This week we are finally launching our DeFi Option Vaults on Avalanche Network and Ethereum. We will be starting out with two vaults — Covered Call and Put Selling — on each blockchain. The vault will open this week and will accept orders till Friday 15th of March 0pm GMT. The vault goes through weekly cycles. Follow our Twitter @antimatterdefi to be notified when exactly the vault will open.
What are Option Vaults?
DeFi Option Vaults (DOV) are automated vaults running with a preset options strategy. The strategy determines whether a put or call option is sold. Yield is earned by collecting premiums that accrue when the option expires ‘out-of-the-money’.
Before DOVs, option strategies were only available to accredited investors through over-the-counter (OTC) trading or by self-execution on option exchanges like Deribit.
Why make it a shared vault?
The automation is facilitated through a smart-contract on the blockchain. Users can deposit their assets into the smart-contract/vault and it will automatically start earning on a weekly basis. Apart from the obvious advantage of automatization, another advantage is the saving of gas. Once the assets are deposited, there is no further action required from the user, until he wants to redeem his returns. Transactions from all users of the vault are pooled together, saving a lot of gasfees.
Strike Price and Delivery Date
The best result for a vault is when the sold options do not get exercised and expire worthless (‘out-of-the-money’), but the premium from selling the options is still collected. To reduce the risk of the option getting exercised we can vary two parameters: Strike Price and Delivery Date
Strike Price: The further away the Strike Price is from the Spot Price at the start of a cycle, the less likely it is that an option is exercised. This is logical, since large price movements are generally less likely.
Delivery Date: The longer the cycle of the vault, the harder it gets to predict the price action of the underlying asset. For example it is harder to say where BTC will be in a week, compared to a year.
Our first vaults will run a weekly cycle with Strike Prices calculated in a way that the likelihood of getting exercised is very low, but APY still attractive.
Process Architecture
Our first DOVs on Avalanche as well as Ethereum are facilitated through Opyn. Opyn V2 (Gamma Protocol), allows anyone to buy, sell, and create options on any ERC20 asset. Option contracts are tokenized as oTokens with Strike Price and Delivery Date. Ownership of an oToken enables the holder to redeem the tokens value in case the Strike Price is reached.
This sequence diagram illustrates the vaults process. The manager has a priveleged role in the sense that he creates an oToken with Strike Price and Delivery Date of the vault. Users can deposit their assets that will act as collateral. The vault closes and the weekly cycle starts.
On Friday, the manager will use all the funds of the vault as collateral to mint the standard ERC-20 option contract token (oToken) on-chain through Opyn’s factory contract, and sell it directly to market makers.
The option expires after one week. On expiry the price is determined through Chainlink’s Data Feed, and the option premium + funds are withdrawable for the user. Funds can be left inside the vault and in this case will automatically be used for the next cycle.
A more detailed coverage can be found inside our documentation.
Outlook
In total we now have 4 vaults, two on each Avalanche and Ethereum. We aim to add more vaults in the coming weeks. Not only on Avalanche and Ethereum, but also on other chains like Polygon and BNBChain. Since Opyn is not available for those chains, we will have other interesting mechanisms, so stay tuned for that!
Furthermore we are looking to add more currencies and also innovative strategies to enhance flexibility and risk control. Feel free to join our Discord to discuss or ask questions.
User Guide is in the works too!
About Antimatter
Antimatter is a hub for decentralized on-chain financial products, such as DeFi derivatives and financial NFTs. Being community driven, innovative and simple forms the core of Antimatter.
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About Opyn
Opyn is a capital efficient DeFi options protocol that allows users to buy, sell, and create options on ERC20s. DeFi users and products rely on Opyn’s smart contracts and interface to hedge themselves against DeFi risks or take positions on different cryptocurrencies.
