'DeFi Option Vaults: Options Democratized' futureoffinance defi
for all users to analyze the performance of each vault and their respective strategies.
Recently, Katana announced a $5M seed round led by Framework. The raise will go towards helping the protocol scale up to become the de facto yield generation layer in DeFi.Squeeth is a new financial derivative developed by the Research Team at Opyn. Squeeth is the first power perpetual that provides traders with perpetual access to ETH2. Squeeth functions similarly to a perpetual swap but with the embedded convexity and Gamma that an option has.
Compared to selling options directly, DOVs do not allow holders to unwind their position before expiry. This means that the investor must put on an offsetting trade if he wishes to take profit before expiry. For the retail investor who does not mind the delta exposure, the locked ETH is an opportunity cost as it could be generating yields elsewhere to stack returns.
Currently, most DOVs auctions are held on Fridays as market makers can offload risk going into the weekend. Given that weekly options managed by Deribit expire on Friday as well, market makers can easily deal with the DOV flows. However, this makes it predictable for savvy volatility traders to front-run ahead of the DOVs auctions.
Furthermore, although weekends used to see more violent spot price moves, i.e., higher realized volatility, these kinks have been flattening out lately. Recent 1-year data shows that weekends exhibit lower realized volatility which translates to higher Theta risk for weekends . According to This is no exception for the DOV space as well. To begin, most DOVs participants are non-sophisticated retail who are price-insensitive and primarily seeking yield. Second, protocol designers are trying to design a “set-and-forget” approach to DOVs where vault holders can enjoy a hands-free approach to option selling.
Volatility selling can also have second-order effects on the spot market as a whole. The crypto options market currently accounts for less than 1% of the total crypto market. If this proportion increases, the market structure may change, giving the options market more influence. As options trading becomes more popular in crypto, dealers who make those markets will hedge more frequently as they take on more Gamma risk, long or short.
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