Portfolio Protection with Carmine Options — Starknet Lazarus Pit Ep 04
What is Carmine Options?
Carmine Options AMM is a derivatives DEX solution that allows anyone to buy and sell European-style options at a fair price, unlocking a world of possibilities for traders, liquidity providers, hedge funds, and investors.
Carmine Finance provides a comprehensive and user-friendly platform that caters to all experience levels.
It all started two and a half years ago for Carmine Options when Marek, the founder, noticed there was no good Option AMM design in the market. He believed there were many possibilities for options in DeFi, and once he started to dig into it, he was amazed by the number of great use cases this ecosystem could offer.
The team grew over the first few months, and they were able to launch on Mainnet one year after starting from scratch.
What Can You Do on Carmine Options?
1. Provide Liquidity
You can stake your STRK, ETH, and USDC in the different liquidity pools. As you can see in the table below, Carmine Options, being eligible for Starknet DeFi Spring, is offering some very interesting APYs.
2. Trade Options
The second thing you can do is trade a multitude of options: Long/Call, Long/Put, Short/Call, and Short/Put. Currently, only four pairs are available: STRK/USDC, ETH/STRK, ETH/USDC, and wBTC/USDC.
Options seem to be slightly more complex financial instruments compared to what most crypto users are used to, but if you understand what they are and how to use them, you will optimize your portfolio resilience.
Let’s take an example with the ETH/USDC pair and a Long/Call option, specifically the one with a strike price of $3,000. We will refer to the variables given in the above screenshot, and we are also assuming that the current ETH price is $2,700.
First, let’s briefly explain what Strike Price, Maturity, Premia, and Slippage mean:
- Strike Price: The set price at which you can buy (call option) or sell (put option) the cryptocurrency when the option expires.
- Maturity: The expiration date of the option; the day it can be exercised.
- Premia: The cost of buying the option.
- Slippage: The difference between the expected price of an option trade and the executed price, due to market movements.
In our example, the cost (Premia) of buying one Long/Call option with a strike price of $3,000 is 0.0046 ETH, which amounts to $12.42.
Here are the different potential scenarios:
1. ETH Price Above $3000 at Maturity
- Profit Scenario: If the price of ETH is above $3'000, you make a profit.
- Settlement: You receive the difference between the market price and the strike price in cash.
Example: If ETH price is $3'150:
- Profit: 3150−3000=150 USD.
- Net Profit: $150 (profit) — $12.42 (premia) = $137.58.
2. ETH Price at $3000 at Maturity
- Break-even Scenario: If ETH price is exactly $3000, the option is at the money.
- Settlement: No profit or loss from the price difference.
- Result: You lose the premia paid.
- Net Loss: $12.42.
3. ETH Price Below $3000 at Maturity
- Loss Scenario: If ETH price is below $3000, the option is out of the money.
- Settlement: The option is worthless at maturity.
- Result: You lose the premia paid.
- Net Loss: $12.42.
It’s important to note that you can sell your option at any time before maturity at the market price. This allows you to potentially lock in profits or minimize losses without waiting for expiration. Selling the option transfers your rights to another trader, which differs from exercising the option for settlement.
I hope this example helps you understand the power of options trading. With a small initial investment (the premia), options allow you to leverage market movements for significant potential profits without the need to hold the actual asset. This flexibility makes options a valuable tool for enhancing your trading strategy.
3. Participate in the Protocol Governance
If you are holding and staking some veCRM, Carmine Options’ governance token, you will have the opportunity to vote on the various submitted proposals.
All the proposals are explained in detail in their Discord channel (see link at the end of this article).
Why Should You Hold CRM?
Marek explained that he loves working with other people, and for him, establishing a DAO was logical. He gave us the following insights on the perks of being a CRM holder:
- Governance: Holders have influence through voting on proposals.
- Revenue-Sharing: When the protocol starts collecting fees, a portion will be claimable by holders.
- Yield on Staking: Earning yield on your staked liquidity is something that is coming soon.
- Priority Access: Holders will have priority access to new features and products.
CRM is currently listed only on Ekubo, but there is very little liquidity.
This is why it is not listed on CMC/CoinGecko, as those platforms require tokens to have a certain volume.
What’s Exciting about Starknet’s Future?
According to Marek, two things will be super exciting in the coming months for Starknet. The first is Starknet’s next upgrade, which will increase the max steps from 3 to 10 million. This ultimately means, for Carmine Options, the ability to have three times more options per liquidity pool.
From a user perspective, this would mean that instead of the 1–3 week maturity periods currently available on the platform, it could become up to three months.
The second exciting development is that Bitcoin will be settled on Starknet. Marek foresees that with the huge liquidity this could attract, it will be a game changer for Starknet.
The Future of CarmineOptions
Marek shared several hints about what’s coming in the next months for Carmine Options and different upcoming use cases relying on a B2B2C model.
- Hedge Against Price Decrease
In this first use case, pretend you’re a developer and have completed a job on OnlyDust. You will get paid a fixed amount in STRK, but only in three weeks. If the STRK price falls during that time, you will be unhappy. By taking an option, you could be protecting yourself against that risk. - Hedge Against Impermanent Loss
Let’s say you’re about to deposit some funds into a liquidity pool, which can be subject to impermanent loss if market prices move.
Suddenly, a pop-up message will appear to propose that you get an option to hedge your position. - No-Liquidation-Loss Loan
Integration with lending protocols by turning usual loans into no-liquidation-loss ones by adding an option contract to them.
How Can People Contribute?
- If you want to become an ambassador or moderator, please ask directly in Discord.
- If you’re a developer, there are some open projects on OnlyDust.
Website: https://www.carmine.finance/
Discord: https://discord.gg/BEY5JGj8
X: https://x.com/CarmineOptions
GitHub: https://github.com/CarmineOptions
