Quest the Transparent Option Trading of Option Panda
In the past year, DeFi has demonstrated its unparalleled charm. Its characteristics of transparency, decentralization, and permissionlessness have brought a new paradigm to financial management and shocked centralized exchanges in the crypto world deeply. Banks and other institutions have also felt the threat of DeFi.
However, the field of derivatives is still the world of CeFi, and DeFi has not fully developed the vast market in this field. According to Statista data, the total value of spot financial products in 2018 was $471 billion, and the total value of derivatives was $11.5 trillion, with a difference of nearly 20 times. In the crypto market, the trading volume of options has been keeping increase.
Derivatives such as options and contracts, if can be used properly, are not only excellent earnings leverage but also an important tool for hedging risks. But the current situation is that options, which should be used to hedge risks, have become the risk itself. Options based on CeFi have many pain points. For example, it is difficult for us to understand how the option price is calculated, whether the counterparty actually exists, and whether it can be paid in full, and so on.
This huge market which has inelastic demand needs a more transparent DeFi and Option Panda can give us such a choice.
Option Panda is a decentralized option trading platform that provides traditional crypto asset option trading (wBTC/ETH/BNB/HT, etc.) on Ethereum/BSC/Heco. Compared with traditional options trading platforms, Option Panda is superior in transparency, convenience, and security.
Disclose option counterparty, guarantee full stake
Option Panda integrates the AMM model into option trading, and establishes an option underwriting pool, and option buyers can trade with smart contract-based trading pools. Anyone can deposit the corresponding assets in the option underwriting pool, as collateral for the options, and when gains are obtained, the trading profits will be divided proportionally.
The options that can be sold in Option Panda are regularly created and settled by the underwriting pool, using an option supply mechanism similar to auctions. After the old option expires, a new option with the same expiration period will be generated. The upper limit of the supply of new options is calculated based on the amount available in the underwriting pool at that time.
This ensures the full mortgage of the option products sold, and increases the depth of trading and liquidity problems faced by most option products. Users can view the scale and utilization of the underwriting pool through the block explorer.
Three underlying assets (BTCB, ETH, BNB) are listed for option offerings at the initial launch. In order to avoid the concentration and liquidity risks of the underwriting pool, funds in the underwriting pool will be evenly distributed among options with different maturities, and the utilization rate of the underwriting pool will be set to an upper limit of 75%.
Transparent option pricing mechanism
The traditional option price is reached by an agreement between the option seller and the buyer with the arbitrary price. However, in a centralized exchange, due to the fact that the authenticity of the counterparty cannot be guaranteed , its option prices also have the risk of being manipulated. This is the last thing traders want to see, and it is also the reason for the wide variation in options prices on current exchanges.
Option Panda’s option pricing mechanism is transparent. Option prices are calculated according to the rules of smart contracts, and no one can manipulate it. In addition, Option Panda strictly follows the Black-Scholes formula and uses a dynamic Sigma adjustment mechanism to enable real-time fair adjustment of option prices.
Among them, Black-Scholes was proposed by Nobel Prize winners Merton and Scholes. It is widely used in option pricing and has led to the prosperity of the options market.
Implied volatility Sigma will affect the price of options. Option Panda uses a dynamic adjustment Sigma mechanism to adjust option prices. Changes in Sigma will be affected by the heat of market transactions. When the transaction volume is large and the market is hot, Sigma will increase, and vice versa. In order to protect investors, there are restrictions on upward and downward adjustments, which are 150% and 50% respectively.
Compared with traditional financial derivatives, which are usually measured in trillions of dollars, the DeFi options market is still small, but has huge potential. Due to the uniqueness of options, it is an arduous task to bring contracts and transactions to the chain while ensuring sufficient liquidity. Option’s solution is expected to overcome this problem.