neutral folk, and directional volatility traders.

The M/W/F auctions are the Crab strategy delta hedging. The Tuesday auction is for clearing other large trades.

Auction participants can trade through the front end at https://auction.opyn.co/auction or the api

How does the auction work?

Auction participants place bids/offers anytime before 16:40 UTC
Estimated size can be viewed before the auction at https://auction.opyn.co/auction
All bids and offers can be viewed by everyone throughout the auction
To win the auction, your price must be better than the clearing price
The clearing price is the best price that trades the target auction size

How do I buy oSQTH in the auction?

To buy oSQTH in the auction:

Wrap ETH to WETH
Choose implied volatility to trade
Place bid on auction front end or through API before 16:40 UTC
Bids above the clearing price will be settled around 16:50 UTC

In the example below the auction sold 499 oSQTH for 0.04951 WETH each which is 34.2% implied volatility. The three highest bidders received a fill.

How do I sell oSQTH in the auction?

To sell in the auction:

Mint oSQTH http://squeeth.opyn.co/mint by depositing ETH or use oSQTH from wallet
Choose implied volatility to trade
Place offer on auction front end or through API before 16:40 UTC
Offers below the clearing price will be settled around 16:50 UTC

In the example below the auction bought 873 oSQTH for 0.05805 WETH each which is 63.6% implied volatility. The higher price bidder bought 449 oSQTH and the lower price bidder bought the rest.

How is implied volatility determined?

Squeeth is like an option in that the pricing formula uses implied volatility. The formula is:

oSQTH price = normFactor* ethPrice exp(vol² * (fundingPeriod))/10000

If the ETH price is 1800 and the normFactor is 0.25 and the volatility is 60% the oSQTH price is 0.25*1800*exp(0.6² * 17.5/365) = 0.0458 ETH per oSQTH.

How can I hedge my squeeth?

Squeeth has 2x ETH delta so if you have 10 ETH worth of oSQTH you have 20 ETH in delta.

If you exchange WETH for oSQTH you gain or lose the ETH value of the trade in delta.

For example if you buy 100 oSQTH in the auction for 5 WETH

You gain 10 ETH delta from the new oSQTH
You lose 5 ETH delta from selling the WETH
You need to sell 5 ETH delta to hedge the trade

What is reference volatility?

Reference volatility is the implied volatility of the replicating portfolio of options using prices from Deribit. This gives an idea of where squeeth would trade if everyone arbitraged squeeth and options correctly.

Reference volatility should be close to the sale price. If it isn’t, maybe somebody should trade it back ;)