Crab Strategy Auction Tutorial: How to Trade Squeeth with Better Pricing and Less Slippage

Wade Prospere

Published in

Opyn

4 min readSep 8, 2022

The crab auction is the best kept secret of the crab strategy 🦀🤫

The auction squeethportal.xyz/auction usually trades at better prices than the Squeeth front end!

This article covers:

Reasons to Participate
Interface Overview
Auction Tutorial
Post-auction Analysis

For context, the crab strategy allows users to earn funding (i.e. returns) from being short oSQTH without taking a view on if ETH will move up or down. Crab makes money if ETH moves up or down within a certain range (crab explained in simple terms here).

In other words, crab v2 is a delta neutral strategy. “Delta neutral” usually describes a strategy involving a long and a short position, where the combined delta of the position is at or near zero.

A crab position is:

• Long ETH

• Short Squeeth

The overall position aims to have neutral exposure to ETH.

Because the strategy aims to create a position with a combined delta exposure at or near zero, when the price of ETH changes, crab needs to periodically rebalance.

If ETH price increases => strategy buys oSQTH with ETH
If ETH price decreases => strategy sells oSQTH for ETH

These crab strategy rebalances are the reason for the auction!

Every Monday, Wednesday, Friday at 16:30 UTC the strategy automatically rebalances to create a position with a neutral exposure to the price of ETH (delta neutral). The auction takes place @ squeethportal.xyz/auction

Reasons users may want to participate in the auction:

The auction typically trades at better prices than squeeth.opyn.co, which trades on Uniswap.
Users can trade in larger size
Trades have less slippage

Interface Overview

Before the start of an auction (MWF @ 16:30 UTC), the auction interface looks like this.. The yellow arrows highlight important features / metrics to pay attention to:

*note, the auction size, min price, and min size are estimates that could change before the auction starts.

re: Squeeth IV vs. DVOL, comparing these two numbers is a great benchmark to gauge whether trading squeeth is relatively more / less expensive than trading options! To learn more, see this thread.

Auction Tutorial

To participate in the auction, a user first needs to approve the contract to spend oSQTH or WETH, depending on the direction of the auction.

For convenience, at the bottom of the page there are links to mint / burn oSQTH or wrap / unwrap WETH

Once the auction starts, the auction interface will look like this.. at this point, the auction size, min price, and min size are fixed and will not change.

The estimated clearing price and min price are both quoted in terms of WETH, USD, and vol.

Below the auction details panel is where users can see current bids / asks and submit their own order. To place an order, simply input your price + quantity in the order ticket.

bids / asks are ranked based on price:

Green = likely to be filled
Red = not likely to be filled

Users have the ability to:

Place multiple bids (gas free)
Edit bids (price or quantity)
Cancel bids

An “edit” link will appear in the Action column of the bid / ask table next to your order.

After the auction has ended, the order table will show fully filled orders, partially filled orders, and orders that were not filled.

*note, all filled orders will clear at the same price (the last order filled). Sell auctions = lowest bid, buy auctions = highest ask.

Post-auction Analysis

If you successfully participate in an auction, how can you analyze how well you did?

Compare auction clearing vol to fair vol on Uniswap (to see vol edge)
Compare size traded via the auction against same trade on Uniswap (see better auction pricing)

Comparing the auction clearing vol to fair vol on Uniswap can give you an idea about vol edge.

In this example, the auction cleared at 99.73% vol and fair vol on Uniswap was 104.96%. This means it was 5.23% vol cheaper to buy oSQTH via the auction!