How Lien Will Evolve With V2
Lien Protocol will be releasing the Lien Option Pool on 19th of April.
Since the incident in September 2020, the ability to provide liquidity to the protocol was closed off to general users until we were certain that the issues had been addressed.
During that time, the Lien team was the sole provider of liquidity to the platform. With the release of the Lien Option Pool, anyone will be able to provide liquidity.
Users can start providing liquidity from UTC 12am on April 19th, and the trading will be available from UTC 4pm on April 23rd. European type option market will be fully launched.
Leading up to September 2020, our aim was to create a truly decentralized stablecoin and derivatives market by splitting ETH into two derivatives; LBT (Liquid Bond Token) and SBT (Solid Bond Token). Both LBT and SBT are call options on ETH but with different characteristics. Users could choose to take a leveraged long position on ETH with LBT or convert SBT, which is a deep in the money call option, into iDOL (stablecoin).
A stablecoin backed by options was an innovative idea with significant potential, given the important benefits that were attainable such as high collateral efficiency.
What became apparent once the protocol was launched was that prioritizing the issuance of stablecoins had the effect of distorting the market in unintended ways. With this in mind, our first priority was to create sufficient liquidity in the decentralized options market.
The Lien Option Pool is well suited for creating liquidity.
In addition to being able to price options using the volatility oracle, users will also be able to create a variety of option instruments. Option types that users will be able to create will be expanded to include not just deep in the money call options like LBT, but options such as at the money call options and butterfly option positions. Not only will users be able to create options for themselves, they will be able to sell them in the market and earn option premiums.
The strike price and maturity of options that can be issued will be standardized to a certain extent based on typical market demand, but has been designed with the principal belief that users should be able to fine tune their position based on their specific risk appetite.
The SBT, which is a deep in the money covered call position, can be used as a form of currency when trading options on the Lien protocol. Due to the fungible nature of ERC20 tokens, users can also split an SBT with remaining maturity even further to create different derivatives. As a result, options with a wide variety of maturity and strike price will be available for trading and the total supply of options in the DeFi space as a whole is expected to increase over time.
After the Lien protocol was launched, many DeFi protocols with options have emerged.
A mechanism to compensate users who provide liquidity to this new contract with LIEN tokens will also be introduced. This new reward system was designed with those who have been using the Lien protocol from early days, as well as new users who will be joining us in the second stage of the project, in mind.
Once decentralized options successfully penetrate the market with sufficient variety of options, the time will be ripe to start issuing SBT backed stablecoins with no maturity.
This stablecoin will be different from past implementations. It will be backed by a basket of highly stable options that the contract will automatically select. This stablecoin will not be backed by options that were issued just for the sake of issuing that stablecoin.
Instead, it will be backed by options that have been generated based purely on market demand. The difference is critical. We can expect liquidity that is stable and sustainable from the latter.
In achieving this ideal stablecoin, we will first release the Lien Option Pool which will allow users to issue options using the Lien protocol. This is the first step that will move us forward towards the direction that our vision leads us; bringing financial creativity to all.
Oh, and one more thing; our next release has layer 2 (L2) in mind.
With gas fees skyrocketing on the base layer, supporting L2 will be crucial for increasing the liquidity of options.
The second stage of the Lien story has just begun!
