EP 42: Economics of OPYN​ Explained. And How OPYN Works

Opyn Protocol.

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TLDR below. This is not financial advice.

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General Conclusion

Previously we have introduced to readers the different kind of Options. And today we will take a look at the Opyn platform, which offers Options that can basically combine different positions. Opyn has gone through 2 versions, we will also provide information regarding both. Overall, Opyn is working on its liquidity problem by providing two different methods.

What is Opyn?

Opyn is the first options platform in the DeFi space. It uses Convexity protocol. Opyn allows you you to trade the options contract after creating it from a decentralised liquidity pool.

In general, you pay a premium as a buyer and you can either execute them on expiry or before expiry. These tokens represent options, so, for example, if I'm buying a put or call option for ETH my underlying is ETH. Then it will create an oToken or the option version of this ETH with the strike price and the expiry that I'm looking for. After this I can either create them and hold on to them or I can buy them in the secondary market, which is one of the biggest differences between all the other protocols and Opyn.

You can buy these options (ETH or the oETH) either in Uniswap version 1 or the recently upgraded version 2 using 0x protocol. This is good because it allows for price discovery, which is one of the ways that options can be very powerful in the space. You have continuous price discovery as the option reaches maturity before it expires, and can see where value lies. Furthermore, you can trade this asset and make money out of it by trading these options contracts directly instead of holding the underlying.

Creating oTokens

OPYN Version 1

You go to opyn.co and there you see that you can either buy tokens or sell tokens. You can see different types of options and you can buy UNI or you can buy put or call or you can buy wBTC. There are a few assets for you to play around with and you can buy them with USDC so you can buy or sell protection. If you are selling, you get to earn premiums and if you are buying you pay the premiums.

OPYN Version 2

Version 2 is slightly different where you go to the 0x protocol and purchase these option assets and you can also create them under the trade function. The concepts are both the same in that you put in your strike and you put in the expiry or how long you want these options to last for, and then the oTokens or the oETH will be minted in which you will pay the different premiums.

Trading oTokens

Version 1

Trading is a lot more interesting because it opens up the conversation of price so if you go to the website you will see that there is this Opyn monitor which uses Uniswap. You can either go to Uniswap and look for it and trade there, or go directly to the options platform, opynmonitor.xyz. That platform has the different kinds of assets available (wBTC and UNI for now), the expiry dates which is the last Friday of every month, the strike price, the expiry, the open interest, the implied volatility and all the other stuff and you can trade.

Version 2

You go to gammaportal.xyz and there you go to trade via an order book, which is quite different to version 1 which uses AMMs. AMM uses bonding curves to price assets. Version 2 uses 0x protocol and an order book. The central limit order book and the tables being created are very similar to the traditional way options are traded so you can look at the call, the put, the different greeks, the different implied volatility which actually changes and the different price for it and then purchase them according to your needs.

What Else Did You Miss?

• Liquidity problems and solutions

• Mechanism Design

  • Decision Making

  • Resolution Mechanisms

• Token Design

  • oTokens V1

  • oTokens V2

  • Upon Expiry in V2

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TLDR: Opyn is developing and trying to engage more users by providing different Options mechanisms for testing. Although we cannot conclude that the Options design is better and more stable, it is clear that the design of Options has many ways. It is just making it fit for today's infrastructure, more optimal and cheaper for the users.

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