Lesson from Litecoin & Walmart Drama
On the morning of September 13th, the breaking news that Wal-Mart will start accepting Litecoin payments on October 1st reported on multiple mainstream media, resulted in price surging of LTC 30% within 15 minutes. After half an hour, the situation suddenly reversed. The news was proved to be fake and Litecoin started dumping. Bitcoin price also dropped from 46800 to around 43400 because of this drama.
This drama on Sep. 13 was just as similar as the previous “Tesla supporting Bitcoin payments” event, except it was totally fake compared to Elon’s twitter. As soon as the news came out, Litecoin jumped from around $180 to a high of $240, and then dropped back to its original price instantly. Many news traders opened long positions on perpetual swaps, however, got liquidated after reversion. According to statistics, the total liquidation amount is around 200 million dollars. It was so designed, the manipulator behind this drama must have gained a huge profit by teasing traders all over the world.
Ironically, this level of market manipulation is not uncommon in the crypto world. Is there any way investors can dodge those bullets?
Liquidations took place on leveraged perpetual contracts, which is currently the most popular product on CEXs (centralized exchanges). Traders can enlarge their position and profits by setting leverage, however, also risk their principles proportionally. Hence perpetual swap is, despite exciting, not suitable for ordinary crypto investors while in the Weak Form of Efficient Market as crypto currencies, option should be the crucial element of an investment portfolio.
Why should investor trade options instead of perpetual swaps?
- Option is featured with lower risks and unlimited profit potentials.
- There are no funding fees in option compared to perpetual swaps, premiums are the only cost and once for all.
- Options are liquidation free. As cryptocurrency prices can fluctuate violently, sometimes perpetual traders don’t even have the time to add margin to their positions. In option trading, buyers have only rights but not obligations that are quite “friendly” for ordinary users to not risk their principals.
How to choose an options trading platform?
Deribit is currently the largest centralized exchange for trading crypto options, attracting many small-sized institutions and market makers, however the opaque pricing mechanism and liquidity fragmentation are serious problems, making it quite unfeasible for non-professional option traders.
The decentralized options market has been booming in the last year, with Opyn, Hegic both achieving good results in TVL. Asteria Protocol, as a representative of the latest peer-to-pool trading model application, has made a number of improvements and optimizations in design and implementation.
Asteria uses a decentralized automated market making(AMM) mechanism to represent option seller group to unify the liquidity, and provides a mechanism to customize various option types, such as European call options, European put options, American call options, American put options, knock-in and knock-out barrier options, snowball options, phoenix options, rainbow options, etc. to diversify trading strategies.
Asteria applies professional and transparent pricing models such as BSM for different options.
Asteria implements a dynamic Delta hedging mechanism, which protects the option sellers’ assets. The comprehensive dynamic hedging and risk assessment model enhance the system stability.
Asteria designed algorithmic aggregations for yield generation and hedging operations to promote capital efficiency and return rate for option sellers.
About Asteria Finance Lab
Asteria Finance Lab not only defines the option pricing, trading and hedging of peer-to-pool models at the PROTOCOL layer. It also tries to launch options-based products at the module and application layers, seeking to solve the practical pain points of various users.
At the TEMPLATE/API layer, Asteria Finance Lab is implementing functional interfaces for option portfolios, ladder options, rainbow options (multi-asset options), barrier options, and more structured options. The templates are available for building applications not only for Asteria but also for other DeFi projects or protocols like yield farming and issuance platforms.
At the APPLICATION layer, Asteria Finance Lab designs and develops option-based products aiming at solving real-world problems, such as hedging impermanent losses for liquidity providers on DEXes, or price hedgers for miners; multi-currency financial products; insurance products; high-frequency trading products and more. The vision are illustrated as following:
Asteria Finance Lab will also help other products or protocols, providing financial support based on options, and incubate DeFi projects.
For example, Beaver Finance, an algorithmic yield farming with impermanent loss hedger on BSC, is supported by Asteria Finance Lab, which utilizes Asteria’s Impermanent Loss Hedger (ILH) algorithm and implementation.
The sub-ecosystem of lending, swaps, and stable coins in DeFi were formed in the past year, while options are left behind. Asteria to use options to solve more problems for DeFi in the future to complete the DeFi infrastructure.