Option Panda, the Inheritance and Innovation of Hegic
The inelastic demand of the decentralized options track and the potential for market growth have attracted a lot of attention and different teams have been exploring solutions in this field. Examples of solutions that have emerged include OPYN-style traditional options on the chain model, Hegic, FinNexus-style AMM capital pool model, with each of these solutions bearing its own unique characteristics. This article will compare the differences between Option Panda and Hegic, two decentralized options projects that use AMM for option trading.
It is important to note that while Option Panda has emerged as an upcoming gem on the market, Hegic has also achieved significant results. The total transaction volume is close to $300 million, and the fund pool has locked 440 BTC and more than 13,000 ETH.
Utilization of AMM Fund Pool
Although they both use the AMM fund pool model for option trading, there are a number of significant differences between Opiton Panda and Hegic in terms of their use.
The primary function of the AMM option fund pool is to provide sufficient pledge for option buyers and improve the liquidity of option transactions. In order to solve liquidity problems, the size of fund pool is an important factor worth considering for the current on-chain options. Therefore, optimizing the fund pool and ensuring its safety are vital strategies that can be used to attract more users.
Meanwhile, one major challenge is that users who inject liquidity into the pool lose their ability to control their income in the fund. To solve this challenge, the use of Hegic’s fund pool allows Option panda to categorize the fund into bearish and bullish pools. Liquidity providers now have the freedom to choose the fund pool and allocate liquidity according to their own judgments about the market. The availability of this choice makes it convenient for people to use Option Panda compared to Hegic which only provides a unified pool.
In addition, Option Panda has also set an upper limit for capital pool utilization to provide protection to pool providers. Option Panda limits the total amount of options with a specific expiration period that can be issued in each underwriting pool, so that the upper limit of option issuance with different expiration periods is evenly distributed to control the concentration risk faced by option underwriters. Option Panda also sets a 75% utilization limit for each option underwriting pool to control liquidity risk. Hegic allows option buyers to freely customize the option strike price and expiration date they want. Buyers can purchase options with any strike price, and the expiration date ranges from 1 day to 28 days. This brings potential risks to market makers.
Setting upper limit for capital utilization seems to limit the trading volume of options, but from a longer-term perspective, it can attract more people into the capital pool. Under normal circumstances, there are often violent market fluctuations before the settlement of options. If the price of BTC or ETH suddenly rises or falls, it is likely that most of the capital pool assets will get exhausted, leading to potential problems such as failure to redeem some of the assets. This is a problem for option buyers and options. The fund pool providers are all serious losses.
Option delivery settlement
Option Panda is settled in U.S. dollars and delivered in the currency of the purchased option. Hegic uses currency-based options. Settlement and delivery use the purchased option currency. Currency-based options may bring potential losses to users who use the standard currency to hedge against currency price fluctuations.
Suppose a Hegic user purchases a call option with a four-week expiration of 1 ETH for 0.1 ETH, the current price of ETH is 500 US dollars, the exercise price is 500 US dollars, and the option fee is 50 US dollars. If the expiration price of ETH four weeks later is US$550, the user will make a profit of US$50 after exercising. In theory, it should be break-even, but in reality, the user will only get (50/550) 0.091ETH from the Hegic option pool which is not enough to make up for the option premium cost of 0.1 ETH he paid.
The products offered by Option Panda are USD-based options. On Option Panda, option buyers pay for any option purchased in USD stable currency. The income generated after the option expires is also denominated in USD. The underwriting pool pays equivalent option tokens. The profit and loss of both option buyers and sellers are calculated based on the legal currency standard. , There is no hidden loss. In the same example, if Ethereum reaches $550, Option Panda users will break even without any hidden losses.
Option pricing
Option Panda uses the Black-Scholes formula which is widely used in option pricing, combined with a dynamic Sigma adjustment mechanism based on the market demand for options. Dynamic Sigma is an innovation of Option Panda. It frequently updates the volatility to reflect the latest market fluctuations and uses smart contracts to provide reasonable option quotations.
Hegic’s option pricing is relatively simple, and there is a risk of centralized manipulation. Sigma of Hegic’s option pricing relies on smart contract administrators to manually update on a monthly basis. The update frequency is too low, which will inevitably lead to unreasonable long-term option pricing in a turbulent market.
Transfer of rights
It is a convenience provided by Option Panda for users. At Option Panda, whether it is the buyer or seller of options, the options or underwriting pool rights held by them are all transferable. This means that Option Panda users can get it at any time when they need liquidity.
The transfer of the equity of the underwriting pool is completed through the transaction of LP Token. Option Panda tokenizes the share of the fund pool. After each underwriter invests funds, he will obtain the corresponding Pooler Token, which can be traded in the DEX. The same is true for the transfer of option rights.
Currently Hegic does not have these functions.
In addition to these differences, Option Panda has a multi-chain deployment plan. Users of Ethereum, BSC, and Heco can use Option Panda for option transactions. Hegic currently only supports Ethereum. In general, Option Panda retains Hegic’s advantages through learning and inheritance. Moreover, it provides improved experience through innovation, and strive to offer flexible choices to users. In the end, Option Panda presents a safer, more transparent and convenient option trading platform.
Contact Us
Website: http://opanda.io
Medium: https://medium.com/@optionpanda
Twitter: https://twitter.com/option_panda
Telegram: https://t.me/opandaofficial
