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0 sats \ 11 replies \ @ExponentialBTC OP 6 Apr 2022 \ on: A Lot Of On-Chain Options, But Few To Exercise | Zee Prime Capital bitcoin

INDEX

Not all options are created equal

Supply & Demand: Where On-Chain Options Fail

Zee Prime’s Option Theses

See You At The Expiry…

0 sats \ 9 replies \ @ExponentialBTC OP 6 Apr 2022

Options appeal to different market participants as they unlock investment strategies that wouldn’t be available with spot instruments. Here are just a few reasons why someone would buy or sell options:

Portfolio protection (insurance). Selling your assets at a higher price than available in the market;

Inherent leverage. Options provide exposure to much higher notional value than spot does;

Trade structuring. Expressing a view through a structure that is most cost and/or capital efficient – thereby leading to better risk/reward;

Yield. Selling optionality and collecting premium in exchange.

0 sats \ 7 replies \ @ExponentialBTC OP 6 Apr 2022

The on-chain traction today in options is minuscule compared to what’s available on centralized exchanges like Deribit.

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0 sats \ 5 replies \ @ExponentialBTC OP 6 Apr 2022

Fast forward to today, we have various iterations of so-called Liquidity Pools (including AMMs), Order-books, Structured Products, and their sub-group which we named Sustainable Yield Products.

The total options TVL is around $1B, and is mostly available on Ethereum, Arbitrum and Solana.

We summarize the on-chain options landscape as follows:

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0 sats \ 3 replies \ @ExponentialBTC OP 6 Apr 2022

While the most popular underlying assets are ETH and BTC, there are also available products for AVAX, SOL and some other tail assets. These Structured Products have accumulated $600M in TVL, with Ribbon Finance leading this category.

0 sats \ 1 reply \ @ExponentialBTC OP 6 Apr 2022

We see several pain points in providing on-chain liquidity for options:

Most options, by design, expire worthless. What this means is that an LP will most of the time trend toward 100% loss. To mitigate this, protocols need to protect LPs at the expense of capital efficiency, liquidity available in the AMM and price discovery;

Prohibitive gas costs. Most of the option protocols have been built on Ethereum while L1 gas prices have grown. Options are particularly sensitive to gas given premiums have comparatively low dollar value;

Decentralized market-makers have to be hedged.