Overview of Opyn v2 and announcing v2 Bug Bounty
Opyn v1 laid the foundation for DeFi options as the first live ERC20 options protocol. For the first time, anyone could create, buy, and sell options on any ERC20 token. Opyn v1 will remain live on the Ethereum network, providing a venue for American, physically settled options.
We’ve heard your feedback and been developing Opyn v2, which lays a foundation for a more capitally-efficient and highly liquid options protocol. Opyn v2 is currently undergoing audit. This post will provide a high level overview of v2:
- European, cash-settled options
- Margin improvements (spreads!)
- Auto-exercise for in the money options upon expiry
- Earn yield (& gov tokens) on collateral
- Call options without multipliers
- Operators to allow contracts to act on a user’s behalf
- Oracle used for option settlement price
- Flash mints
- Deterministic option contract addresses, names, symbols
- Anyone can create new options if the product has been whitelisted
European, cash-settled options
v2 moves to cash-settled, European options to enable margin improvements by allowing for safe constructions of spreads.
European options mean that option holders can exercise options only upon expiry. While this may seem restrictive (doesn’t allow for early exercise), given adequate liquidity, selling American options is almost always more profitable than exercising early, because with early exercise you forfeit your time value. For example, assuming 0% interest rates: Lets say you own a ETH $500 put option and ETH moves down to $400. In a liquid market, the minimum price of that ETH put is ~$100. Otherwise there is arbitrage. Lets say the ETH $500 put is trading for $80. You (or any market maker or arbitrageur) can buy 1 ETH for $400 and buy 1 put for $80. With an American option, the arbitrageur can immediately exercise and sell the ETH they bought for $500, collecting $20 profit in the process. With a European option, the arbitrageur has to hold their option to expiry, but have locked in a $20 profit.
Cash settlement means that option holders don’t have to provide the underlying asset in order to exercise. Rather, the options are settled in the collateral asset, and option holders receive the difference between the price of the underlying asset at expiry and the strike price from option sellers.
Margin Improvements
Opyn v2 lays the foundation for more capitally efficient options starting with spreads. Spreads enable long oTokens to collateralize short oTokens, enabling users to post the max loss of a structure as collateral.
Auto-exercise for in the money options upon expiry
The protocol now has auto-exercise for in the money options, so option holders don’t need to take action before or at expiration. Upon expiry, proceeds for long and short option holders are calculated and can be redeemed at any point after the proceeds have been finalized with a settlement price.
Earn yield (& gov tokens) on collateral
The protocol now allows for yielding assets (eg. cTokens, aTokens, yTokens) to be used as collateral for options, and allows for farmers to harvest earned and airdropped oTokens (eg. COMP with cToken collateral). The first options v2 launches with will be USDC collateralized, but shortly after the initial launch, we will release options with yielding collateral.
Call options without multipliers
Opyn v2 allows for call options without any multipliers so 1 call option oToken will correspond to 1 unit of the underlying asset (eg. 1 call oToken on 1 ETH will correspond to 1 call option on 1 ETH)
Operators to allow contracts to act on a user’s behalf
Operators are a smart contract feature that allow users to delegate control of their vaults to a third party smart contract. This could be a smart contract that rolls over their options for them, a fund manager to do trades for them, or a vast possibility of other interactions that developers can build on top of the protocol.
Oracle used for option settlement price
Cash settlement requires an oracle to determine the payout at expiry. The Opyn v2 architecture is generalizable to allow for different oracles for different assets. We we will initially be launching ETH-USDC options collateralized with USDC. These will use the Chainlink oracle to get the ETH price. There are no liquidations needed as max loss is posted as collateral.
Flash mints
Since vault collateralization is checked at the end of a transaction, you can mint options without collateral as long as they are burned before the end of the transaction.
Deterministic option contract addresses, names, symbols
v2 allows for specific oToken details to determine the address, name and symbols and each oToken. For example, the symbol for a 300 strike WETH put option expiring on December 25th, 2020 would have the following symbol: oWETHUSDC/USDC-25DEC20–300P
Anyone can create new options if the product has been whitelisted
A product is a combination of specifying the underlying asset, strike asset, and collateral asset for an option and whether its a call or a put. For any of these whitelisted products, anyone can create a new option, specifying the strike and expiry. Expiration times are currently fixed to 8AM UTC to prevent fragmentation of liquidity across a variety of expirations within the same day.
The Opyn v2 core smart contracts are completed, and are continuing to undergo audit from Open Zeppelin and Formal Verification from Certora.
Security is one of our highest priorities, so prior to launch we’re introducing the Opyn v2 Bug Bounty, with rewards up to $100k. We encourage and value the community’s input in helping us discover vulnerabilities and responsibly disclosing them.
- Prior to the deployment of Opyn V2 to the Ethereum mainnet, successful bug reporters will receive a 20% bonus on their bounty pay out. This is to help drive security efforts in the lead up to launch.
Depending the findings from security audits, formal verification, and bug bounties, we are targeting to launch by the end of 2020, however this is an optimistic target and not a formal release date.
Prior to launch you can already start learning about and developing on the Opyn v2 protocol!
We will continue sharing updates as we make progress. We appreciate your contributions and feedback! You can join the conversation here: Twitter | Discord | Medium | Email