Get protected ETH from Uniswap!
Opeth-ETH Uniswap V3 pool for swapping into protected ETH
tl;dr
- Opeth is a synthetic instrument that combines a put option and an underlying asset to create a lower bound that can be used as collateral to issue stablecoin loans
- We created a Uniswap v3 pool that allows users to buy protected ETH (Opeth) in a simple, capital efficient manner
- December 31st ETH $1280 puts are the first long dated put options powering Opeth
Opeth is an option powered smart collateral that can be minted currently using ETH or ETH + oToken. For the average user who is not familiar with options, understanding this might be daunting, while all they want to do is buy protection for ETH and use that as smart collateral.
We were pondering on how we could simplify the process to access Opeth. One way to facilitate easy access was to create a AMM based pool that allowed users to buy protected ETH (Opeth) in an easy manner.
h/t Andrew from the Opyn team for the idea.
With that in mind we worked with the Opyn team to create a Uniswap Pool having Opeth powered by long dated puts.
We zeroed in on the $1280 strike for ETH with a Dec 31st expiry as the first long dated put powering Opeth.
Shout out to the Opyn team for making this possible and seeding pool liquidity!
If you want to hold protected ETH — this is a great way to avoid the complexities of minting an Option, instead one can swap into Opeth using the collateral of their choice. We believe this will help a broader set of users to access Options based products and become familiar with their utility.
Adding Liquidity to Uniswap
Before supplying liquidity on Uniswap V3 here please get familiar with the following terms:
- Fee Tier
- Price Range
The numbers below are meant as recommendations, please use your discretion and understand the risks before adding liquidity.
Fee Tier:
This is fees that LP’s earn for every transaction facilitated by the pool.
The Opyn team has seeded the pool using the 0.3% fee tier which is also the recommended fee tier for most pairs. We recommend supplying liquidity to the same fee tier to save on gas fees and to curate a more concentrated liquidity pool for Opeth.
Recommendation: 0.3%
Price Range:
When supplying liquidity to Uniswap V3 Lp’s need to specify a range where they want to trade a given pair.
To give a relatable example before going into Opeth/ETH let’s consider ETH/DAI
Assume ETH is at $1800 today and the range is specified as $1700-$2000.
When ETH price goes :
- Below $1700 : the LP position is denominated fully in ETH
- Above $2000: The LP position is get converted fully into DAI
Now considering Opeth/ETH
Opeth comprises of ETH + The Put Option. Opeth will generally trade at a premium against ETH as it accounts for the premium paid for the put (Currently 1 Opeth =~1.1 ETH).
In the long run if the Option settles OTM (above strike at expiry) i.e. ETH trades above $1280 the Opeth/ETH price converges to 1 ETH per Opeth.
Now, Let’s evaluate a price range of 1–1.7 ETH per Opeth
This implies when ETH’s price is at 1280/1.7=~$750 all of your Opeth is converted to ETH. In effect you just exercised your put option and now own ETH!
Also when Opeth/ETH converges to 1 ETH per Opeth all of your ETH will be converted to Opeth as explained in the OTM example above.
Recommendation: Opeth/ETH between 1–1.7 ETH per Opeth
How to supply Opeth/ETH Liquidity to Uniswap
You will need both Opeth & ETH to LP in the Uniswap V3 pool.
1. Calculate how much Opeth or ETH is needed
Connect to Metamask and visit the add liquidity tab on the Opeth Finance LP page.
Enter the Fee Tier and the Price range that you want to LP in.
Depending on these parameters Uniswap will populate how much you need to deposit. This is starkly different from Uniswap v2 where you deposited equal $ amounts of both assets in the LP pair.
We simulated for 0.1 Opeth which required 3.84 Opeth as the required amount for the chosen parameters. You can do it the other way round if needed.
2. Obtain Opeth:
You can buy Opeth from the Uniswap Pool or Mint it from the Opeth App
For detailed instructions on how to mint Opeth read the Opeth blog.
3. Add Liquidity:
Visit the add liquidity tab on the Opeth Finance LP page.
Click on the — Approve button that allows to spend your Opeth
Once approved you can click on preview
This opens up the following Add liquidity dialog box, double check the ranges and amounts.
Click on Add and then confirm the transaction.
4. Check the Pool Overview
Congratulations you have now successfully supplied liquidity to the Opeth Uniswap Pool 🎉🎉
Nomenclature
The ERC 20 you obtain after buying Opeth is —Opeth-oWETHUSDC/USDC-31DEC21–1280P
This can be broken down as —
Opeth — Opeth-oWETHUSDC/USDC-31DEC21–1280P
oWETHUSDC — The pair for which the option is obtained
31Dec21- The Expiry Date
1280P- Strike Price and P — Put Option.
