For the first time in DeFi, you can earn meaningful premiums on your ETH by providing insurance to others for their Compound USDC and DAI deposits on Opyn. You can start earning on your ETH now at sell.opyn.co.
What is Opyn?
Opyn is building the insurance layer for DeFi. This is the first platform to protect users in DeFi against both technical and financial risks, starting with Compound deposit insurance. The platform is a two-sided marketplace designed using put options (oTokens) on the Convexity Protocol. On the other side of the marketplace, Opyn also allows ETH holders to earn meaningful premiums on their ETH holdings by providing insurance.
So how exactly does earning meaningful premiums on ETH work?
Insurance providers lock up ETH collateral in vault, with a collateralization ratio of at least 140% and mint oTokens. Note that your collateralization ratio is your total collateral divided the amount of protection you’re offering. Then insurance providers have two possibilities to earn money on their ETH. They can either sell oTokens to insurance buyers on Uniswap and earn premiums or add oTokens to the Uniswap Pool and earn transaction fees from other users’ trading activity.
What does the return profile look like?
Being a Liquidity Provider on Uniswap: As an LP on Uniswap you earn transaction fees from individuals buying and selling on the Opyn platform through Uniswap and have the opportunity to make a large, but variable, return as a result as long as you remain above 1.4x collateralized (otherwise you are at risk of liquidation). Being a Uniswap LP also allows you to remove your funds at any time. This article explains a bit more about being a Uniswap LP.
Selling oTokens on Uniswap: Selling oTokens to insurance buyers on Uniswap allows you to earn premiums on your ETH that far outshine anything you can get currently in DeFi (currently 0.01% on Compound, 0.05% on dYdX), and you will get the entirety of it back as long as you remain above 1.4x collateralized (otherwise you are at risk of liquidation) and there isn’t some disaster event (eg. technical risk like a hack, financial risk like DAI breaking its peg or a run on Compound). Here you’re taking a similar risk to depositing ETH on Compound, where you earn 0.01% and are exposed to Compound risk. With Opyn, you are exposed to Compound risk and Opyn risk, but earn a significantly higher premium on ETH. You can learn more about the specific risks you are taking on by being an insurance provider in the FAQ here.
To calculate interest for selling oTokens on Uniswap you can look at the main dashboard and the difference between the uninsured yield and insured yield is the premium for selling insurance, since this is what a user would give up to get insured — so right now this is 1.28% for USDC deposits on Compound and 3.79% for DAI deposits on Compound.
What if I want to close my position before the expiry date?
You can close your position at any time by buying back the oTokens you had sold on Uniswap and returning them to your vault, which would allow you to redeem your ETH collateral. One note is that the price of oTokens could have increased or decreased in the time since you first purchased them.
What happens in the case of an adverse event?
In the case of an adverse event, insurance buyers can make a claim by sending their oTokens and protected asset to the protocol. Insurance providers then pay out insurance buyers in ETH and receive these oTokens and protected asset.