Welcome to Zaps, Friktion’s DAO Contributor driven Market Notes covering Friktion auctions, markets, and trading.
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Review of Last Week
Check out last week’s Zap for context.
Protocol Premium Generated: $225,726
Protocol Return Realized: $102,777
The protocol generated lower than usual premiums last epoch due to a conservative stance taken on the upside. We were ITM on the BTC covered call Volt, realizing a -0.50% loss for the Volt.
Friktion’s strikes were set the most conservatively out of all options protocols in BTC, preserving the most capital for its users.
One bad week can erase up to 8 weeks worth of yield, as exemplified in the BTC covered call.
Friktion’s strikes for SOL were arguably set too conservatively last week, with the high of 122 being far away from the strike of 145. There’s been a systemic underperformance of Solana relative to the rest of crypto recently, with the SOL/BTC relationship falling under previous lows in September.
Auction Recap
Implied vols got crushed going into the auction, with 10-delta implied vols for BTC falling over 12 points and ETH falling 11 points from highs six hours before the auction.
In our research done on auction execution, historically the best thing to do in these situations is to delay the auction and wait for the recovery in implied volatility . Participants anticipate the DOV flow and front-run the market ahead of the vault auctions.
Friktion did precisely that this week, moving back the BTC/ETH auctions 12 hours and getting filled at higher vols, giving users a better risk-reward profile.
This was the first week Friktion had its alts schedule at 230 UTC and it went very smoothly, with LUNA call yields being one of the highlights of the week.
Friktion had two cash secured SOL put auctions this week, one backed by tsUSDC (check out tulip, where you can earn 5% yield on your USDC), and the other backed by normal USDC.
The first auction for SOL puts for the tulip held at 230 UTC realized 15 vol points higher than the SOL put vault at 800 UTC. This is strong evidence that Friktion should hold its SOL auctions at 230 UTC instead of with BTC/ETH to avoid getting caught in the middle of the vol oppression of the commons. Next week, we will begin our transition for SOL auctions to 6 hours earlier.
Friktion’s strikes were set relatively conservatively again this week. Solana losing its support relative to the rest of the market prompted 3–5 delta puts to be sold this week compared to the normal 7–12.
Good tweets
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