January 17, 2021
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Comparison of decentralized options platforms

Last summer, the concept of liquidity mining, implemented in the token, made a lot of noise in the crypto world managing one key DeFi platform.It's about the COMP token and the Compound decentralized lending protocol, which climbed to the top of DeFi ratings in less than a week after launch. The concept of liquidity mining itself is not new, but the hype around COMP has turned it into sensational “profitable farming”.

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Compound is a simple protocol for monetarymarket. It will definitely play an important role in the decentralized finance (DeFi) of the future, but this is just one of the many DeFi protocols that, in our opinion, will be an effective replacement for those financial services that are now only available as centralized solutions.

One such type of DeFi platform that has the potential to becomeThe next wave that will attract large sums of capital is the decentralized option protocols. This article will look at eight decentralized options platforms that are either recently launched or are still in the testnet phase.

Interesting on the topic: DeFi-project Compounder Finance stole customer funds for $ 10.8 million

Overview

Defiprime's homepage says:

“Decentralized Finance (DeFi) isa movement that uses decentralized networks to transform legacy financial products into trustless, transparent and middleman-less protocols. ”

After the Black Thursday crash in March 2020, the total reserve value (Total Value Locked, TVL) decentralized finance, tracked by the siteDeFiPulse rose again and surpassed the once unrealistic $ 1 billion threshold, and then accelerated above $ 10 billion, thanks in large part to the growth of Compound and WBTC. In addition, almost every day a new project announces its joining the DeFi universe.

Most of the early successful projects inDeFi spaces such as Maker, Compound, and Aave - all of which are protocols for the money markets, whose combined TVL is now over $ 5 billion - focused on providing trustless lending against crypto assets. These three platforms account for most of today's DeFi assets. But, in our opinion, they represent only the most basic layer of the DeFi protocol stack. We believe that the Cambrian explosion of new DeFi functionality is coming, thanks to which other blockchains will receive the capabilities of Ethereum and vice versa, and unpredictable ways of interaction of all these disparate components of the new monetary universe will appear.

Derivatives

Derivatives are the holy grail of traditionalfinancial markets. Some believe that they give small investors a chance, others that they upset financial markets and cause recessions. The nominal value of traditional derivatives markets is estimated to be in excess of $ 1 quadrillion. Historically, this huge market has played an irreplaceable role in the growth of world financial markets, significantly enriching financial instruments and trading strategies applied to them. Thus, derivatives markets are a feedback loop that gives financial markets depth and reinforces the value of their underlying assets. With the inevitable penetration of these markets by the DeFi movement, the scope for protocols in this niche is enormous.

Derivatives are often described as instruments whosethe value depends on or is derived from the underlying asset or group of assets. Futures, forwards, options and swaps are typical derivatives in traditional financial markets.

There is already a significantvolume in trade in centralized derivative products. Binance, BitMEX, Huobi, OKex, and other centralized exchanges have retail futures platforms but do not offer options yet. Option products are available to retail investors through Deribit, FTX and LedgerX. For institutions wishing to bet on bitcoin, ample liquidity is available on the Chicago Mercantile Exchange (CME).

CryptoCompare reports that in 2020, the volume of derivatives reached a new all-time high, with a noticeable increase in trading activity associated with cryptocurrency options.

Derivatives trading history (monthly volume). : CryptoCompare

The next step in the development of DeFi will be the creationdecentralized protocols with similar functionality as these centralized market giants. If the DeFi movement as a whole can be compared to a child, then decentralized derivatives are a newborn that is growing rapidly. In the past year we have seen the growth of Dydx and Synthetix. Several promising DeFi projects launched this year, such as Futureswap, a decentralized version of the aforementioned futures platforms, and UMA, a groundbreaking project promising a "provably fair oracle mechanism to create your own financial products."

Options have always been among the most popularderivatives. While the above-mentioned centralized options platforms are already actively trading, decentralized options platforms are still a novelty. This is a welcome addition to the DeFi universe, as as TVL grows over the coming months and years, its members will need a convenient decentralized mechanism to help them manage their risks.

Below we take a look at the options platforms currently available on the market.

Summary of decentralized options platforms:

Platform American or European options Cash or physical payments Tokenized and transferable Liquidity: order book or pool Standardized or customizable protocol Collateral / margin requirements Collateral type
Opyn American Physical, cash in V2 Yes Pool Uniswap Standardized 100%, lower margin in V2 ETH + USDC
Hegic American Cash Not Pool Hegic Customizable one hundred% ETH + DAI
ACO American Physical and monetary Yes Order glass Standardized one hundred% ETH + USDC
Primitive American Physical Yes Pool Primitive Standardized one hundred% ETH + DAI
Opium European Cash Yes Order glass Standardized Fixed ETH + DAI + ERC-20
Pods American Physical Yes Pool Uniswap Standardized one hundred% ETH + DAI + aUSDC
Synthetix Unknown Cash Yes Synthetix debt pool Customizable one hundred% SNX
FinNexus European Cash Yes Order book and pool later Standardized and customizable later Dynamic margin, less than 100% FNX + WAN + BTC + ERC-20 later

Opyn

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Opyn is an options platform built onbased on Convexity - a universal option protocol on the Ethereum blockchain that allows users to create options using option tokens, or o-tokens (oToken). Opyn.co offers an easy-to-use interface for buying and selling ETH put and call options.

Opyn appeared on the market of margin servicestrade in 2019, but evolved into a protection and insurance platform in February 2020. Users can purchase protection of their deposits at Compound.finance against technical and financial risks. Opyn also launched protection options for ETH holders in March. These original o-tokens were ETH put options for which liquidity was provided through Uniswap. Hence, these products can be seen as insurance for DeFi users. That is, Opyn is more than just another protocol for speculation.

In the table below, you can see four ETH put options and one call option that were available on OPYN on June 15, 2020.

: Medium

O-tokens are supported by the Convexity protocolthrough smart contracts. Each smart contract for o-tokens must contain 8 parameters: 1) expiration date; 2) the underlying asset; 3) execution price; 4) the performance asset; 5) call or put; 6) type of collateral; 7) margin requirements for collateral; and, finally, 8) an American or European option. Opyn is currently the only platform where you can specify these parameters and create specialized o-tokens, which allows you to focus liquidity in only a few markets. Option sellers reserve the collateral for the period specified in the smart contract and issue o-tokens. Each o-token protects one unit of the underlying asset. These o-tokens are then sold on Uniswap to earn a bonus.

How insurance dividends are earned on Opyn. : Medium

Opyn's options products are rapidly gaining traction, according to Dune Analytics.

Dune Analytics graph showing the rise in popularity of option products on Opyn

Total Reserve Value (TVL)tracked by DeFiPulse is also in an uptrend.

The amount of blocked money (USD) in Opyn. : Defi Pulse

In the first months after Opyn's launch, only ETH put options were available on the mainnet. But on June 12, the first call option appeared on the platform, which could further boost TVL.

Here's how the Opyn Co-Founder celebrated the first issue of Call Options on Opyn:

At this point, users must provideoption put tokens with USDC collateral in the amount of 100% of the smart contract execution price in ETH. Sellers of option call tokens must reserve ETH knowing that if the price exceeds the strike price, they will receive USDC back instead of ETH.

Different options, with different combinationsof the above 8 parameters correspond to different o-tokens, and they are controlled by separate smart contracts. For example, to issue ETH option put tokens with a strike price of 200 USDC, the user must transfer 200 USDC to the vault and initiate the o-token issue process. The latter are ERC-20 tokens and are fungible, which means that neither option holders nor their issuers face counterparty risks. However, o-tokens are not interchangeable with o-tokens with a different expiration date, strike price, etc., which creates obstacles to liquidity.

Opyn model differs from optional models,which can be found in traditional finance, where the margin is reserved in a trading account. The obvious advantage that o-tokens are fully collateralised at strike price is that there will never be an insufficient supply in the vault. Option sellers / issuers are avoiding a liquidation event like the one that recently happened to the MakerDAO vaults on Black Thursday. Even when the price of the underlying cryptoasset does not change in favor of the option seller, liquidation is impossible because the collateral is already stored in the smart contract created for this option.

Be that as it may, the main trading platformo-tokens - Uniswap. Uniswap liquidity pool uses the classic XYK model, and liquidity providers suffer temporary losses if the price of the underlying asset deviates from the price of the collateral when they add both tokens to the pool. Consequently, liquidity providers benefit most when the price of both assets remains the same.

The above potential problems are negativeaffect the liquidity of o-tokens due to their almost exclusive dependence on Uniswap. Issuers of o-tokens are essentially forced to sell in order to receive a premium, instead of providing long-term liquidity, because the value of all individual options inevitably falls over time at a rate known as theta, which is also called the time erosion of options. As the expiration date approaches, the erosion rate increases. Consequently, liquidity providers are likely to suffer temporary losses by providing liquidity to individual o-tokens. With the current platform structure, it seems that liquidity is mainly provided by Opyn itself, as there is currently no option in the user interface to add your o-tokens to the corresponding Uniswap liquidity pool. It is of course possible to interact with the OptionsExchange contract directly via Etherscan, but this task is best left to experienced blockchain engineers.

This characteristic threatens the growth of allsystems, because if the liquidity pool is not deep enough, o-tokens will be difficult to handle. Opyn may be forced to maintain liquidity on its own and absorb temporary losses in exchange for an increase in TVL protocol.

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Although options are born from a contract between twoparties, their financial attractiveness depends on high liquidity in the secondary market. In our opinion, this is exactly what the Opyn team is trying to achieve with their model: to spin the option trading and pricing market based on the ETH price curve, before potentially moving to other highly liquid ERC-20 tokens.

Opyn options are currently American type,which means that users can exercise their rights to the underlying asset at their discretion until the expiration date. However, the Convexity protocol allows both American and European options to be issued. In addition, when an option is exercised, the Opyn smart contract requires an actual delivery of the underlying assets, which is called physical settlement. For example, when an option put token is exercised, the option issuer can pledge his collateral in USDC and receive in return the buyer ETH at the strike price specified in the o-token smart contract. Due to the full provision of o-tokens, physical delivery is also guaranteed at the time of settlement.

And a few more points to summarize the analysisOpyn. Obviously, this is a rapidly evolving platform that has had great initial success, attracting ever larger nominal amounts of capital to the protocol. The GitHub Opynfinance has clear documentation. We even noticed that the "Opyn V2 Margin Protocol" was recently added, which indicates that the team is interested in improving their platform.

However, since the option buyer is usuallywants to insure or speculate on the movement of the price of the underlying asset, usually denominated in dollars, it should be indifferent to whether the counterparty delivers the entire underlying asset on contract execution. Therefore, perhaps, instead of physical calculations, cash calculations would be adequate and less capital intensive, covering the potential profit of the holders. It may be that 100% collateral is not even necessary for full physical delivery, which will definitely make the option creation process more efficient and flexible.

Hegic

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Like Opyn, Hegic is an on-chain protocol foroptions trading on Ethereum, however, the model is fundamentally different. The liquidity pool plays a key role in the creation of options and the distribution of premiums on Hegic, which means that the entire smart contract store is the counterparty for option buyers.

Hegic has American call and put optionstype for ether (ETH). Consequently, there are now two pools: the DAI pool, which is used as collateral for those who wish to issue or purchase put options, and the ETH pool, which is used as collateral for those who wish to issue or purchase call options. Those providing liquidity to any of these pools share among themselves the premiums on individual options created by option buyers based on the pool's assets. These liquidity providers also share the loss if the issuers of winning options withdraw their collateral from the pool.

Unlike Opyn, liquidity providers inHegic models do not issue option tokens themselves. They are the liquidity providers for options, but not their issuers. Consequently, they cannot control the specific options for which buyers are paying a premium (which in this case determine the terms of the options). Each option issued is unique and: 1) based on the price of ETH at the time of issue; and 2) is based on a timeframe set by the issuer with five options: 1, 7, 14, 21 or 28 days.

By providing assets (ETH or DAI) to the pool, likeAave or Compound, Hegic liquidity providers receive writeETH or writeDAI tokens that are automatically issued and provide equity participation in the pool. Premiums and losses are shared among all liquidity providers. When issuers want to get their ETH or DAI back, they simply call the Withdraw function in the smart contract, which burns their writeETH or writeDAI tokens and returns their current share of ETH or DAI from the pool.

Hegix DeFi Platform Interface

This standby pool mechanism ensures thatoption positions are always fully secured. For ETH put options, a DAI amount equivalent to the strike price of the contract is reserved for the time period paid by the holder. For call options on ETH, the equivalent amount of ETH is similarly reserved. Liquidity Pools Hegic is the only counterparty for option buyers in all transactions.

Liquidity providers have no direct controlover the issue of individual option contracts. They only passively accumulate premiums or losses on different options issued for their pool at different times. This method is more efficient in terms of gas than the Opyn model, where gas must be used in each of 3 or 4 steps every time the liquidity provider wants to issue an option and receive a premium, which can even happen every week. In the Hegic model, liquidity providers do not have to issue options themselves, so the gas commission is paid only when they deposit and withdraw assets.

The advantage of the Hegic model is that buyerscan choose the terms of the option themselves. They can create their own option by choosing its type, strike price or expiration date. If Hegic's liquidity pool is deep enough, this model seems more flexible than Opyn's. Buyers can purchase profitable (ITM), losing (OTM) or neutral (ATM) call and put options. However, Hegic currently sets the option price algorithmically. Hegic manually updates implied volatility based on historical data - a critical component of Black-Scholes option pricing.

Hegic is committed to improving liquidity options forbuyers of options. In version 1.0 of the Hegic protocol, buyers have no choice but to execute the contract if the price changes in a favorable direction. However, in version 1.1 they will have the opportunity to sell their lucrative options contracts back to the pool during the holding period. When an American option or futures is exercised, this opportunity is not called "resale", but cash settlement, since this covers the "cash" difference, in contrast to the physical settlement or physical delivery available in Hegic 1.0 - a term more relevant for commodity resources.

Hegix DeFi Platform Interface

Benefits of the Hegic model

The Hegic pool model has a number of positives:

  1. First, the user interface is quite enjoyable to work with. While the Hegic model seems somewhat complex, it is very easy for a user to become an option holder or liquidity provider.
  2. Second, option buyers have more flexible alternatives. They can choose the option strategy that best suits their risk profile. Hegic allows users to set any execution price and select a deadline from several options.
  3. Third, this method of providing options is safer than in the case of their issue by individual liquidity providers. Premiums and risks are shared among liquidity providers. Since option buyers choose the terms themselves, they are more likely to create a product that mitigates their risks.
  4. Fourth, due to the greater efficiency of capital, pools should attract more funds. By separating the role of the liquidity providerand the option issuer, liquidity providers can simply allow commissions to build up on their investments without worrying about action on their part. In the traditional financial market, the collateral capital for options often comes from professional institutions that use leverage to multiply profits and manage risk through sophisticated hedging mechanisms. The Hegic platform is tailored for these whale investors, but also allows small liquidity providers to participate in option pools without worrying about complications, and automatically share profits and risks. Pools actually function like portfolios, and write tokens function like fund shares.

However, there are also points that users should pay attention to:

  1. First, Hegic options are not transferable or traded. Hegic options only exist on a contract basis.level, which differs from the Opyn model, which tokenizes options into standalone ERC-20 tokens. While Hegic options are more tailored to the needs of buyers, they cannot be easily traded in the secondary market once created, limiting liquidity. In version 1.1 of the Hegic protocol, there will be a "resale" feature that will allow users to sell their position to the pool at any time before the expiration date. This mechanism will partially solve the liquidity problem.
  2. Second, users should actively monitor the distribution of their premiums. Despite the audit of the Hegic code, in Aprilsoftware bugs were discovered, due to which approximately $ 30,000 in ETH was permanently blocked. Then in May, another exploit was discovered related to a fundamental flaw in the design of the premium distribution. The instant distribution and return of the collateral, along with the premiums earned, created a disparity in risk and reward between early and late pool participants. Early liquidity providers can accumulate premiums and withdraw their liquidity along with all profits at any time, even before the options expire, leaving risks to those who joined the pool later. In Hegic V1.1, premiums will be distributed after the options expire. Liquidity will be locked for 14 days from the last deposit. Hopefully, these operations will correct the previous problems. However, new exploits can always be found. When premiums are distributed all at once in a pool, the risks and rewards of liquidity providers are not balanced. Perhaps it would be better to have a model where the distribution will occur gradually, with the approach of the options expiration date.
  3. Third, Hegic's options pricing model may not be perfect. The key to calculating the option price is believed to be in determining implied volatility according to the classic Black-Scholes model (which we mentioned earlier)... Options trading is essentially tradingvolatility. The famous VIX, often referred to as the Fear Index, shows the expected market volatility based on the S&P 500 Index options. On Hegic, option prices are based on skew.com data, with implied volatility being manually updated in the protocol instead of being dynamically determined by the market in real time. Consequently, there may be opportunities for arbitrage between Hegic and other options exchanges, although there is no such problem now. Because of the different ways in which the calculation of implied volatility can be automated, option pricing is the most difficult aspect of all new decentralized options platforms. In other words, Hegic is not alone in having problems with implied volatility.
  4. Fourth, Hegic options may have trouble raising liquidity. Hegic options are not tokenized and can only be exercised (or sell back to the pool in version 1.1)... Therefore, after creating options, they havethere is no active aftermarket. If you believe that the beauty of options is visible only in a highly liquid market due to the excitement associated with constantly changing expectations of volatility, then Hegic does not yet provide such opportunities. Moreover, the volume of options is highly dependent on the size of the respective pool. For pools to be flexible enough to withdraw funds, a certain percentage of each pool must be set aside for liquidity. Thus, the challenge is to attract the right number of active participants in terms of both supply and demand, given the early stage of development of the cryptocurrency options market.
  5. Fifth, in the emerging decentralized options market, it is difficult to hedge the risks of liquidity providers. In the traditional financial market, optionsthe products are usually provided by professionals who have access to various hedging methods for the potentially limitless risks associated with options. However, the liquidity providers for Hegic options are pooled and collectively act as a counterparty to all valid option contracts issued by the pool with varying strike prices and expiration dates. It is extremely difficult for Hegic liquidity providers to hedge these risks.

Nevertheless, Hegic opens up new opportunities for decentralized options platforms that are not available in the traditional financial world. There is a lot of potential here.

ACO

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ACO is a decentralized non-custodial option protocol built on top of Ethereum. It was launched in May 2020 by Auctus.

ACO Decentralized Option Mechanismsresemble Opyn. Options are presented in the form of ACO tokens that comply with the ERC-20 standard, each of which has its own smart contract and a unique programmed ticker code. For example, ACO ETH-200USDC-C-26JUN20–0800UTC Is an optional token created withACO protocol with ETH as the underlying asset, with a strike price of 200 USDC, call option type (C), not put (P) option, expiration date June 26, 2020 at 8:00 GMT (UTC).

These tokens represent optionsAmerican type, which means that the holder can exercise the option at any time before the expiration date. To earn the premium, liquidity providers must secure the options contracts by setting aside an equivalent amount of ETH or USDC, respectively, for call and put options. As with Opyn, liquidity providers are responsible for gas commissions and active issue of options, which are standardized by the protocol rather than customizable by the user.

The ACO interface should be familiar to those who trade options in traditional financial markets. It looks exactly like TD Ameritrade or Schwab.

The exercise of ACO options is not automatic, andsettlements are “physical”, as the underlying asset is supplied. Interestingly, ACO also has a flash execution feature thanks to the integration of Uniswap V2 flash swaps where the net difference between the Uniswap price and the strike price is paid. Overall, ACO is a good functional platform that seems a bit more polished than Opyn. But, as we saw recently in the case of Compound and decentralized lending platforms, there is still a struggle to attract liquidity.

Primitive Finance

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Primitive is an open source protocol forcreating options on Ethereum. It is still under development. The platform was launched in test mode in early May 2020, when the strategy for trading short-term put options on ETH was tested. The official launch should be announced later.

According to the official site, just like Opyn and ACO,Primitive options are presented in the form of tokens called Prime. But the Primitive model differs from the platforms analyzed above in that four types of tokens are distinguished here:

Title Function Example
Prime Simple ("vanilla") option The right to sell ETH for DAI (put option on ETH)
Redeem Accruals to guarantors ETH withdrawal
Underlying Token to be purchased DAI
Strike Token used to buy Underlying Et

Primitive option smart contracts are designed so that liquidity is pooled. This liquidity comes from the option issuers who issue Prime tokens. Anyone who issues options (opens a position by selling), can make a deposit to the pool.Redeem tokens are also generated, which are used to withdraw Strike assets after Prime options are exercised. Hence, both optional products and pools are tokenized.

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Primitive options are planned to betrade using the automated PAMM market maker, which will act as a liquidity pool and trading platform. Think of it as a Uniswap liquidity pool, but tailored specifically to options. Liquidity pool members who provide Underlying tokens to PAMM receive Primitive Underlying Liquidity Provider (PULP) tokens. With these tokens, liquidity providers can track their stake in the pool. They burn them when they want to withdraw their tokens and the bonus earned, which is proportional to their share in the pool.

Primitive will most likely have to do it yourselfprovide initial liquidity and motivate other users to participate in the pool. The protocol is still in its early stages, so it's hard to say.

Primitive applies a simplified modeloption pricing, especially with regard to time value. Interestingly, Primitive replaces implied volatility with demand, which is pool usage. While this is an interesting and innovative concept, we have seen how easily “profitable farmers” manipulated a similar metric in the Compound protocol in the early stages of COMP liquidity mining. In the future, Primitive plans that Oracle Prime will track the volatility indicator and store it in a smart contract directly on the blockchain.

Primitive is the world's brightest new stardecentralized options, with many interesting and innovative features that were experimented with in the alpha version. However, at this stage, a security audit has not yet been carried out. It remains to wait for the official launch of the Primitive protocol.

Opium

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Opium is conceived as a derivative protocol that is not limited to options. According to the project documentation:

“Opium is a universal protocol forprofessional, trustless creation, settlement and trading of almost all derivatives and financial instruments. It allows anyone to create their own exchange products based on the Ethereum blockchain. ”

Unlike other platforms mentioned here,Opium has even developed its own token standard. All positions in the Opium network are created in the form of ERC-721o tokens, billed as "the standard for composable, multi-class, flexible tokens." It is a combination of the ERC-20 and ERC-721 standards with some additional features that make it particularly suitable for trading financial instruments, as opposed to the general purpose ERC-20 standard.

Since financial instruments are usuallycombined and managed as portfolios, the Opium team developed this standard to make it easier to combine multiple tokens into a portfolio represented by a single token.

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Users can trade simultaneouslymultiple positions and compose, split and rebuild Opium portfolio tokens, also based on the ERC-721o standard. The protocol even covers contracts for just about anything, like sports betting or gaming.

Interesting topics: Anatomy of an ERC721

The Opium network strives to meet the following 6 qualities:

  • creature;
  • trade;
  • calculations;
  • training;
  • determinism;
  • completeness.

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The Opium network's trading mechanism allowsexchange multiple assets at the same time. This method also allows significant savings in gas commissions when rebalancing the portfolio. You can combine several tokens into one, transfer them in one transaction and then disconnect. Opium believes that bid matching should be done off-chain, as it requires a lot of computing power and is impractical due to block creation time. For example, a platform user announces the amount of Opium tokens and ERC-20 tokens that he wishes to give away, and other tokens that he wants to receive. The order is executed outside the blockchain by traders, brokers or other players.

While the Opium Core contract is tied to the oracle, derivatives registries, and issuers, its role is to execute the logic of receiving margins from users and paying them.

Opium Exchange launched in May 2020.and claims to be the first professional derivatives exchange where users can register their own decentralized derivatives. To compare orders, the traditional order book is used instead of the liquidity pool. Since not much time has passed since the launch, the order book is not very deep and most of the liquidity is provided by the Opium team.

A number of interesting products have recently been launched on the exchange.

In addition to its own version of standard ETH futures, Opium has ETH gas options, allowing users to hedge against gas price changes.

In June, before the start of trading in COMP tokens (Compound control tokens) on Uniswap, Opium has launched OEX-ZEPO-1 * COMP- a call option of the European type on COMP with a zero strike price. This kind of unique derivatives provide a decentralized method of forming a futures market for unlisted tokens.

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This innovation is used to createa pre-market that is rarely seen, even in the traditional financial market. When the expiration date comes, the holder of such a ZEPO option will definitely exercise the right to exercise it, so this is in a sense similar to owning the underlying asset. But now the seller's margin is fixed, for example 120 DAI per ZEPO option, which limits the potential profit of the ZEPO buyer. Even if COMP is trading at $ 200 or $ 300, the owner of the asset will receive only 120 DAI. Opium is launching a range of zero strike options with varying seller margins.

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The standard ETH options available on the Opium exchange differ in their properties from the other platforms discussed in this article.

  1. First, Opium offers partly collateralized options. Compared to margin requirements 100%Execution asset on Hegic, Opyn and AOC, on Opium, margin requirements for issuers using DAI are now only 33%. This practice will be familiar to those who trade options in the traditional financial market, where it gives option sellers an additional source of leverage. However, here the margin is fixed in the contract and cannot dynamically change depending on the price of the underlying asset, as is now the case on most decentralized platforms. This difference in margin calculations can lead to price anomalies, allowing for arbitrage if there is less liquidity on the Opium exchange.
  2. Secondly, different assets can be used for margin. The collateral left on margin accounts maybe in stablecoins or any ERC-20 tokens, which allows traders to more flexibly speculate on the future value of Opium products. You can call this the multi-coin margin function.
  3. Thirdly, Opium derivatives are of the European type and are cash-based. This means that options can only be exercisedon expiry date and no physical delivery. The option issuer simply pays to the holder on the expiration date the net profit in stablecoins or ERC-20 tokens.

These characteristics are expected to provide opportunities for exotic trading strategies based on leverage and option liquidity.

The Opium Protocol appears to have largeplans for the entire derivatives market, not just options, and has the potential to create fairly complex structured products based on derivatives portfolios with the ability to easily compose, split and rebuild tokens. In short, Opium is working on interesting and innovative products, so it's worth keeping an eye on this platform.

Pods

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Pods is a decentralized non-custodialan Ethereum-based option protocol where users can act as sellers or buyers of both put and call options. The project team already has experience with decentralized options. Some of its members previously worked on Mainframe and launched ohmydai in November 2019.The Pods appear to be an extension of this original concept, born during HackMoney, a 30-day virtual DeFi hackathon hosted by ETHGlobal in conjunction with various cutting-edge DeFi projects. earlier this year.

Pods are American-style physically settled options that are 100% asset-backed and therefore independent of price oracles and liquidation systems.

The Pods options are very similar to the Opyn model andtokenized as ERC-20 tokens called odTokens. Call and put options are respectively called codTokens and podTokens, and transactions with them are conducted on Uniswap to provide liquidity.

The Pods protocol is interesting because it seeks to goone step further in DeFi composability. Since providing liquidity to issue options is a choice between the return on the issue and the return that can be obtained from using that collateral in the money markets protocol, Pods makes this choice much easier. By integrating Aave a-tokens as collateral on their testnet, Pods allows for both types of profit. Eliminating this choice should theoretically increase the motivation to issue options and the efficiency of capital when selling put options. In short, instead of reserving USDC orDAI for the duration of the option when issuing option put-tokens, Pods allows you to reserve interest-bearing tokens (such as aUSDC) in the option contract as collateral.

The first tests were carried out with two differentput options using two different underlying assets - WBTC and ETHBTC from UMA. Pods is still running on testnet and has yet to be audited. Nevertheless, the team started off strong, and we look forward to new interesting integrations in Pods as the project develops.

Synthetix

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An overview of new DeFi protocols would be incomplete withoutat least a cursory mention of Synthetix. Since this platform focuses on creating all sorts of synthetic assets, options, of course, were on the plans of the project from the very beginning. This year, the project announced the release of betting binary options. On June 23, during a project management videoconference, it was briefly presented what the optional Synthetix platform will look like.

The mechanism for creating options on Synthetix willdiffer from the platforms mentioned above. With an adequate amount of SNX tokens reserved, which in turn provide a deep liquidity debt pool for the entire platform, synthetic option tokens can be issued directly. The underlying asset will be the debt of the Synthetix staker, and synthetic options can track the value of other underlying assets according to Chainlink oracles. The proposed system is explained in detail in SIP-53, but further announcements from CEO Kane Warwick about these derivatives should be expected.

As with other DeFi innovations today,trading in these synthetic options will rely on systemic liquidity. The Synthetix exchange could be the ideal place to trade these innovative options products, as Uniswap is likely to face multiple timing issues. However, Synthetix options are designed to track, not outrun, and there are already synthetic options on the platform that track or backtrack the prices of the underlying assets. The strategies that can be applied with the accumulation of these hedging instruments will be quite interesting. Time will tell what the extremely talented team and community at Synthetix will be able to present when they finally focus on decentralized options.

FinNexus

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FinNexus develops an open financiala protocol for hybrid markets where both decentralized and traditional financial products will be traded. FinNexus has already launched the first tokenized product called UM1S along with the ICTO process (initial offering of convertible tokens), and the release of the first version of the decentralized option protocol is planned for the end of the year.

Unlike the platforms discussed earlier, the firstthe version will launch on the Wanchain blockchain, which offers much faster transactions and lower fees. The Wanchain cross-chain mechanism will also be thoroughly integrated, making options based on BTC and other crypto assets possible. The next step is the parallel option protocols on Wanchain and Ethereum.

Users can check out the unique properties of the first version code on FinNexus GitHub.

  1. First, options are tokenized and transferable. The options will be European type with automatic cash settlement on expiration date. With automatic execution, the price difference will be paid in the currency of the collateral.
  2. Secondly, there will be a whitelist of underlying and reserve assets that will not be limited to ETH or any stablecoins. FinNexus intends to further integrate cross-chain assets that are already integrated into Wanchain - BTC, ETH, EOS, LINK and others into various reserve pools for issuing options.
  3. Third, the FinNexus decentralized options platform will use a dynamic margin model when issuing options. The more unprofitable the price for options, theless margin will be required and the more options can be issued for the same amount of collateral; and vice versa for profitable options. If the margin does not meet the required level, the liquidation process will be launched. Liquidators will be highly motivated.
  4. Fourth, FinNexus' multi-coin reserve mechanism will give option issuers more flexibility. A basket of assets will be available for use as margin. In the first version, WAN and FNX will be the main margin currencies on Wanchain.
  5. Finally, FNX liquidity mining will begin shortly after launch. Option issuers will be incentivized in several ways, including the distribution of FNX tokens as issuance rewards and trading volumes on the FinNexus options platform.

Also, in the future version of FinNexusa shared pool model is planned with FNX as the main reserve asset for issuing both call and put options, with different underlying assets. This will be both a reserve pool for creating options and a liquidity pool for option transactions. Pool members will be rewarded with share tokens. Risks and rewards will be proportionally shared between the pool members.

In conclusion

First of all, let's fix the comparison table for the above platforms:

Platform American or European options Cash or physical payments Tokenized and transferable Liquidity: order book or pool Standardized or customizable protocol Collateral / margin requirements Collateral type
Opyn American Physical, cash in V2 Yes Pool Uniswap Standardized 100%, lower margin in V2 ETH + USDC
Hegic American Cash Not Pool Hegic Customizable one hundred% ETH + DAI
ACO American Physical and monetary Yes Order glass Standardized one hundred% ETH + USDC
Primitive American Physical Yes Pool Primitive Standardized one hundred% ETH + DAI
Opium European Cash Yes Order glass Standardized Fixed ETH + DAI + ERC-20
Pods American Physical Yes Pool Uniswap Standardized one hundred% ETH + DAI + aUSDC
Synthetix Unknown Cash Yes Synthetix debt pool Customizable one hundred% SNX
FinNexus European Cash Yes Order book and pool later Standardized and customizable later Dynamic margin, less than 100% FNX + WAN + BTC + ERC-20 later

Since decentralized finance is activelyare entering the cryptocurrency scene, it will be interesting to see which protocols will attract the most users. The decentralized options platforms described above use different approaches and are at different stages of development. We believe that decentralized option products have a promising future.

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You can always thank the translator for the work done:
BTC: 1BHr4jrPPVwdWRpFTekaD34EZ2vo9p8FoC
ETH: 0xf45a9988c71363b717E48645A412D1eDa0342e7E