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Chain News ChainNews (ID: chainnewscom)

, written by Ryan Tian and Nicholas Krapels at FinNexus, published with permission.

We believe that in the future development path of decentralized finance DeFi, decentralized options will undoubtedly become an important application with the next round of competitiveness and explosive potential. This article focuses on the analysis of the 8 mainstream decentralized option platforms that have been released or are still in the testing stage, and their economic models have been carefully studied and compared with each other.

overview

The authors of this article, Ryan Tian and Nicholas Krapels, are currently participating in the design of the FinNexus decentralized options protocol. We hope that publishing this research on centralized options will benefit the entire DeFi community’s understanding and development of the decentralized options market .

「Decentralized Finance (DeFi) is the movement that leverages decentralized networks to transform old financial products into trustless and transparent protocols that run without intermediaries.」

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overview

The well-known decentralized financial information integration platform Defiprime.com defines decentralized financial DeFi on its homepage as follows:

• "Decentralized finance (DeFi) uses a decentralized network to transform traditional financial products into a decentralized, trustworthy, and transparent protocol form."

After experiencing the sharp drop on Black Thursday in March 2020, DeFi’s lock-up value rebounded rapidly. According to Defipulse’s tracking, DeFi’s total holdings (TVL) have exceeded $1.6 billion when this article was edited, mainly due to Compound and Growth of WBTC. In addition, it seems that new projects are announced to enter the DeFi family every day, and DeFi practitioners also affectionately refer to this scalability and composability as DeFi Legos.

Does FinNexus have competitors?

The emerging DeFi system does not yet have much zero-sum competition, and collaboration is the spirit of DeFi.

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Derivatives

Derivatives have been called the holy grail of traditional financial markets. The application of financial derivatives is ubiquitous in the traditional financial market, and there are certain controversies. Different people may have diametrically opposed perceptions of it. Some people call it an angel that brings opportunities to investors, while others think it is an angel that brings opportunities to investors. It is a demon that increases risks in the financial market and brings about market recession; but its development speed and volume are worthy of the role of the Holy Grail of the financial market. It is estimated that the total market value of traditional financial derivatives exceeds US$1 trillion. At the same time, this huge market has played an indispensable role in the growing global financial market, greatly enriching the diversity of financial instruments and facilitating complex trading strategies. The derivatives market provides trading depth for the overall financial market, and consolidates and strengthens the market pricing of relevant underlying assets in the financial market through information interaction and feedback mechanisms. With the deepening of decentralized financial DeFi applications, the development prospects of the decentralized derivatives market are also limitless.

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What are derivatives?

Derivatives generally refer to a financial instrument contract whose value depends on or is derived from an underlying asset or group of assets. Futures, forward contracts, options and swap contracts are typical derivatives in traditional financial markets.

In the encryption market, there are already a large number of centralized financial derivative products in the current centralized exchanges, such as Binance, BitMEX, Huobi, OKex and other exchanges have user-oriented futures trading platforms, but the options on these exchanges are still It is blank or has just started; for options, the well-known centralized cryptocurrency derivatives platforms include Deribit, FTX and LedgerX, etc. There is relatively sufficient liquidity. According to another report by CryptoCompare, the trading volume of derivatives of encrypted assets hit a record high in May 2020, and the trading activity around cryptocurrency options increased significantly.

Like lending apps, the next phase of DeFi evolution will be through decentralized protocols that replicate the functionality of these centralized market behemoths. If the entire DeFi market and applications are primary school students, then decentralized financial derivatives are newborns, but they are growing rapidly.

• In 2019, we witnessed the rise of Dydx and Synthetix, decentralized derivatives platforms. This year, some great DeFi derivatives projects have been launched, such as Futureswap, a decentralized futures trading platform, and UMA, a goal of "an honest oracle mechanism that can be used to create customized and personalized financial products" Innovative items.

Options have always been the best in the ranks of financial derivatives. While the above-mentioned centralized options platform is constantly hitting new highs in trading volume, the decentralized movement of cryptocurrency options is also starting. After all, for the DeFi field, with high volatility, options have the multiple attributes of hedging, insurance, and high-leverage speculation, so they must be a welcome new member. To $10 billion or more, cryptocurrency investment participants will also need a convenient decentralized mechanism to help them manage their risk exposure.

• This post will focus more on the currently available or announced decentralized options platforms in the market. In order to understand some basic terminology of options, we recommend you to check out Ryan Tian's previous articles here:

A Guide to FinNexus Option Terms

Guide to using FinNexus options

OPYN

Before you commit your funds, you should first understand that all options are available

Comparison Chart Preview of Decentralized Options Platforms:

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OPYN is a general option protocol built on the Ethereum blockchain based on the "Convexity Protocol", which allows users to create options using their unique oToken. opyn.co provides an easy-to-use interface to buy and sell ETH put and call options.

In the early days of its establishment in 2019, OPYN tried the business of margin trading, and transformed into an insurance platform in February 2020. Users can purchase insurance for their Compound deposits to avoid the technical and related financial risks of the platform. At the end of March 2020, OPYN launched the first batch of protective options for ETH holders. These oTokens are ETH put options that provide liquidity through Uniswap, so these products can be regarded as insurance products for DeFi users. So the OPYN platform is not born for speculation.

The picture below shows 4 ETH put options and 1 call option announced on the OPYN website on June 15, 2020.

Data from Dune Analytics shows that the OPYN options product is growing very fast.

DeFiPulse’s tracking data shows that the platform’s lock-up volume is on the rise.

In the first few months after the launch of the OPYN mainnet, only options such as ETH put options were offered. On June 12, the first OPYN call option was launched on the platform; at the same time, on June 26, the $COMP option was launched. With the diversification of options products offered by OPYN, it can be expected that the lock-up value of OPYN will also grow rapidly with the increase of market demand in the future.

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Pictured is OPYN's co-founder celebrating the first release of call options

Currently, OPYN requires option sellers to be fully mortgaged. When a user opens an ETH put option contract and mints option tokens, he must deposit 100% of the contract’s strike price in USDC as a margin for locking. Deposit contracts and lock them up as margin.

Different options derived from different combinations of the aforementioned 8 parameters are marked and differentiated by different oTokens in OPYN, and are controlled by separate smart contracts.

OPYN's decentralized option model is different from the option model in traditional finance in terms of margin requirements. In traditional financial options trading, the margin needs to be locked in the trading account, and the margin requirement is much lower than that of OPYN.articleSince OPYN needs a decentralized smart contract to control the generation, transaction, exercise and settlement of the option contract, it proposes that the seller of the option needs to fully mortgage the option contract with the exercise price and the exercised assets In the contract, the obvious advantage of this is that the contract does not have to worry about the risk of liquidation or even default due to insufficient margin of the seller, even if there is a market crash such as Black Thursday; and MakerDao suffered losses during this period due to the liquidation mechanism . Even if the price fluctuation of the underlying encrypted asset causes the option seller to suffer potential losses, there is no need for liquidation, because the assets for the physical delivery of the option contract have been mortgaged and stored in the oToken smart contract for the creation of the specific option.

The liquidity after option generation is also an important part of a mature derivatives market. At present, Uniswap is still the main trading place for oToken. In the Uniswap liquidity pool (LP), a classic XYK model is applied (interested readers can refer to Ryan Tian's article on this transaction model

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), but this model has certain drawbacks. When the liquidity provider (Liquidity Pool Providers) adds both tokens to the liquidity pool (Liquidity Pool, LP), if the two tokens of the trading pair see the price Mutual fluctuations occur, whether it is a relative rise or fall, as long as it deviates from the relative price at the point when the liquidity provider joins the liquidity pool, the liquidity provider will suffer an impermanent loss (Impermanent Loss, IL, also extended For reading, please refer to the link above). Therefore, liquidity providers benefit the most when the relative prices of the two assets remain constant.

Since oToken's liquidity relies on Uniswap, the above potential problems have a negative impact on oToken's liquidity providers. Writers of options are essentially forced to sell for a premium, rather than providing long-term liquidity, because all options necessarily depreciate in value over time at a rate of theta, also known as the option's time decay. As the expiration time approaches, the rate of decay accelerates. Therefore, liquidity providers are very likely to suffer huge non-permanent losses when providing individual oToken liquidity. Judging from the current platform structure, it seems that most of the liquidity is provided by OPYN itself, and as users open options to provide liquidity to the Uniswap liquidity asset pool of related oTokens, OPYN has not provided clear information in UXUI optional interface. Of course, one could directly interact with the OptionsExchange contract via etherscan, but this task is best left to an experienced blockchain engineer.

This feature will threaten the development of the entire trading system, because if the liquidity of LP is not deep enough, it will be difficult to form a large-scale decentralized oTokens trading market. At present, OPYN is forced to take the initiative to bear the impermanent loss (IL) to realize the start of decentralized option secondary market transactions. Of course, in OPYN V2, the team also discussed how to solve this problem.

OPYN's options are currently American-style, and users can exercise their options at any time before the option expiration date. However, the Converxity protocol for constructing OPYN actually allows the construction of American or European options. In addition, when the option is exercised, the OPYN smart contract requires the actual delivery of the underlying asset, that is, physical delivery settlement. For example, when the put option is exercised, the option seller needs to give up their USDC collateral, and accept the option buyer's ETH in return at the strike price defined in the oToken smart contract.

Hegic

Obviously, this is a rapidly iterative platform. The OPYN platform was undoubtedly successful in the early stage. While attracting users, it has also attracted the attention and capital injection of many institutional investors. Typically, however, an option buyer wishes to hedge, insure, or speculate on price changes in the underlying asset (usually denominated in U.S. dollars), and he/she is not concerned with the actual delivery of the underlying asset by the counterparty when the option is exercised, but rather The only concern is whether their potential net income can meet the full payment. Thus, unlike physical settlement, cash settlement of the net potential gain for option holders is generally sufficient and less capital intensive. It might not even require a 100% guarantee for the entire physical delivery, which would certainly make the option creation process more efficient.

We have also noticed that the team is currently discussing the next version of the protocol "OPYN V2", which may add new functions such as margin, multi-currency mortgage, and trading system upgrades, and we will continue to pay attention to it.

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Similar to OPYN, Hegic is an on-chain options trading protocol built on Ethereum, but its model is fundamentally different from OPYN. The option liquidity pool (mortgage pool) model is the key to Hegic's option creation and premium distribution method, which means that the counterparty of option buyers is Hegic's entire smart contract library.

Hegic owns both American calls and puts on Ethereum (ETH). Therefore, subject to collateral restrictions, it currently has two pools: a pool with DAI as collateral, which mainly serves users who create put options; and a pool with ETH as collateral, which mainly serves users who create call options. user. Users who provide liquidity to any of these two option mortgage pools can share the benefits of the option pool according to their shares, and these benefits come from the option fees paid by option buyers to purchase options. If the relevant options are delivered due to the exercise of the option buyer, and the collateral is taken out of the pool and delivered to the buyer, and suffers a loss, these liquidity providers (LPs) will also share the loss according to their shares.

In addition, unlike the OPYN model, the liquidity provider in the Hegic option model, that is, the collective seller of options, will not directly create option tokens. They are option liquidity providers, not direct creators of options. Therefore, they cannot and do not have the right to control the specific option contract information, while the purchaser of the option decides the specific terms of the option in the Hegic model. Each option is customized by the buyer and is unique, and the buyer 1) chooses the strike price independently, and 2) chooses the expiration date and time independently.

By providing assets (ETH or DAI) to the pool, just like Aave or Compound, Hegic's liquidity providers will receive automatically generated writeETH or writeDAI option mortgage pool share tokens, and let the liquidity providers in the liquidity Occupy a certain share in the security pool (mortgage pool). Option gains and losses are shared by all liquidity providers. When liquidity providers want to get back the ETH or DAI in their pool, together with the benefits they enjoy or the losses they bear, they only need to call the withdrawal function of the smart contract, that is, burn their writeETH or writeDAI tokens, and at the same time return Their ETH or DAI shares in the pool, of course, the premise is that the relevant shares are not locked and meet the freezing requirements of the Hegic platform for fund deposits and withdrawals.

Liquidity Providers (LPs) have no direct control over the execution of individual options contracts. Instead, they passively share in the gains and losses generated by the options liquidity pool over time. This method saves gas fees compared to the OPYN mode. In the OPYN mode, when the option seller wants to create an option and obtain the option fee income, he must use the fee in 3 or 4 steps, due to the length of the option period. , and sometimes maybe even weekly. In the Hegic model, liquidity providers do not need to create options themselves, so fees are only paid when they enter and exit the asset pool.

Another advantage of the Hegic model is that buyers can choose the terms of the options themselves. They can create their own custom options by selecting the option type, strike price or expiration date. As long as Hegic's liquidity pool is deep enough, this model seems to be more flexible than OPYN. Option buyers can choose to purchase in-the-money (ITM), out-of-the-money (OTM) or at-the-money (ATM) calls or puts. Currently, the option price is predetermined by the Hegic algorithm, and the option seller can automatically obtain the relevant option price by entering the option terms he intends to buy. At the same time, Hegic will manually update the most important component of the option pricing in the Black-Scholes formula based on historical data - Implied volatility.

Hegic is also working to improve the liquidity of options for option buyers. In the Hegic protocol v1.0, if the price moves in the buyer's favor, the buyer has no other choice but to choose physical delivery to exercise the option. In the Hegic protocol v1.1, they can choose to "resell" the in-the-money option contract to the liquidity pool during the holding period. Usually, when exercising American style options or futures, we actually call the transaction cash settled.

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Advantages of the Hegic Model

Hegic's hybrid model has some advantages:

Second, option buyers are more flexible in their choices. They can choose the options strategy that best suits their risks. Hegic allows users to pick and choose between call and put option types, any strike price and within several selectable periods.

Third, this is a safer way of creating and aggregating options than option contracts created by a single liquidity provider. Option premiums and risk are allocated among liquidity providers. Because option buyers can determine the terms themselves, they are more likely to create an option product that best matches their needs and reduces risk.

Fourth, due to higher capital efficiency, more funds can be attracted into the mortgage pool. By separating the roles of liquidity providers and option sellers, liquidity providers can passively enjoy the option fee benefits of the fund pool by holding shares in the fund pool, and at the same time share the risks of options issued with different terms. In traditional financial markets, the issuers and sellers behind options often come from professional institutions, who use leverage to amplify returns and manage risks through complex hedging mechanisms. Of course, Hegic can accommodate these giant whale investors, and more importantly, he also provides small liquidity providers with the option to participate in the pool, and through the mechanism of the pool to carry out risk sharing, there is no need to worry about the complexity of financial instruments. These fund pools essentially act as a fund's portfolio, and the corresponding writeTokens act as shares in the fund.

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Problems with the Hegic Model

First, Hegic options are non-transferable and non-tradable.

Hegic's options only exist at the contract level, unlike OPYN's model, which tokenizes options as separate ERC-20 tokens. Although Hegic options can be customized to buyers' needs, they cannot be circulated in the secondary market after they are created, limiting liquidity. Hegic Protocol v1.1 will introduce a "resell" feature, allowing users to sell positions to the pool at any time before expiration. This mechanism partially solves the liquidity problem.

Second, users must actively monitor their premium allocations.

Despite an audit of Hegic’s code, some coding errors occurred in April, resulting in approximately $30,000 in ETH funds being permanently locked.

In May, another hole appeared in Premium Distribution due to a fundamental design flaw. The instant allocation and withdrawal of collateral and premium yields create risk and return inequality between early and late liquidity pool entrants. Early pool providers can accrue premiums, withdraw their liquidity and the entire associated premium yield at any time, even before the options in the pool expire, leaving the risk only to later pool entrants.

In Hegic V1.1, the option premium will be distributed after the option expires. Liquidity will be locked for 14 days from the date of the last deposit. These operations are expected to correct the problems that occurred in the previous model. But as long as option premiums are allocated to liquidity providers at the same time, their risks and rewards are unbalanced. We believe that with the evolution of time, when the option is gradually approaching expiration, the model that distributes the option premium on the time scale may be more fair and reasonable.

Third, the Hegic option pricing model may be flawed.

According to the classic Black-Scholes pricing model, the key to option pricing is to determine the implied volatility.

Options trading is essentially trading volatility. The well-known VIX, often referred to as the fear index, is based on the market's expected volatility based on options on the S&P 500 index. Hegic's option prices are derived from data published by skew.com, and then the implied volatility (IV) is manually updated in the Hegic protocol instead of being dynamically priced by the market in real time. Therefore, there may be arbitrage opportunities between Hegic and other options platforms, but this is not a problem at this time. Option pricing is the most challenging aspect of all emerging decentralized rights platforms due to various methods to automatically calculate IV. In other words, the problem with IVs isn't unique to Hegic.

Fourth, Hegic options may have insufficient trading liquidity after creation. Hegic options are not tokenized and can only be exercised (or resold in V1.1). Therefore, after the option is created, the circulation problem in the secondary market is not fully resolved. Because in options trading, the game is always around the changing expectations of IV, if you believe that the success of options will only be seen in highly liquid markets, then there may be a lot of room for Hegic in this regard .

Fifth, it will be difficult for liquidity providers to hedge risks in the emerging decentralized options market.

ACO

In the traditional financial market, most of the people who support option products are professionals, and they have various means to hedge the potential risks of option products. However, liquidity providers for Hegic Options are brought together and collectively act as counterparties for all active options contracts, which vary in strike price and expiration date. Hedging these risks will be extremely difficult for Hegic liquidity providers.

However, Hegic has opened a new door for the decentralized options platform, which is invisible in the traditional financial field and has great potential.

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ACO is a decentralized options protocol built on Ethereum. It was launched by Auctus in May 2020.

The decentralized option mechanism on ACO is similar to OPYN. These options are minted as ERC-20 compliant ACO tokens, each with its own smart contract and unique number. For example, a token named ACO ETH-200 USDC-C-26 JUN20–0800UTC represents a call option based on the ACO protocol, with ETH as the underlying asset, and an exercise price of 200USDC (C for call and P for put) , with an expiry date of June 26, 2020 at 8:00 UTC.

For those engaged in options trading in traditional financial markets, ACO's UXUI should be very familiar. It looks the same as TD Ameritrade or Schwab.

Primitive Finance

The exercise of ACO options is not automatic, and needs to be triggered by the option holder. The exercise adopts the method of physical delivery. Interestingly, ACO also has a function similar to cash settlement by integrating Uniswap V2's "lightning swap transaction" to directly deliver the net difference between the Uniswap price and the exercise price.

Overall, the ACO is a nice functional platform, and it looks a lot more fleshed out than the OPYN. But just as we have seen recently with Compound and decentralized lending platforms, the key to this battle is still how to attract users and funds to improve liquidity.

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Primitive is a decentralized protocol for creating option derivatives on Ethereum. It's still early in development. The platform went live in early May 2020, with the first test pool trading a short-expiration ETH put option. The official version of the protocol has not yet gone live publicly.

Primitive, like OPYN and ACO, uses ERC-20 tokens for its options and is named Prime. But the difference is that Primitive includes a model design involving four tokens:

Primitive adopts a liquidity design in the form of a collective fund pool in the smart contract. This liquidity comes from option sellers who make Primes. Any user wishing to sell options can deposit money into the liquidity pool. Redeem tokens (Redeem Tokens) will also be minted at the same time. This type of token is used to withdraw the exercised trading assets from the exercised Primes option contract. Therefore, in Primitive's model, both option products and liquidity pools are tokenized.

Primitive plans to trade these option tokens through Primitive's Automated Market Maker (PAMM) mechanism, which is designed to pool liquidity and act as a medium of exchange. We can think of it as Uniswap's liquidity pool, but it is tailored for option liquidity. For liquidity pool (LP) participants, Primitive also created a liquidity provider token (Primitive Underlying Liquidity Provider, PULP) of the underlying asset, which is the collateral of the liquidity provider for the liquidity pool A certificate of ownership share. When a liquidity provider intends to launch a liquidity pool, take out mortgages and earned option fees, the contract will destroy these PULP tokens, and these tokens represent the corresponding share of their assets and income in the liquidity pool.

For option pricing, Primitive applies a simplified option pricing model, especially with regard to time value. Interestingly, Primitive uses "demand" as a reference indicator for the implied volatility IV value, and this "demand" is the capital utilization rate of the liquidity pool. In the Primitive option pricing model, it is intended to use the capital utilization rate of the liquidity pool to derive the IV value and apply it to the final option pricing. This is an interesting and novel concept.

Opium

Ultimately, Primitive plans to use the Prime oracle mechanism to aggregate and form a data array of implied volatility and store it in a smart contract, and finally guide the off-chain data into the chain to form a decentralized option pricing application.

In the field of decentralized options, Primitive is a shining star with many new and interesting features being tested in the alpha stage. But at this stage, the security audit has not been completed. We are also looking forward to the official release of the Primitive protocol.

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Opium's goal is to build a decentralized derivatives agreement, and this agreement has a broader ideal and vision that is not limited to options products.

According to their official documentation: Opium is a general-purpose protocol designed to create, settle and trade a wide variety of derivatives and financial instruments in a professional and trustless manner. It allows anyone to build custom tradable derivatives on Ethereum. "

Unlike the few decentralized options platforms we mentioned earlier, Opium even created its own token standard.

In Opium, all option positions are created in the form of ERC-721o tokens, a Composable Multiclass Fungible Token Standard. It is a combination of the ERC-20 and ERC-721 token standards, with some additional features added to it. Compared to the ERC-20 standard, this standard is especially suitable for the creation and trading of composable financial instruments .

Since financial instruments are usually organized and managed as portfolios, Opium uses ERC-721o standard tokens to make it easier to package tokens representing several financial instruments into a portfolio and express them in one token and transactions.

Users can trade multiple positions at the same time, and perform synthesis, decomposition and reorganization of Opium combination tokens according to the ERC-721o standard. The agreement even extends to broader contracts such as sports betting or gaming.

Opium network construction has the following six characteristics:

The transaction mechanism is very important in the Opium network, where users can exchange multiple assets at the same time. For portfolio rebalancing, this approach also offers significant savings in transaction costs. Many tokens can be packaged into one, and the tokens are sent to the destination address in a single transaction, which is then unpacked.
At the same time, Opium believes that the matching of transaction orders should be done off-chain rather than on-chain, because block generation takes time, which often consumes a lot of computing power and is impractical. For example, a platform user issues a transaction instruction to pay for Opium tokens and ERC-20 tokens and exchange for other tokens, which will be placed by traders, brokers or other users in the relayer (relayer) of the Opium trading system match.

While the Opium core contract is related to oracles, derivatives registration, and minting, its role is primarily to execute the contract logic for charging and paying margins to users.

Founded in May 2020, Opium Exchange is said to be the first exchange where professional users can create and trade customized decentralized derivatives. Instead of using a liquidity pool model, they use a traditional order book approach to matching orders. Because the exchange has just started to operate, the trading depth is limited, and most of the liquidity is provided by the Opium team.

At the same time, the exchange has recently launched some interesting products.

In addition to ETH futures, what is interesting is that Opium launched the Ethereum transaction fee GAS option product, through which users can hedge the risk of Ethereum transaction fees.

In June of this year, before COMP was listed on Uniswap, Opium Exchange launched OEX-ZEPO-1*COMP, which is a European-style call option with the underlying asset COMP, and the exercise price is zero, which economically reduces the actual It is a copy of Compound's COMP governance token. These unique derivatives provide a unique decentralized distribution channel for unlisted tokens.

The above innovations are used to create a pre-listing circulation market, which is not common even in traditional financial markets. When the maturity date comes, the holder of this COMP ZEPO will definitely exercise the option, so it is somewhat similar to directly owning the underlying asset. But it is worth noting that the margin of the seller of the zero strike price option is currently fixed, as shown in the following example, that is, a margin of 120DAI needs to be locked for each ZEPO option issued, which actually protects the price. Limited, it also provides an upper limit for the possible profits of ZEPO holders. Even though COMP might be trading at $200 or $300 on the option expiration date of July 1, the owner of the asset would only be compensated at $120.

Currently, Opium is offering a number of zero-strike options with different margin requirements.

Aside from such options, the ETH options circulating on the Opium exchange also have several different characteristics compared with other platforms in this article:

First, Opium offers the option of partial collateralization.

Compared to Hegic, OPYN, and AOC's 100% margin requirement for exercised assets, Opium currently only requires a 33% margin requirement for sell-side users using DAI. The practice is familiar to those who trade options in traditional financial markets, providing options sellers with an additional source of leverage. However, Opium's margin requirements are fixed in the contract, rather than dynamically changing based on the price of the underlying asset. The collateral requirements of this kind of margin may lead to options being different from traditional options in circulation, and there may be abnormal prices. If the liquidity of the Opium exchange is poor, there may be room for arbitrage.
Third, Opium derivatives are European-style and settled in cash. These characteristics mean that options can only be exercised at expiration and are net-settled in cash. When exercising, the option seller can settle the net amount through stablecoins or ERC-20 tokens.

Pods

These characteristics may provide better possibilities for more complex and flexible trading strategies based on leverage and options liquidity.

The Opium protocol has a great vision for the entire derivatives market. It has the potential to create some fairly complex structured products based on derivatives portfolios, and has the ability to dynamically synthesize, decompose and reorganize tokens. All in all, Opium is developing some eye-opening and innovative products that are worth keeping a close eye on.

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Pods is a non-custodial decentralized option agreement built on Ethereum, and users can participate in selling or buying as sellers or buyers. The team has previous experience with DeFi options. Team members worked for Mainframe and launched ohmydai in November 2019. Pods were born from the HackMoney hackathon and extended the concept to practical applications.

Pods options are American-style options and are settled in kind. The exercised assets are 100% guaranteed and are not affected by the price oracle and liquidation mechanism.

The interesting thing about Pods is that it intends to take DeFi composability one step further. Since the goal of a seller user is to obtain income, he usually makes a trade-off between opening options in the option market to obtain an option fee return, or lending encrypted assets in the credit market to obtain a return, and Pods allows the choice between the two made easy.

Synthetix

Pods has integrated Aave’s aTokens as collateral on the testnet, and the composability of Pods and DeFi protocols allows users to enjoy both benefits at the same time. In short, when minting put option tokens, unlike other platforms that require locking the stable currency USDC or DAI, Pods allows locking the interest-bearing token (aUSDC) in the option contract as collateral, enjoying two kinds of benefits at the same time, thus Improved incentives for option sellers.
In addition, Pods also tested put options on two different underlying assets—WBTC and UMA’s ETHBTC. It is worth noting that Pods have not yet passed the audit. We look forward to seeing more interesting integrations on Pods as the project develops.

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As a platform focused on creating multiple compound types of synthetic assets, options have been within Synthetix's vision from the very beginning. Earlier this year, the project announced plans to launch binary options in Q3 at the end of the year as a goal of the 2020 roadmap; the current binary options test has been rolled out to users. In addition, on June 23, at the Synthetix Community Governance Conference, Synthetics released a short introduction on the prototype of the synthetic options platform.

FinNexus

When creating option Synths in Synthetix, the mechanics will be completely different from all the platforms mentioned above. Synthetix creates a debt pool with deep liquidity by over-collateralizing SNX and using it as collateral, and can directly mint option synthetic tokens in the debt pool. Synthetic options can track the value of underlying assets and options based on the Chainlink oracle mechanism and specific algorithms. Although binary options are introduced in detail in SIP-53, after all, there are still big differences between binary options and traditional options, and we have not seen further details in Synthetix's option derivatives.

Like all current DeFi innovations, the trading of these synthetic assets relies primarily on system liquidity. The Synthetix exchange may be an ideal place to trade these innovative options products, as Uniswap may suffer from impermanent loss. However, Synths are designed to track rather than lead market prices, and there have even been synths that track or backtrack the market price of an underlying asset. Therefore, it will be very interesting to see the strategies that users can adopt as these financial derivative hedging instruments develop. When the Synthetix team and community start to pay attention to the huge market opportunity of decentralized options, we will wait and see what kind of products will come out.

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FinNexus is building an open financial protocol that empowers a hybrid market for trading decentralized and traditional financial products. Along with the ICTO process, FinNexus has released the first tokenized product backed by physical assets, namely UM1S. According to the 2020 roadmap, FinNexus' decentralized options protocol will be released in the third quarter.

Unlike any previous platform, the first version of FinNexus's options protocol will be launched on the Wanchain blockchain, with faster transactions and lower transaction fees than Ethereum. In addition, it will fully adopt Wanchain's cross-chain mechanism to realize options based on Bitcoin and other encrypted assets. The next step for FinNexus is to run its options protocol on both Wanchain and Ethereum.

Although the official version of the model has not been released, users can find some unique features in the V1 version code on the FinNexus Github portal website.

First, FinNexus options are tokenized and tradable. FinNexus options are European-style options that are automatically settled in cash when they expire, and the settlement difference will be automatically settled with collateral assets when they expire.

Second, the underlying assets and collateral will apply to a wider range of asset classes that are whitelisted by the contract, not just ETH or stablecoins. FinNexus will integrate cross-chain assets already integrated with Wanchain — BTC, ETH, EOS, LINK, etc. — into various collateral pools for option creation.

Additionally, in future releases, FinNexus plans to adopt a more advanced hybrid collateral pool model, using FNX as the primary collateral asset, to create call and put options on multiple underlying assets. This pool will serve as both a collateral pool for creating options and a liquidity pool for options for the creation and trading of options. Participants in the liquidity pool will be awarded a corresponding share of tokens. This method enables all participants to share risks and benefits.

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Comparison of Decentralized Options Platforms

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