Problem / Opportunity

$500B / US Monthly Option Volume

In the US alone there is on average around $500B of monthly option notional volume(CBOE). With the tokenisation of everything and with crypto being a global, open platform we expect the option markets to be orders of magnitude larger.

This is because options are a general purpose tool for transferring risk. Many different participants benefit using them for many different reasons. Increasing their risk exposure, decreasing their risk exposure or earning yield.

While professionals are comfortable using them directly, options are also often wrapped into structured products for end users to get exposure to them without needing to understand how they work.

Issues with Options Markets

To meet the option market needs of the immediate crypto market and then for tradfi to transition to using options on crypto rails there are a number of issues that need to be addressed:

• Fragmented liquidity in a single market With order book option markets buyers and sellers need to congregate around predefined strike/expiry combinations. Optix provides a novel solution where the seller sets price points across the strike/expiry surface and the buyer can buy anywhere on that surface. Sellers only need to have collateral in a single vault and can manage the surface from a single point rather than needing update across many order books. The price function is exposed as an interface that can be customised to meet any unique requirements.

• Breadth of markets Typically option markets usually only exist for a few very large markets. This is partly because of the issue of liquidity fragmentation and also because the market makers needs to hold and manage many different assets. With Optix a single vault with a USD token as collateral can provide cash settled options for an unlimited number of oracles across their strike/expiry surface on both the put & call side. With this approach market makers still need to hedge their exposure on other platforms but they can harvest volatility across many and varied assets that isn't currently possible. Boot strapping liquidity and price discovery.

• User experience Options are notorious for their complex and confusing user experience. Large tables of numbers representing the many expiries and strikes and then within each of those an order book. With Optix we aim to simplify the buying experience to be similar to trading on a dex and selling to be like providing liquidity to a pool.

• Know your counterparty Institutions need to know that their counterparties have passed kyc/aml and/or meet regulatory requirements. Automated market makers usually have permissionless, open access. Optix allows vault operators to either sell to anyone or restrict access so that only accounts that have been through a predetermined whitelisting process can purchase from them. With this mechanism institutions can meet their risk & regulatory requirements.

Solutions

Options are both powerful and flexible. They provide many different benefits to a variety of people and use cases. This list highlights potential users and how they will benefit.

Due to the composability of defi we expect that a significant amount of flow will come from the protocol being used as a primitive in other products/services, where the options aren't visible to the end user.

Optix can provide solutions to the following types of users:

• Protocols, DAOS & Investors

• Retail

• Market makers

• Institutions

Protocols, DAOS & Project Investors

• Token vaults: covered calls & cash secured puts on a native token or protocol defi primitives

• Structured products: building on their native token or protocol's defi primitives

• Risk management: use options as part of a risk management strategy to earn sustainable yield, take out downside protection etc.

• Incentive alignment: issue options to protocol participants or team members instead of tokens

Retail

• High but safe leverage: Offer high leverage opportunities to trade that won’t get stopped out

• Portfolio insurance: Take out portfolio insurance / downside protection

• Earn yield: Provide liquidity to vaults, use open source tools such as hummingbot scripts to delta hedge

Market Makers

• Block trading: Large privately agreed trades against KYC’d & whitelisted parties only

• Market neutral strategies: Provide liquidity at scale, delta hedge and warehouse risk using their own tooling

• Hedging: Use options to hedge some of their exposure from other trades

Institutions

• Block trading: Large privately agreed trade against KYC’d & whitelisted parties only

• Generate yield: Selling options provides sustainable yield

• Structured products: For trading strategies at scale and reselling to their own customers

• Hedging exposure: More traditional/sophisticated participants coming into the space will be looking to hedge their exposure