Introducing Opium TURBOS
Highly leveraged exposure vs. interest on crypto
Summary
We were working on an easy way to introduce return on Ethereum. In the meanwhile, we received a lot of requests for less conservative products. We listened, and today we are thrilled to introduce the very first Opium “Turbo ETH”. Turbo ETH will serve more risk-seeking investors. On the one side, stakers who sponsor it will have the opportunity to earn interest on their crypto. Based on your feedback, we will fine-tune parameters and select additional underlying assets.
Opium Protocol is live on Polygon!
One of our aims here at Opium is to make financial products accessible to a larger audience. It’s a multifaceted challenge that encompasses various fields, from financial engineering to blockchain and UX development. However, one of the current issues that prevent many users from benefiting from a larger spectrum of financial instruments is, you guessed it, fees! As the Ethereum network’s activity increases, so do the fees, which has the unpleasant side-effect of making transactions on the blockchain financially unfeasible to all but a few. This stands against what we believe at Opium, and it’s part of the rationale why we’re constantly experimenting with layer-2 solutions. And so we’re glad to announce the integration of Matic/Polygon into the Opium ecosystem!
We are glad to announce the integration of Matic/Polygon into the Opium ecosystem!
Polygon (former Matic) is a sidechain following a UTXO-like implementation of the Plasma MVP model. As of late, it has been all the rage in the Ethereum layer2/sidechain space. What it accomplishes is a much higher transaction throughput and, more importantly, near-zero fees.
Being EVM compatible means that the learning curve is as flat as possible, both for the developers and the end-users. Just add the Polygon/Matic network to your Metamask configuration, bridge your assets on their chain, and you’re ready to enjoy Opium On Polygon!
Not even that, as we’ve recently implemented the EIP-3085 in our UX, which allows adding programmatically custom RPC to a user’s Metamask configuration, which means that we take the hassle of tinkering with the Metamask settings away from you.
Lowering the transaction fees means lowering the barriers to entry to financial products, which aligns with our mission of democratising the derivative space. We’ll be waiting for you on Polygon!
What is TURBO
Turbo is a product with a short expiry that gives you highly leveraged exposure to the underlying asset. You buy Turbo for the fixed price, and if the underlying asset goes above specified strike price, you’ll have an upside — you’ll earn a high return within a short period, usually a day. Turbos offer a chance of a high return, but you can also lose limited funds in a short time.
Here is an example: suppose ETH price is 2,200 USD today and you buy (let’s say for 66 USD) a daily Turbo ETH that has a strike price of 2,300 USD.
Your Turbo will perform with ~10-30x leverage on the difference above the strike price of 2,300 USD. Let’s say that ETH by the end of the day is 2,400 USD which is 100 above the strike price; this means your Turbo will be burned and pay you 100 USD. If ETH is 2,600 USD, so 300 above the strike price, your payout will be 300 USD, and so on.
However, if ETH is not highly performing that day, let’s say it is worth 2,200 USD, not reaching a strike price, your Turbo will expire without a payout. The silver lining is that you can’t lose more than the cost of Turbo: even if ETH crashes to 1,500 USD, your total loss will be the same — 66 USD you paid for Turbo.
Staking pool for ETH: get interest on the crypto
A liquidity pool formed by stakers covers turbo products. The pool’s size can be 10x larger than the total nominal of Turbos that can be sold to the market — in other words, there are ten dollars of stakers per one dollar nominal of Turbo buyer. Thus, the daily return can be 10x of ETH daily return. To calculate the everyday strike price for Turbos, we add 3% to the last price of Ethereum (previous day). Based on historical observation, 70% of the time, daily performance is below 3%, so Turbos, on average, are not likely to be executed. In this circumstances the pool is likely to keep its funds plus collected fees from Turbo purchasers.
Crypto staking is a process of providing your crypto coins to a trading strategy or market-making algorithm in return for interest, just as you would do putting money on an account. The pool does not require locking your liquidity for a fixed amount of time and provides daily opportunities to withdraw your funds.
The pool works this way: users stake ETH into the pool to cover mining of Turbos. In return, they receive the fees from the Turbo purchasers (costs of Turbo) plus retain daily appretiation of ETH up to 3%, while all daily appretiation above 3% goes to the Turbo purchasers. If the pool does not sell any Turbos on a specific day, the ETH will not be at market risk and retain all price appreciation. Trading of Turbos is closed 4 hours before the settlement to ensure no free-riders as the closing price of ETH at maturity is not certain. Settlement is done every day on 08:00am UTC, like some traditional products.
By setting 3% floor on daily appreciation, most of the time, profits from selling Turbos should cover payouts to the Turbo purchasers while effectively generating interest on crypto for stakers (see backtest below). But be aware, though, that past results do not guarantee future performance.
So what role will suit you better?
Before choosing, do some research and make your calculations. If you think that daily growth on ETH above 3% sounds too good to be true, you may want to bring your crypto to the pool. As a staker, you’ll sacrifice abnormal daily returns for the proceeds from selling Turbos (3% premium on the utilized part of your funds), plus keep ETH price appreciation up to 3% per day. On the other hand, if the pool does not sell enough Turbos, your ETH is not utilized and remains in the pool without any risk associated, as they would stay in your wallet.
If you think that ETH will grow much faster than 3% per day, you can buy Turbos and hope for a very high daily return above the strike price.
Historical Backtest Turbo ETH vs Staking pool
While Turbo features are pretty attractive for risk takes and can bring very high returns, we have run a backtest of the current Staking pool parameters. The backtest aims to see how would staking pool perform historically (assuming the maximum utilisation ratio — all offered Turbos are bought from the pool).
The backtest results are shown below, keep in mind that the full utilization will not likely to happen. When the pool is not fully utilised, it does not bring any downside — ETH of stakers are not at market risk, neither receiving interest.
Looking forward
We will continue developing the Turbo products, which means soon you’ll see more Turbos and crypto staking will become more convenient. Let us know your opinion, and based on your feedback, we will fine-tune parameters and select additional underlying assets. Current Turbos are based on Opium Call-Options, but we also plan to introduce perpetual Turbos that you can buy and sell any time, getting turbo speed on the moments you need.
We plan to introduce perpetual Turbos that you can buy and sell any time, getting turbo speed on the moments you need.
At the same time, we are working on Opium 2.0, which enable anyone to create financial primitives and even financial markets in one click, just by staking money — as quickly as deploying a pool on Uniswap. Plus, there will be some minor changes to the protocol to make it more user-friendly and interconnective. Will update the connections considering the latest standards, so Opium 2.0 is compatible with different order books, IMMs etc.
We strive to bring you the easiest way to buy, sell and create. And, ultimately, let your money work for you and only you.
Stay tuned
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