Fees, Rewards and Liquidity in Options.Market
Many alternatives, like truths, are out there…
Introduction
Options.Market started life as a fork of a project that was so obviously stacked against retail investors, and so in favour of early seed and VC that it had to be taken on. What has not hurt is Paul’s knowledge of options markets and trading from many years in banking, trading rooms and managing Treasuries.
As we enter the next phase which is launch of the first trading markets on Binance Smart Chain (BSC), let’s explore some of the team’s thinking around trading fees, rewards and liquidity for the groupings of token hodlers, Liquidity Pool Providers (LPP’s) on Uniswap, and Liquidity Collateral Providers (LCP’s) on BSC who play the vital role of permitting markets to be traded in a fully collateralized manner.
Trade transaction fees
The contracts that we have developed permit the smart collection of trading fees from the various trading activities on the protocol, and the image below shows all of the moving parts:
We call this the Markets Registry and it is responsible setting the respective fee distribution percentages and destinations. It also includes a really interesting idea that we have been kicking around. In essence, we could have a Vault that integrates a swap function inside it to take BUSD, swap it for a collateral token (such as BNB or CAKE) and use it to top-up collateral. It’s a technical idea for now and will be developed further in time.
For now though, there are a couple of alternatives that remain a possibility within the smart contract design (HT: @Blair_OSM_Maxi on our Telegram group for concisely articulating our thinking):
- Use the options trading fees in several ways, such as: buy back and burn $OSM tokens which is possible by sending the fees across the Binance Bridge to Ethereum;
- Buy back and distribute $OSM to all liquidity providers of $OSM token on a pro-rata basis;
- Be used to add liquidity to the platform on Ethereum in perpetual liquidity lock, thus removing these tokens from circulation.
Rewards
As originally conceptualized, rewards are still held by the team — this amounts to 32.5% of total supply (32.5M $OSM tokens) — and are definitely going to be used to incentivize Liquidity Collateral Providers (LCP’s) who provide the collateral for the options trading protocol on Binance Smart Chain. This is relatively easy to do, as everyone knows that BSC uses the same wallet address as Ethereum. This wallet address remains constant when using the Binance Bridge as those familiar with the process will attest. Simply:
- LCP adds collateral to a trading pair on BSC.
- Rewards are emitted into their wallet on the ETH chain in accordance with a coded calculator based on quantum of collateral provided, and time provided.
- Rewards are not locked at all and available for immediate use.
What was not originally contemplated was how the combined value of community incentives and rewards (originally 37% of total supply) might be used to incentivize one or both of token hodlers and LPP’s on Uniswap.
The debate on Telegram is robust as it should be, and has become a really interesting conceptual one that surfaces an important topic — is governance a sufficient use-case / utility for a token? This is a multi-faceted topic and not one for a Medium article. If governance can change rewards distribution metrics, or indeed any of the many code-related changes that are possible, is this still an insufficient use case? One for the Plato followers perhaps. We think that governance should drive this process once invoked.
Improving Liquidity
We understand that liquidity plays an important role in the life-cycle and development of a project, and are very conscious of debates along these lines. It’s worth reviewing DegenVC’s operating model for projects such as Options. Market:
- DegenVC does not raise a single $ from the market ever in developing and launching projects, in order to preserve the pure launch methodology ethos upon which we were founded.
- We give a generous share of supply to DGVC LP’s, at zero cost: for $OSM this was 18% of total supply.
- We seed a Liquid Vault with a healthy amount of tokens: for $OSM this was 10% of total supply.
- We create the market with a very small amount of liquidity.
In exchange for this, we let our #alphadrop recipients take it from there — this means the creation and maintenance of liquidity. The market also dictates the liquidity pool — as prices rise, so does liquidity. While we work out how to reward LP’s further, the addition of LP remains a personal choice.
However, we are not without an ear to the community’s concerns. We are discussing either the reopening of the original Dual Accelerator Vault, or the creation of the Power Vault that we have used in another project (more information here).
Whichever is ultimately chosen, it will be seeded with a TBC% of supply. The ETH fee may be distributed slightly differently and a permanent LP lock will be included that ensures a percentage of LP remains locked in liquidity permanently…which magically makes $OSM deflationary as well! We’ll run a short-time poll on Telegram as to which the community would prefer.
Conclusion
A multi-chain protocol of this magnitude needs thoughtful and careful knowledge, understanding and deployment. We are very circumspect in general, and with user’s funds in specific. This has been our methodology and overriding concern from Day-1, and will remain so going forward.
Learn More
Website: https://options.market
Telegram: https://t.me/options_market
Gitbook: https://options-market.gitbook.io/options-market/
Twitter: https://twitter.com/osmtoken
Discord: https://discord.gg/jPvQYdGU4h
Mini-alpha leak: we wonder how a certain exchange might feel about a decentralized options protocol that possibly quite interestingly mitigates some challenges they have had in certain jurisdictions recently?
