Introducing LBT Lite — Put, A Put Option on ETH
tl:dr; Today, we launched LBT Lite — Put, a “Put Option on ETH” that uses USDC as the underlying. Now you can buy/sell LBT Lite (Puts and Calls) with USDC.
Read the note below before you start trying out LBT Lite.
Go To Apps: https://app.lien.finance
Note:
- LBT Lite — Put is still in its testing phase and has not been audited in its current form.
- As a safety mechanism, we are restricting the holding of LBT Lite — Put to 10 LBT per address (for LBT Lite — Call, the limit is 50).
- Furthermore, in the beta release, users will not be able to create put options. This functionality of creating put options from USDC and other stablecoins will be made available in the future. Users will be able to buy, sell, and exercise put options using the Lien app UI.
- The balance that you see here will be different from what metamask will show you. The balance that you see here is presented in a way that is more meaningful to the user and is calculated as follows: the actual quantity of the unit composing the LBT-Put / Strike Price.
Call AND Put options on ETH. Less gas fees, more leverage.
Since its launch, LBT Lite (Call Option) has been a huge success.
Thanks to all the aLiens and DeFi enthusiasts!
Call options are great when the market is going up and everyone is bullish.
You don’t need as much capital when trading options.
Also they amplify returns (i.e. leverage!).
Even when you’re wrong and the market turns against you, options do not have margin calls or forced liquidations.
Your market exposure is limited to the price you paid for the options.
LBT Lite (Call Option) was released at the perfect time, just before ETH started its extreme ascend of late.
As we all know, however, nothing goes up forever.
When the tide turns and the price of ETH starts going down, call options can’t help you much in a bear market.
During a bear market, what becomes useful are put options.
Today, due to popular demand and request, we are introducing LBT Lite — Put.
Access to both Puts and Calls opens the door to multiple option strategies.
One of them is the mighty “Straddle”.
With the “Straddle” strategy, one does not have to know which way the market is going.
The “Straddle” will make money as long as the price of the underlying is volatile.
Setting up the “Straddle” is very easy.
All you have to do is to buy a Call and Put with the same strike price and maturity.
The following chart shows the profit and loss of a “Straddle”:
The “Straddle” is just one of the many option strategies that will be possible now with the release of LBT Lite — Put.
It is time to unleash your financial creativity!
Key points
- LBT Lite — Put is a European option; the option can be exercised upon expiration.
- When the difference between the price of ETH-USD upon maturity of a put option and the strike price is negative, that difference will be paid out when the option is exercised (i.e. net-settlement). The user does not have to pay additional USDC to exercise their option as in Opyn.
- LBT Lite — Put has no margin calls or liquidations.
- LBT Lite — Put has no counterparty risk.
- LBT Lite — Put can be purchased with USDC.
How does LBT Lite — Put work?
The Lien protocol splits ETH into two derivatives: LBT and SBT.
What happens when one splits USDC??
By splitting USDC, one can create two components, a put option and an exposure equivalent to a seller of that option.
The chart below illustrates the payoff of these two components.
As you can see, the payoff to the LBT Put holder “increases” as the price of ETH decreases, while the payoff to the seller of the LBT Put “decreases”.
In fact, the Lien protocol can create put options out of any underlying if there is a reliable oracle.
To facilitate trades of options through a Decentralized OTC, a dedicated smart contract called DecentraliedOTC.sol is used.
This smart contract automatically computes the theoretical value of a given option, adds a spread, and presents the trading price to anyone looking to buy/sell options.
The theoretical value of a given option is calculated using the Black-Scholes Model (BSM) using the following parameters:
- Chanlink ETH-USD price
- Annualized volatility based on the most recent 24 Chainlink ETH-USD price points
- 0% risk free rate, considering the current low interest rate environment
- 0% dividend yield
A 1–15% spread is added on top of the BSM price to cover the price fluctuations caused by front-running attempts. The spread is automatically adjusted based on volatility and strike price.
LBT Lite is highly leveraged and will experience high price fluctuations which could be abused by front-runners, if not for the spread.
