OptionPanda: A Vanguard of Option + Defi
In a broad sense, an option gives the buyer the right to buy or sell an asset at a specified price within a designated period of time. When the option expires, the buyer can choose to execute the contract to earn a profit or forgo the contract to reduce losses. However, once the option seller receives the buyer’s premium, the seller must exercise the obligation to execute the contract at the buyer’s request.
The modern option can be traced back to the early 17th century in the Netherlands, when the country was in the midst of a tulip mania. Tulip bulbs were a speculative commodity for the Dutch at the time, and prices were inflated to such a high level that pure spot trading could no longer meet speculators’ needs. It was during this time that options were born with their highly leveraged nature.
Over the course, options have gradually become a major part of the financial markets, but in the traditional financial development, the delivery and settlement of options have been controlled and restricted by centralized institutions. Thus the famous Tulip event failed because of users’ inability of to deliver an excessive amount of options.
OptionPanda is a decentralized platform for options underwriting and transaction that supports multiple blockchain networks.
Through on-chain options, OptionPanda not only ensures the safety of assets for both sides of the transaction, but also provides real-time information for users, allowing them to complete the option delivery while being assured of asset safety. With the development of technology, people have higher demand for shorter time option delivery, making short-term options the mainstream product in the market as the short options are more in line with people’s fast investment needs.
OptionPanda automatically settles options and updates new option products based on transparency. Option holders do not need to manually involve in option exercise or go through complex process. Option buyers simply purchase call/put options on the platform and wait for the settlelement to receive expected profits. Option sellers simply deposit the underlying assets into the pool to participate in option underwriting and receive the premium paid by the option buyer.
AMM option pools: the most distinctive advantage for on-chain options
The main function of AMM option pools is to provide sufficient stakings to option buyers and improve the liquidity of option transactions. The size of the pool plays an important role in deciding the liquidity of on-chain options. The AMM options asset pool not only serves the function of providing asset liquidity but also balancing asset distribution. OptionPanda sets upper limits for the total options issuance in each pool to ensure options of different expirations are evenly distributed and thereby reduce the centralized risks faced by option underwriter. In addition, OptionPanda also sets a utilization limit of 75% for each option underwriting pool to control liquidity risk. Compared with similar projects, it provides security servies for users.
The products offered by OptionPanda are U.S. dollar-based options. On OptionPanda, option buyers purchase options with any stable coins pegged with U.S. dollars. The income generated upon expiration is also denominated in U.S. dollars.
On-chain options: infant stage with great potential
The main transaction platform for cryptocurrency options on the market is still lingering in the traditional financial sector. The emergence of on-chain transactions is rather recent. Although many excellent projects have been launched, the user base is still concentrated in centralized transaction platforms.
An important reason why crypto options products have not gained popularity is users’ concern about the risks characterized by centralization, especially in crypto markets where market regulation is not yet complete. As a result, derivatives, particularly options in the DeFi space, have attracted excessive attention from investors who want to trade options without centralized risk.
OptionPanda’s options products are mostly short-term options that expire within 15 minutes to one hour, and are suitable for professional traders who engage in frequent transactions. This design echoes the volatile nature of the crypto market, thus catering to the needs of crypto investors.
Crypto options are traded in only 1/70th of the volume of traditional options, and in DeFi, they represent a even more negligible percentage. This also means that there is a huge market potential to be unleashed. As competition in DeFi is getting ever fiercer, we will see a trend towards more innovation, faster network speeds and lower fees, all of which will help usher in the DeFi options era.
The potential of the options market is huge, and OptionPanda is ready to seize the moment. Decentralized financial derivatives are estimated to be worth $400 billion, and to make a step forward toward the goal requires AMM-based options. There is now an increasing number of people who are looking for decentralized options protocols, a process that also witness an inflow of capital and resources.