SIREN Protocol launched its trading platform in March 2021 and we have settled over $10M cumulative volume since the launch. With our platform, Liquidity Providers (LPs) have the opportunity to pool funds into the various option pools (YFI, UNI, SUSHI, WETH & MATIC).
A liquidity provider is one who deposits a collateral asset into the SIREN AMM pool, e.g. for the SUSHI/USDC Call Pool the collateral asset is SUSHI. LPs become covered option writers in a passive way, automatically underwriting contracts when there is demand.
LPs earn yield in three ways:
- Collecting options premiums when traders buy options
- Trading slippage when traders buy options or sell them back to the pool.
- SI reward tokens via the SIREN LPP (Claim button on the Pool tab)
This article aims to outline the performance of these pools since inception and their implications. Also to note, these performance figures do not include SI Rewards. These pool performance numbers are only from LPs returns on underwriting options.
The Siren Automated Market Maker allows for LPs to deposit collateral into a particular option pool. Let’s take the example of the SUSHI/USDC Call Pool and recognize the two parties: the LP and trader.
- An LP deposits X units of SUSHI into the SUSHI/USDC Call Pool.
- A trader buys 100 SUSHI calls from the pool paying a premium to LPs for the right to own the option.
- The AMM mints 100 bToken and 100 wToken.bToken represents the buy side. wToken represents the writer/sell side.
- The 100 bTokens go to the trader and 100 wTokens stay in the pool.
- After the option expiration, the AMM automatically unlocks collateral from wTokens back into the pool.
In this case, bToken represents a Call and wToken represents a Covered Call.
When options expire Out of the Money (OTM) and there is no exercise, each wToken unlocks exactly 1 unit of collateral back into the pool.
When bToken holders are In the Money (ITM) and exercise their options, wTokens unlock the USDC paid during the exercise.
Below is the performance data for our active pools. Keep in mind that past performance is not indicative of future returns. Returns from underwriting options are market-dependent and involve significant short-term risk, although in the long terms we expect the returns to converge to a more stable value.
We include USD return in addition to the native asset return in order to show how the asset price behaved during the period. USD return depends mostly on the asset price and not on the performance of the Siren AMM options writing strategy.
- Pool address: 0x8337706f5faab1941c8b8b849d21b5016987a04a
- Inception date: 2021–02–18 (trading began 2021–03–02)
- Lifetime return: 16.10%, APY: 50.61%
- Lifetime USD return: -31.98%
- Pool address: 0x679c5b95b41a027a24584fd81b856571a10b3649
- Inception date: 2021–03–10
- Lifetime return: -11.35%, APY: -43.04%
- Lifetime USD return: -7.62%
Notes on YFI pool performance
The Siren AMM guarantees that it can buy bToken back from traders at any given time. If the pool does not have enough matching wTokens then unmatched bTokens stay in the pool and can be subsequently bought by another trader. These cases can occur when a large LP withdraws and takes wTokens with them.
With the YFI pool, there was a large allocation of ITM bTokens sold to the pool and there was not enough matching wTokens due to the large LP withdrawal. The May 2021 market crash happened shortly after, making the remaining bTokens OTM which rendered them worthless. This contributed to the poor pool performance since inception.
Since then we have released the “Sell wTokens” feature which allows LPs to convert wTokens to collateral on withdrawal. This is designed to help wTokens stay in the pool to prevent the pool from getting long exposure.
- Pool address: 0xc9eb7567ca3c72962c99c0b7dff0beeca1736d3b
- Inception date: 2021–03–12
- Lifetime return: 1.81%, APY: 7.22%
- Lifetime USD return: 1.68%
- Pool address: 0x71df9a06c2dee89d436bde4c7a6b9372e88030d0
- Inception date: 2021–04–24
- Lifetime return: 6.58%, APY: 46.68%
- Lifetime USD return: 24.00%
- Pool address: 0xb3a6129fcc7f26331a855fc5b84427925f3d90c5
- Inception date: 2021–05–31
- Lifetime return: 0.03%, APY: 1.03%
- Lifetime USD return: -24.37%
All pools except YFI performed well and generated strong returns for LPs (in addition to SI rewards).
The YFI pool showed an interesting case in which a pool can get long market exposure. The new “Sell wTokens” feature is designed to address this for future cases.
DISCLAIMER: Options writing is not a risk-free strategy, it allows writers to generate significant returns in exchange for taking market risks.
SIREN is a decentralized platform for trading cryptocurrency options designed for the sophisticated degen. As a trader, come participate in market upside while limiting your risk by buying options on your favorite DeFi tokens. As an LP, come pool your favorite DeFi assets to passively earn rewards when people bet on the markets.