Development update — Decentralized Put Options on ERC20 Tokens (Part 1)

In the financial markets, a Put Option is a derivative that enables those who purchase the Option to speculate on the fall in the price of an asset. The option contract gives the owner the right, but does not enforce obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a Call option, which gives the holder the right to buy shares.

Read more: https://www.investopedia.com/terms/p/putoption.asp#ixzz5AlTn7aI0

The screen that enables creation of Put Options on ERC20 Tokens.

Derivatives were originally conceived to enable users to hedge risk in the equity market. Derivatives such as Options enable users to speculate on the rise or fall in price of an asset by not risking the price of the asset, rather by paying a premium which is a fraction of the asset price. As of now, trading platforms — centralized or decentralized — allow users to speculate on the rise in price of an asset; users can purchase an asset if the price falls and if the price of the asset increases, the user can sell the asset for a profit.

With the rising decentralized cryptocurrency asset class, we believe that users require instruments that will allow them to hedge risks inherent in this asset class. With high volatility around crypto-asset’s perceived value, a protocol that will enable users to create and trade in Put Options with ERC20 Tokens is something that we believe is required in the current cypto market.

Viewing ERC20 Token Put Options that are created on the platform

Using the whitepaper published by dydx as a reference, the WandX team has developed decentralized Put Options for ERC20 Tokens and released it onto the Ropsten Testnet —

0x1181ae5e40f71ec44f878bccfee8bb4459dfb6aa; 0x12fa465088848b34fdd3325abb61d5787a3970f5; 0x046465538b01a2efda669f802e132687b006f585; 0xf952948d8ed4f8f1990dd77b85d3effeecfe2c0c.

Decentralized Put Options have

1. a writer of the Option who creates the contract
2. a buyer of the Options contract
3. a seller of the contract, if someone wants to sell their position on the contract.

The Option writer creates the Option and keeps a collateral, in case he fails to maintain his side of the contract. An Option buyer can buy this Option by paying a premium to the Option creator. The Option buyer can now trade his Option with others, or wait for the Option to expire, or exercise his option.

Characteristics of the Option

1. Underlying ERC20 Token
2. Escrow ERC20 Token
3. Premium ERC20 Token
4. WandX fee (Using the Wand Token, users can get a discount of 75% on this exchange fee, which is 1% of the premium); Time period of the Option.

A detailed explanation of the steps involved in creating and trading in these new instruments will be out on the second part of this blog.

To create a Put Option, go to exchange.wandx.co

To stay on top of development-related updates, follow wandx on twitter.