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[#5] Introducing Deviation Based Pools — Oddz Options v2

Deviation Based Pools

The concept behind Deviation Based Pools comes from Uniswap v3, where liquidity providers define the minimum and maximum price of an asset and get a transaction fee for trades executed within that range. To understand UniSwap v3 better, we suggest referring to these guides: UniSwap v3 Guide 1Guide 2.

Oddz’s deviation-based pools follow a similar approach where users can provide liquidity to pools with assets having deviation. The term “Deviation” here refers to the difference between the strike and the current price of an underlying asset.

For example, if you provide liquidity to the ETH-CALL 7 Days-10% Deviation pool and the price of ETH is $3000, you will only earn if options buyers execute a trade within the strike range of $3180 ($3000*6%) to $3300 ($3000*10%).

How we calculate Deviation:

5% deviation pools write options for strike price above 1% to 5% from the current price

10% deviation pools write options for strike price above 6% to 10% from the current price

20% deviation pools write options for strike price above 11% to 20% from the current price

40% deviation pools write options for strike price above 21% to 40% from the current price

How do deviation-based pools work?!

Users first provide liquidity to the pools. The below image depicts us providing $10,000 worth of liquidity to the AVAX Call 7 Days ATM pool, ETH CALL 7 Days Five (5%) pool, BTC PUT 1 Day Ten (10%) pool, AVAX CALL 30 Days Twenty (20%) and ETH PUT 30 Days Forty (40%) pool with 20% allocation to each of them.

Once you provide liquidity to these pools, the amount will get locked in if traders purchase options from these deviation pools you chose. Here “Five” “Ten” “Twenty” “Forty” refers to 5%, 10%, 20%, and 40% deviation that is explained above. And, “ATM” pools refer to “at-the-money” meaning a situation where an option’s strike price is the same as the current market price of the underlying asset.

Moreover, the unique feature of these pools is that they aren’t fragmented, meaning even if we have hundreds of pools, each pool’s liquidity will be effectively handled by the liquidity pool manager by locking liquidity across the pool for one order. For example, even if you provide 12 USDC in a pool it will be effectively used where necessary.

Flexibility and efficiency are the core principles of Oddz’s Deviation-based pools. Now, that you have understood the meaning of these pools, let’s try to simplify further with a few examples:

Example 1:

Assume the Current Date is 3rd Jan 2022 and the Current Price of ETH = $5,000

Consider a user provided liquidity to the following pool of “ETH-CALL 7 Days-10% Deviation” by doing so the user is writing the following options having parameters ETH-CALL with 2 to 7 days expiry from option purchase date with 6 to 10% (i.e. $5,300 — $5,500) deviation from the asset price while option purchase.

On the other hand, consider a trader who bought an option with an expiry between 2 to 7 Days (i.e. expiry date 3rd Jan — 8th Jan 2022) with a strike price range between 6% to 10% from the current price (i.e. $5,300 — $5,500).

So, here the option buyers will access the liquidity from the “ETH-CALL 7 Days-10% Deviation” pool and the option writer (Liquidity provider)of this pool will either earn all the profits when options expire or no profit at all.

Example 2:

Assuming you are provided liquidity to pool “BTC-PUT-30 Days-20% Deviation”, you will be writing BTC Put options with 8 to 30 days expiry for strike range 11% to 20% (deviation) away from the current price.

So, if the current price of BTC is $50,000 then liquidity in this pool will be used for a strike range of $55,000 — $60,000 and if the option buyer chooses to buy options from this strike price range then either you make a full profit or no profit at all.

What do we offer?

Currently, we provide the following deviation pools for BTC, ETH, and AVAX:

  • For a 1-day expiry, we provide a 5% and 10% deviation from the current strike price.
  • For a 7-days expiry, we provide 5%, 10%, and 20% deviation from the current strike price.
  • For a 30-days expiry, we provide 5%, 10%, 20%, and 40% deviation from the current strike price.

Each underlying asset has four deviation ranges. The framework for deviation based pool in Oddz is as follows:

Assets we have = BTC, ETH, and AVAX

Type of option = Call and Put options

Expiry = 1 Day, 7 Days, and 30 Days

Example 1:

Assume the Current Date is 3rd Jan 2022 and the Current Price of ETH = $5,000

Consider a user provided liquidity to the following pool of “ETH-CALL 7 Days-10% Deviation” by doing so the user is writing the following options having parameters ETH-CALL with 2 to 7 days expiry from option purchase date with 6 to 10% (i.e. $5,300 — $5,500) deviation from the asset price while option purchase.

On the other hand, consider a trader who bought an option with an expiry between 2 to 7 Days (i.e. expiry date 3rd Jan — 8th Jan 2022) with a strike price range between 6% to 10% from the current price (i.e. $5,300 — $5,500).

So, here the option buyers will access the liquidity from the “ETH-CALL 7 Days-10% Deviation” pool and the option writer (Liquidity provider)of this pool will either earn all the profits when options expire or no profit at all.

Example 2:

Assuming you are provided liquidity to pool “BTC-PUT-30 Days-20% Deviation”, you will be writing BTC Put options with 8 to 30 days expiry for strike range 11% to 20% (deviation) away from the current price.

So, if the current price of BTC is $50,000 then liquidity in this pool will be used for a strike range of $55,000 — $60,000 and if the option buyer chooses to buy options from this strike price range then either you make a full profit or no profit at all.

What do we offer?

Currently, we provide the following deviation pools for BTC, ETH, and AVAX:

  • For a 1-day expiry, we provide a 5% and 10% deviation from the current strike price.
  • For a 7-days expiry, we provide 5%, 10%, and 20% deviation from the current strike price.
  • For a 30-days expiry, we provide 5%, 10%, 20%, and 40% deviation from the current strike price.

Each underlying asset has four deviation ranges. The framework for deviation based pool in Oddz is as follows:

Assets we have = BTC, ETH, and AVAX

Type of option = Call and Put options

Expiry = 1 Day, 7 Days, and 30 Days

About Oddz

Oddz is a trustless on-chain derivatives trading platform that expedites the execution of call and put options contracts, conditional trades, and futures. It allows the creation, maintenance, execution, and settlement of trustless option contracts, conditional tokens agreements, and futures contracts in a fast, secure, and flexible manner.

It employs the synergies of Ethereum, Avalanche, Binance Smart Chain, Polkadot, and Polygon to unleash the potential of a decentralized derivatives market. It focuses on building solutions that can propel the DeFi ecosystem by simplifying derivatives trading and enhancing the user experience.

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oddz finance

oddz finance

Multi-chain Derivatives Trading Protocol built on Binance Smart Chain, Polkadot ,Polygon and Ethereum.