An Update of ‘A Comparison of Decentralized Options Platforms’

The next biggest DeFi opportunity

Ryan Tian
Ryan Tian
Dec 1, 2020 · 22 min read

For readers who would like to know more about the liquidity solutions in DeFi options, please check the article here released on February 18, 2021.

It has been over 5 months since I, as well as Nicholas Krapels, finished the last comparison article on Decentralized Options Platforms, which I called “The next big DeFi opportunity.” DeFi is moving incredibly fast and much has changed during the past few months. Prices for nearly all DeFi assets, including our own FinNexus (FNX) token, peaked at the end of August. While the SUSHI drama surely stopped the price momentum of the industry, it did not dampen the development momentum of DeFi projects. If anything, we’ve seen bigger, bolder announcements of far more ambitious projects than the old DeFi Summer food tokens, which were not much more than a single-asset rewards token contract that emitted emoji-backed cryptocurrency., Barnbridge and Hegic have all made their mark on the DeFi industry. Each in their own way represents significant strides in providing a robust, composable suite of DeFi base-layer protocols.

However, the pace and growth of development in the DeFi options industry has moved to the forefront of the DeFi industry. New DeFi options models and projects pop up with increasing regularity. Therefore, at the request of readers, and also for general educational purposes for DeFi users, this article will serve as an update of the previous comparison analysis published by CoinMonks. It is recommended to go through the previous article before jumping too deep into this update.

The DeFi options platforms below are listed in no particular order.

A Preview


Hegic IBCO

This token sale was quite a success with 31,000 ETH raised during this IBCO process.

Hegic v888

Here is a rundown of the basic differences.

  1. Hegic v888 has a dual pool model. The previous DAI and ETH pools were terminated while new ETH and WBTC liquidity pools were created.
  2. Both ETH and WBTC options are included in v888 while previously only ETH options were available.
  3. The Hegic liquidity pools are now bidirectional, which means that the writing of both puts and calls can be powered by the same pool, with WBTC and ETH as underlying assets respectively. Previous versions of the protocol allowed ETH puts to be backed by the DAI pool, and ETH calls to be backed by the ETH pool.
  4. Very attractive mining rewards, denominated in rHEGIC, a token that can later be converted into HEGIC, are promised for providing liquidity to the collateral pools.
  5. Hegic is now a DeFi primitive, with other development teams building on top of Hegic’s protocol like ZlotFinance and Hegic Staking.
  6. Options do not have to be physically settled as in the last version of Hegic. WBTC and ETH now serve as the basic currency for cash settlement.

Numbers so far in Hegic v888

(TVL in Hegic from 11th Oct 2020 to 30th Nov 2020)

Moreover, until 18th Nov 2020, 880 options were traded and the total trading volume reached $38,000,000 USD. Indeed, Hegic’s first month was a bit of “hedge magic.”

More information can be found on the Hegic dashboard here on Dune analytics.

The beauty in Hegic

Hegic v888 uses bidirectional liquidity pools. Previously, put and call pools were separated, ensuring that options written from the pool were always fully collateralized and physically settled. However, in this old model, the liquidity provider for each different pool faced one-sided risks. For example, the DAI pool could only write put options. Therefore, liquidity providers were more likely to lose money when the market moves to the downside because all of the options written from the pool would be in the money. In other words, maintaining separate pools meant that the risks were only partially diversified, hurting the risk-adjusted returns of the liquidity providers. Smart liquidity providers could of course hedge against these one-sided risks, but that kind of protective diversity was not baked into the protocol as it is in v888.

With bidirectional pools in Hegic v888, puts and calls are simultaneously powered by the same pool. If puts lose money, calls will be in profit. This bidirectionality mitigates the risks of a pool with only a single type of options because it further diversifies risk.

Moreover, Hegic token holders earn attractive staking rewards and pool contributors earn are incented with generous liquidity mining rewards. Options buyers also enjoy rewards from Hegic that are a bit like rebates. Please refer to the Hegic docs or its website for more details.

Some Concerns Regarding Hegic

In the previous Hegic model, the pool’s logic was built on the physical settlement of options, which left no worries about whether or not a pool may ever be undercollateralized. However, in v888, the case is different. The pools are bidirectional and can write calls and puts.

Let’s take the v888 ETH pool, for example. For writing call options, it is no problem, as the pool is comprised solely of ETH and can therefore always deliver when call option holders exercise their options, no matter how the market price moves. In other words, the provided collateral for the liquidity, since it is denominated in ETH, also appreciates as the ETH price grows.

But for put options, bidirectionality can be a problem. Puts give option holders the rights to sell ETH at a certain USD price, like protection or insurance. In Hegic’s model, if an option holder exercises a put, the pool needs to deliver the difference between the market price and the strike price, which is calculated in USD but delivered with ETH tokens. In v888, this is called cash settlement of options. In prior versions of the Hegic protocol, it was physically settled.

Now suppose the ETH price drops by 30% in a week. The value of ETH in the pool also decreases by 30%, which undermines the pool’s capability of performance. In extreme cases, if there are full of at-the-money (ATM) 4-week puts against the pool and the ETH market price drops 50% in this 4-week period, the pool will be drained. If it drops more than 50%, the pool will be incapable to perform.

For now, Hegic does not specify the current collateral ratio requirement in their documents, but it would be safer to keep the collateral ratio higher than 100% or make it dynamic according to the market conditions.

· Option Pricing

Hegic applies a special and simplified pricing model for pricing options, different from the traditional ones, and the implied volatility (IV) is manually updated with reference to

The protocol specifies 1-month ATM IVs. Each time this parameter changes -10% or +10% on, the IV parameter is manually adjusted in the Hegic smart contracts. Moreover, Hegic v888 charges an additional 1% fee on the purchasing of options, which all gets distributed to staking lots holders.

These two mechanisms result in a relatively higher price for options compared with other platforms, especially the out-the-money (OTM) options, despite the fact that they are being compensated with transaction mining rebates. Arbitrage opportunities between Hegic and other options venues could arise if the market becomes more crowded.

· Risks in the pool

As there is no price slippage in option pricing, the ideal put-call balance can be hard to be maintained.

For example, on 21st Nov 2020, in the ETH pool, there are about 75% ETH calls in the total options volume. This 1:3 put/call ratio makes the pool’s risks highly biased. The case is similar in the WBTC pool. The pool participants may have to manually hedge against the potential risks for a dramatic market rise, even being a pool contributor. However, the potential loss as a liquidity provider to the pool is well compensated by mining incentives.



The Universal Options Platform

FinNexus calls FPO the Universal Options Platform. It is called that because the pools can support any underlying asset on any base layer blockchain.

The unique characteristics of FPO v1.0 are described here:

  1. It may collaborate with different chains. Now FPO is live on Ethereum and Wanchain with a joint interface. Later it may come to Elrond, Kardiachain and more.
  2. FPO v1.0 enables the creation and trading of options from any type of underlying asset based on the collateral held in liquidity pools. Now, FPO v1.0 supports BTC, ETH, MKR, LINK, SNX options. The underlier may not even be limited to crypto-assets. Real-world financial assets like gold, petrol, stocks, or indexes can easily be integrated. Really, since FinNexus partnered with Chainlink, if they have a price feed for it, FinNexus can include it in our options liquidity pool.
  3. The choice given to the option buyers is very flexible and can be tailored to his/her needs.

The MASP Mechanism

Below is the example of the MASP mechanism in the USDC pool on Ethereum:

Option Pricing

Also, with the USDC pool, options are traded and settled in a stable coin, which is much closer to options traders’ transaction convention and easier to collaborate with different yield chasing strategies, whose financial performance is usually measured in USD.

Additional Security Mechanism

  1. Minimum Collateral Requirement. FinNexus introduces the Minimum Collateral Ratio (MCR) requirement for the pool. It is an innovative mechanism designed to control the size of the pool’s total options exposure. The MCR ensures that the options are always over-collateralized.
  2. Pricing Adjustment Coefficient. FinNexus introduces a pricing adjustment coefficient to mitigate the concentration by adding a coefficient for pricing options. It automatically discourages the purchase of options that are already over-weighted in the pool. In a nutshell, if there are more calls than puts, calls are more expensive, and vice versa.
  3. One-hour Chill Time. To protect against possible flash loan exploits in FPO v1.0, a special mechanism called ‘Chill Time’ is designed, during which the options buyers cannot sell or exercise the options, and the pool participants cannot withdraw their assets out of the pool. ‘Chill Time’ is set to be one hour.
  4. Moving Average IV and IV Surface Mapping. FinNexus applies the average IV from the most liquid options on the market, which is 1 day, 2 days, and 7 days at-the-money IV, and feeds it into FPO v1.0 by an hourly moving average. The protocol then uses this data point as the ‘Anchor IV’ for the DeFi options market. Based on this Anchor IV, FPO v1.0 applies the Stochastic Volatility Inspired (SVI) parameterization model and derives the volatility matrix or volatility surface.

FPO was launched on Ethereum on 4th November and on Wanchain on 11th November. So far FPO has seen a maximum of $1.7 million of TVL in its smart contracts.



According to defipulse, the TVL in OPYN is shown as follows since Aug 2020.

(TVL in OPYN till 30th Nov 2020)

Opyn options are American type, which means they can be sold or exercised at any time before expiration. The point of American options is that they give holders more flexibility in hedging. In some scenarios, it is more profitable to sell a put option than it is to exercise it. The put option rises in value as the value of your holdings in the underlying asset falls, allowing you to sell it and reduce the downside risk in your overall portfolio.

An exciting development for the OPYN team is that they are close to launching OPYN v2. There will be some distinct updates in OPYN v2, though some features have yet to be finalized. I will highlight some of those advancements here.

  1. Auto-exercise ITM options upon expiry. Opyn options can be settled upon expiration time, automatically.
  2. Collaterals are kept in Margin Vaults. This mechanism allows Opyn to maintain all the collateral necessary to fully back their call and put spreads based on the maximum potential loss. It is more capital efficient and flexible when complicated options combination strategies are employed.
  3. More margin flexibility. Future updates may allow for flexible margins and liquidations. Again, it will be more capital efficient.
  4. Diversification of collateral. Using yielding or interest-bearing tokens as collateral allows options sellers to maintain 2 sources of return. They can earn interest, as well as any mined governance tokens, while simultaneously earning from selling options premiums. Opyn v2 will allow yielding assets like Compound cTokens to be posted as collateral for options (e.g. cUSDC for ETHUSDC puts). Sellers would earn interest and COMP for their collateral. Longing in-the-money (ITM) options can be settled in cTokens and unwrapped to the underlying asset, given adequate liquidity. For options buyers, option premiums are likely to be lower for options with yielding collateral compared to options backed by non-yielding assets.
  5. Transiently Undercollateralized Vaults. It may allow for more complex interactions with higher capital efficiency. It could be something like flash transactions in options.

Curiously, despite the roaring success of DeFi protocol tokens since this summer, there is currently no protocol token for Opyn.



Options with a Variety of Underliers

Moreover, Opium has developed products on options with different underlying assets, like BAL, BZRX, COMP, NXM, YFI, etc. It has also made some trials on exotic options like binary options on COMP, which is a cash-or-nothing binary option. The seller pays some fixed amount of cash if the option expires ITM while the buyer pays the agreed premium to the seller. The Opium exchange is the venue to trade these option products and it provides an order book liquidity for the users. The concern is that the liquidity is not deep enough at present.

The First CDS in DeFi

It works as follows:

Opium also developed a CDS Contract on WBTC/BTC and USDT/USDC price depreciation. The CDS products are tradable on Opium Exchange, with an order book liquidity.

Swap.rate platform

For example, by using an IRS, users can fix your floating rate on the deposit or loan. IRS, like a special insurance contract, will pay out the difference between the promised fixed rate and the realized rate at the time of maturity.

On SWAP.RATE, you can either choose to pay floating and receive fixed rate, or pay fixed and receive floating rate. As the liquidity gets deeper, Opium Team will introduce a live swap curve. IRS is a powerful and big derivative market in traditional finance. We’re glad that Opium is introducing it to DeFi.

There is currently no protocol token for Opium.


Auctus (ACO)

UXUI enhancement and options enrichment

Auctus made some trials on options with SNX and YFI in late August 2020, and with SUSHI in September 2020. However, these days only WBTC and ETH options are live on its platform.

Options Writer Pools

As mentioned here, Auctus’s goal is to allow the creation of custom-tailored liquidity pools, meaning option writers can decide which range of strike prices and expiration dates they are willing to mint and sell, as well as decide what is the minimum implied volatility (IV) they are willing to sell. IV is adjusted based on the utilization rate of the pool.

From the UI on 19th November 2020, Auctus maintains 4 pools as puts and calls in ETH-USDC and WBTC-USDC pairs, to work as the seller of options, with a strike price range and expiration range. The pools are controlled with more limitations and renewed from time to time. The pooled liquidity finally goes to market for the current basic mode users, and later it may be included in the order books. Therefore, the Auctus pooled liquidity model works differently than Hegic and FinNexus’ pooled liquidity model.

Auctus Vaults

Vaults represent a passive-investing strategy that combines interest-earning protocols and options. Some vaults offer capital protection and so can be adapted to all risk profiles. While some vaults offer principal protection, they still face the risks of smart contracts. Vaults benefit users by socializing gas costs and automating allocation strategies.

The first Vault on Auctus is 3POOL-ETHCALL. it provides ETH exposure with principal protection. The yields generated from farmed CRV governance tokens are automatically used to purchase ETH call options.

Later it may launch other vaults like bullish or bearish strategies or IL hedging strategies.



The updated testnet model of Primitive seems a bit similar to Opyn. It is testing the option instrument itself with two fungible tokens: a LONG option and SHORT option ERC20. Creating options requires the underlying assets to be deposited, which means each option is 100% collateralized. When an option is created, the party initiating the transaction will receive the Long and Short tokens. The party can then sell either of the tokens (or even both) to have only single exposure against the option (Long or Short).

Uniswap liquidity will be applied for the transaction of the option tokens. It is planned that in a later Phase, the Uniswap pool will be replaced by a ‘better pool mechanism’ for trading options. Maybe some innovative ways to tackle the time decay and Impermanent Loss problems. The Primitive model and documents are still under construction, and it will be interesting to find out what Primitive will bring to the DeFi market.

Currently, Primitive does not have a platform token.


According to the Hedget website, it applies a Chromia-based L2 solution that handles trades, tracks ownership of contracts and facilitates the communication necessary to perform settlement through Ethereum smart contracts. Also, Hedget announced that it would utilize Binance Smart Chain for a version of the Hedget platform which works with assets on Binance Decentralized Exchange.

Though Hedget’s product is not on the market yet, according to their product structure, it is most likely a peer-to-peer decentralized options model with full collateralization. It will support European-style options, which means that the option can only be settled at the time of expiry. Options are likely to be tokenized and transacted in Hedget’s trading venue.



There is currently no protocol token for Pods.


From a 30,000-foot view, however, sometimes it is easier to see where an industry niche is going. As a result, keeping track of these 9 DeFi options platforms, and others as they come online, will be most interesting to observe. Each platform is slightly different from the other. But the collection of innovative ideas pushes the entire space forward.

It is a joy to be involved in the development of the protocol future.

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Coinmonks is a non-profit Crypto educational publication.


Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project —

Ryan Tian

Written by

Ryan Tian

Co-founder of FinNexus; Investment Banker


Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project —