Disclaimer: Charm is unaudited and experimental. Use at your own risk and do not deposit more than you’re willing to lose.
Today we launched Charm, a new decentralized options protocol. It uses an innovative mechanism that can create options markets which are liquid and cheap for users to trade on.
An interface is available at charm.fi
What makes Charm different?
Charm takes a unique approach of splitting tokens into tokenized payoffs and using a prediction market AMM to create liquidity for them.
The key benefits are:
- Price is purely determined by supply and demand and the AMM doesn’t rely on external oracles for pricing.
- Options can be sold any time before expiry. Unlike American options, you get back both the intrinsic and time value of the option.
- Options can be shorted. You can sell options without buying them first. For example if you sell ETH calls, this is equivalent to holding ETH and writing ETH calls.
- Low slippage. A key feature of the design is it allows a single liquidity pool to provide options with different strike prices. This mitigates the fragmentation problem where liquidity and volume tend to be split across many combinations of strikes and expiries.
- Options that expire in the money are automatically exercised. You can redeem them any time after expiration. This means you don’t have to worry about forgetting to exercise your options.
- Positions are represented as ERC-20 tokens so they can be composed easily with other protocols.
Read this article for the latest explanation on how the underlying mechanism works.
How to buy options
To use the interface, you need to install a browser wallet like Metamask and fund it with ETH (to trade calls) or USDC (to trade puts).
- Go to charm.fi and click Connect Wallet.
2. Select if you want to Buy or Sell and if you want a Call or Put.
3. Select an underlying, expiry and strike price and enter option size. There’s only one asset and expiry available at the moment — more will be added soon!
4. Check the total cost and submit. The total cost includes a 1% trading fee. Confirm the transaction in Metamask.
5. Wait for the transaction to go through — it might take a few minutes. When it’s confirmed, it will show up in My Options.
To close your position and receive its current value, you can click Close. If you hold until expiration, there’ll be an Exercise button to collect your payoff, which can be done any time in the future.
If you run into any issues or have any questions, feel free to ask on Discord.
TVL Cap
As a safety mechanism, a cap of around $100k for each market has been added. This means the contract will stop accepting incoming funds when the total deposited amount reaches $100k. When this limit is reached, users will not be able to open new positions until someone else closes their position. It won’t affect payoffs of existing positions if held until expiration, but could impact price discovery before then.
Option specification
- Options are cash-settled. If your options expire in the money, you’ll receive the difference in value between the underlying price and the strike price.
- Options are European-style. Options can only be exercised after expiry. However they can be sold for both their intrinsic value and time value at any point before expiry.
- Expiry occurs at 16:00 UTC on the expiration date. There’s a public settle() method that can be called by anyone that triggers the settlement process. Options that are in the money can be redeemed any time after 17:00 UTC.
- There’s a trading fee of 1% of the underlying when you open a position. There’s no fee for closing your position or for settlement.
- Chainlink oracles are used to retrieve the underlying price at expiration.
Join our community!
Feel free to ask questions, suggest ideas or chat about anything on Discord
To be the first to hear updates, follow @charmfinance on Twitter
