Feb 26, 2021
Rebooting BIOP Rewards
Tradable BIOP tokens are coming. BIOPset, the world’s first decentralized options platform, is fully committing to bootstrapping the options liquidity pool in its fourth release.
In this article, let’s explore the value of the new incentive scheme to liquidity providers and some of the benefits that accrue to BIOP token holders.
BIOP tokens are governance tokens that receive a portion of the fees charged to traders on the BIOPset platform. Traders, when they forecast price directions correctly, stand to benefit the most from BIOPset. They can almost double the option premium paid to the platform. So they don’t object to the 0.2% platform fees.
The BIOP Token Revenue Stream
Trading fees paid by traders are the revenue stream of the BIOP token. If we were to look at BIOPset as a traditional business. Traders are the customers.
For example, Randy is a trader that wants to speculate on the price direction of ether (“ETH”). He is feeling bullish on ETH prices. So he purchases a 100 ETH call option by depositing that amount to BIOPset smart contracts, where it is locked as collateral until the call is either exercisable in-the-money (“ITM”) or expires worthless out-of-the-money (“OTM”).
ETH prices appreciate and Randy’s call options are ITM. If he exercises the options himself, he receives ~199.8 ETH in return. Should another person (or bot) exercise the option, he receives ~194.8 ETH in return. Where ~5 ETH (5%) goes to whomever/whatever (“an interventionist”) exercises the option on his behalf.
Liquidity Matters
Until now, the BIOP reward structure was more skewed towards writers and interventionists. That was an oversight. Nobody wants to shop in a store with no inventory.
This is all changing in BIOPset V4. Prior releases of BIOPset were always plagued with little to no asset (ETH) inventory. Beset with this problem, BIOPset always went into a death spiral anytime traders got a little lucky.
Realigning Rewards
In BIOPset V4, 48% BIOP tokens reward utilization, and the majority of those tokens are committed to rewarding liquidity. The change is a response to realizing that, just as with a traditional business, BIOPset has suppliers and the relationship must be cultivated. [1]
BIOPset’s suppliers are the liquidity providers (“writers”) that pool their funds together to write on-demand, censorship-resistant binary call and put options. During the bootstrapping phase, they are going to need a little extra motivation to put their ETH assets at risk.
Consequently, at least ~83% (5 out of every 6) BIOP utilization rewards tokens will be awarded to writers. [2]
In the long term, liquidity rewards shouldn’t be required because liquidity providers have the laws of probability on their side to practically ensure that they are handsomely rewarded for putting their capital at risk.
Shalaquiana explained the rationale for the change stating “Liquidity providers are the heart of what makes BIOPset work. Therefore should have the largest portion of the utilization rewards.”
Tradable BIOP
The most crucial modification to BIOPset V4 is the introduction of three Uniswaps pools. Thanks to those pools, BIOP tokens will be tradable with other ERC20s like WETH, USDC, and USDT.
This will ensure that BIOP liquidity rewards have immediate economic value. This may appeal to the yield farmer crowd, but they should know the risks.
Unlike providing liquidity to an automatic market maker (“AMM”) like Uniswap, where risks are limited to impermanent loss dictated by price fluctuations, risks on BIOPset are due to the zero-sum game nature of binary options trading.
The risks to providing liquidity are not the same.
The history of BIOPset proves that the risk to writing binary call options is considerable during the bootstrapping phase. So writers must always be prepared to lose the entirety of the capital that they put at risk when providing liquidity to BIOPset.
Real Value
Fortunately, BIOP V4 tokens will have real economic value. This value will come from the initial bonding curve offering (“IBCO”), and it will help offset the potential losses facing BIOPset writers before the options pool reaches critical mass.
To learn more about BIOPset, please subscribe/follow/check out:
Website: https://biopset.com/
Twitter: https://twitter.com/biopset
Discord: https://discord.com/invite/4SRYBNdE3r
Documentation: https://docs.biopset.com/
[1] As a consequence of the revamp, traders and interventionists receive a relatively smaller share of rewards.
[2] Technically, the ratio could be higher as there isn’t a fixed amount of BIOP token set aside for writers.
The rewards are determined by bonus multipliers. There are three types of multipliers. One for each type of participant (writer, trader, or interventionist) to the platform.
The multipliers are weighted. The weight for writers is 10. The weight for traders is 1. Lastly, the weight for interventionists is 1.
As a result, the rewards are issued per option for traders, per exercise for interventionists, and per stake for writers. However, writers receive bonus tokens depending on the duration of their stake, the number of options traded during that period, and the relative size of their contribution to the pool. Refer to BIOPset’s documentation for further details.
Please remember trading binary options is risky. That’s why financial derivatives are heavily regulated in certain jurisdictions.
This article is educational in nature. Nothing in this article is financial advice. Always do your own research.
