About Options.Market
Options.Market is a protocol layer for creating, trading, and redeeming options contracts for any ERC-20 token on Ethereum.
Options.Market — An Introduction
Financial derivatives, commonly known as options, are a financial product that can be used as the basis for an extremely wide variety of both simple and complex financial instruments. Options came into being and became popular because they allow traders to take positions on assets that give them the right, but not obligation, to exercise their position should the market conditions be favourable. It also creates opportunities to hedge price risks and speculate on price fluctuations in a cost-effective manner.
How and why protocol layer?
Protocols for the decentralized finance world do not need to be owned and controlled by venture capitalists. Their tokens, that will power DAO voting on key protocol direction and parameters, can and should be as widely distributed as possible from the outset. A buoyant DeFi market enables this and Degen VC launched Options.Market as a fork of SirenMarkets.com distributing OSM tokens widely and freely and leveraging Uniswap to discover a fair price for the protocol token in its nascent form.
Central Protocol Operations
Options.Market has been designed in such a way to render the use of pricing oracles and other interfaces obsolete. The issue with the use of such tools is that they are provided by 3rd parties, and as a result a project is bound by the rules of these 3rd parties as and when they change. This does not make a project failsafe. Our approach is to use fully-underwritten and collateralization for writing options. This means that each trade is collateralized by liquidity pools provided by token holders — and for which tese holders are handsomely rewarded with 32.5% of total token supply.
A single MarketsRegistry contract establishes and manages individual markets. Once a Market contract is created anyone can interact with it in a permissionless manner. The collateral provided and locked in the smart contract ensures position solvency.
Options.Market tokenizes both the buyer (long) and writer (short) side of the options contract. The long position (lToken) gives the holder the right to purchase (call) or sell (put) the underlying asset at a predetermined strike price and a predetermined date in the future. The short position (sToken) allows the holder to withdraw the collateral (if the option was not exercised) or withdraw the exercise payment (if the option was exercised) from the contract after expiration.
In our taxonomy, the trading of options results in creation of a collateralized lToken or sToken. For example, when a user buys any option, call or put, the corresponding value of lToken or sToken is created — let’s say the user bought 1 renBTC/USDC CALL with a strike price of $55,000. In Options.Market, the notional amount of CALL bought (1) is multiplied by the strike price, which means 55,000 lTokens are created.
Tokenizing both sides of the contract creates an opportunity for secondary-market trading. Risk preference for long and short positions can now be revealed through the trading of the lToken and sToken. If a User wants to write an options they can now purchase an sToken from the Options.Market AMM — and should they want to reverse/unwind their position, they would sell the sToken back to the AMM. Since the underlying collateral can now be purchased and sold at will, the mechanics of writing options are simplified compared to the long protracted process of available alternatives. Please note always that an options writer’s risk is almost unlimited (they only receive the premium), and an option buyer’s risk is limited only to the premium they have paid. This is critical knowledge to have in a very complex financial environment.
Options.Market AMM
The complexity of options means that generic liquidity growth through community participation, and irrespective of whether the project provides liquidity, is fraught with issues of fragmentation and a general lack of understanding of the advanced nature of options trades. This is exacerbated by concepts such as strike prices, expiration times and changes in the underlying hedging parameters — known in the industry as the “greeks”.
To ensure liquidity on day 1, Options.Market will use a bespoke AMM — that in later stages could become a partnership with Behodler.io. Those familiar with Behodler will know that it is built on token bonding curves and is governed by a native token that all other tokens are paired with to create liquidity. This experience will help us ensure that the design of the AMM will be consistent in the delivery of options minted to trade lTokens and sTokens. These 2 assets will be the only assets in the pool as a consequence, ensuring the efficiency of LP capital appreciation. Details of additional upside will be made available in due course.
Ensuring ease of use, low complexity and an easy-to-explain model means the design hinges on simplicity in design resulting in an oracle-free and fully-collateralized market-maker. The net result is a model rendered to operate as simply as possible with reduced complexity — pricing formulas and oracles are not used. Now everyone can become an LP supporting the nascent DeFi options market and earning fees in the process.
Learn More
Gitbook: https://options-market.gitbook.io/options-market/
Website: https://options.market
Telegram: https://t.me/options_market
Twitter: https://twitter.com/osmtoken
Discord: https://discord.gg/jPvQYdGU4h
