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Vaults

OptionsVaultERC20 represents an individual options vault. Each option vault is backed by a single underlying ERC20 collateral token which is used to underwrite all option positions. Each OptionsVaultERC20 is it's own contract deployed by the Option Vault Factory.
A vault can associate itself with one or more oracles which is can offer prices for.

Vaults LP Tokens are ERC20

Regular users can supply collateral to the vault and receive transferable ERC20 vault shares representing this collateral in return. Whenever people buy options from the vault, these shares will appreciate in value. Whenever people exercise these options, the shares depreciate.

Provide & Withdraw Collateral

The primary function for suppliers to supply collateral to the vault is provide. Withdrawals are executed using the withdraw function.
Options can be bought from the vault via the Options contract.

Option Pricing

An option is priced via the owner configurable premium function. A default implementation of this is provided via SimpleSeller.

Premium Collected

Intrinsic and extrinsic fees are collected from the premium as vault collateral, increasing the vault share value and collateral balance.

Locked Collateral

Once the option gets bought, the required collateral to pay its potential payoff is locked and can no longer be withdrawn by users until the option is either exercised or expired via unlock.

Exercising & Payoff

Once options get exercised via the Options contract, the payoff is transferred to the option holder and taken from the vault share value resulting in a loss to the vault shareholders if the payout is greater than the premium collected.

Public & Private Vaults

If LPs could enter & exit the vault at anytime there would be a risk that they are not equally exposed to losses & gains. Therefore there are two type of vaults; public & private.

Private Vaults

A newly created vault is private and only the owner is whitelisted to provide liquidity. The owner can add or remove addresses from the lp whitelist. There are no constraints around when liquidity can be added or removed or when options can be sold from the vault.

Public Vaults

Public vaults have the concept of trading & transfer windows. During the transfer window lps can enter & exit at will but the vault cannot sell new options. During the trading window the vault can sell new options where the expiry date ends before the next transfer window starts.
LPs' are unable to enter or exit during the trading window however the ERC20 tokens that represent the vault liquidity can be traded freely.

Vault Owner & Operators

It is important for users to realize that each vault is managed by a vault owner who can configure various properties of the vault, even if there are already deposits.
Some of the important aspects that an owner can change for a vault include:
  • the whole methodology to price options
  • all oracles that are enabled on this vault
  • the vault fee which is a percentage of each option contract sent to the owner from the purchaser, the recipient of this fee
  • whether unwhitelisted users can supply collateral
  • whether unwhitelisted users can purchase options & who is in these whitelists
  • what the maximum amount of collateral is
  • whether option purchasing is enabled (read-only flag.)
Especially and most importantly are the enabled oracles and the vault fee calculator configurations as either of these can allow for options to be sold with an expected loss, which could lead to the full drainage of the vault.

Immutability

Vault settings are mutable by default allowing vault owners to configure settings as required. These settings also can be made immutable, blocking any further changes being made.

Risks

Suppliers should carefully remember that supplying to an option vault incurs real risks. Up to the complete balance of the vault can be lost by unprofitable option underwriting and a badly configured fee calculator would significantly increase the likelihood of this.
We strongly recommend that anyone who plans to supply larger sums of money to a vault carefully vet the vault configuration:
  • Can any variables like the fee calculator still be changed? If so, is the owner reputable?
  • Is the configured fee calculator written reasonably as to always price options with a reasonably high intrinsic and extrinsic price?
  • Are the oracles used by the vault reputable and can the fee calculator be manipulated in any way by providing the wrong oracle to a put or a call?
Optix is an open platform and not every vault will therefore be equally secure. The security of a vault fully and utterly depends on its configuration and how it is operated.
It is expected that badly configured or operated vaults will not be profitable and might lose their assets completely.