Registration open for Alpha Testing.
Register Now!
.png)
Optio is setting the standard for options trading within the crypto industry, enabling novice and experienced traders alike to effectively make profitable trades, and hedge risk against volatile market movements and events. Developed by DeFi natives, NUTS Finance, in collaboration with derivatives and options experts from CQG and developed upon StarkNet with support from Starkware - Optio makes no compromises, whether it be in experience, technical capabilities and functionality.
We seek to provide a robust, trustless and self-custodial marketplace, and also to solve many of the problems (and inferior product design) within the DeFi derivatives and options space that stem from insufficient liquidity such as:
Our Value Proposition:
The Current Options Trading Landscape
Decentralized finance has grown exponentially over the past 2 years with new and upcoming applications pushing the limits when it comes to technical complexity, but also replicating traditional finance instruments within the crypto space. While category winners have indeed been established in certain domains, such as decentralized exchanges, or lending and borrowing protocols - the crypto options vertical is in a nascent stage with a proven use case, but lacking the appropriate applications to scale.
Crypto option platforms can be separated into 2 specific categories - centralized and decentralized, with the underlying model of trade execution determining what sort of product offering is available.
Centralized Crypto Options:
The most prominent example of a centralized crypto options trading product, would be Deribit which averages around $1.3B in daily trading volume and operates an orderbook model. However there are various other centralized platforms that are also offering crypto options solutions such as CME, LedgerX and OKX which use the same trade execution model.
While these platforms have a low barrier to entry and are fairly simple to use, there are a number of drawbacks that prevent them from becoming category leaders within the space and include the following:
Decentralized Crypto Options:
Unlike it’s centralized counterpart, DeFi has far more applications with traction, with a 3 specific product designs (with unique trade execution models) , all with their own specific advantages and shortcomings:
Model 1: Decentralized Option Vaults (DOVs)
DOVs and other structured products simply don't work for multiple reasons, but first and foremost, there is a significant imbalance between option buyers and sellers, with the latter having a focus on “DeFi Degens” and similar users. While great for short-term TVL and activity, this focus doesn’t result in a sustainable and growing long-term community as when a price swing inevitably occurs, retail loses collateral/money and leave.
This is especially the case as it prevents long term engagement due to the fact that sellers are unable to hedge their LP positions in any meaningful way, whereas those on the buy side can easily hedge via centralized exchanges.
Furthermore, there is a very limited variety of markets, simply due to the increased amount of management required by the teams behind these products for these individual products i.e. Fixed Weekly Vaults, but no Daily or Monthly expirations. Combined with the fact that the strike prices cannot be selected, this model works great for contract buyers, but takes away some fundamental freedom from contract sellers which negates much of the advantages of options trading.
Model 2: Automated Market Makers (AMMs)
The AMM model, while great for DEX’s, is unfortunately far too simplified for complex options pricing, and is fundamentally not able to react quickly enough to volatility which can cause large price gaps and slippage (which also prevents pricing contracts in volatility). In traditional finance, options consist of several variables and utilize complex mathematical formulas such as the 7 variables that go into the Black-Scholes pricing model.
Model 3: Orderbook
While more preferable than the other 2 trade execution models, there are some issues related to adequate liquidity. For example, it’s exceptionally difficult to bootstrap a standard off-chain orderbook (simply because it must interact with on-chain events in realtime), and if opting for an on-chain orderbook, it becomes even more of a challenge due to the technical dependencies. Moreover, there is a heavy reliance on Market Makers to provide liquidity on a consistent basis which is especially hard to incentivize.
Some protocols approach this issue by heavily limiting the number of support markets to concentrate liquidity between those limited assets, or in the case of options, limited expirations (such as only weekly expirations as mentioned before) - which of course reduces the utility of the application as a whole.
What makes Optio different?
It’s clear that the resounding issue when it comes to crypto options platforms is that they’re first and foremost focused on retail users, with institutions (which serve as the backbone of options as they’re necessary to buy contracts) as an afterthought, or not a focus at all.
This is a debilitating mistake and hence why we’ve prioritized building Optio to be “institutional-grade” from the ground up, with many of the features and offerings that enterprise solutions within TradFi offer as standard.
The obvious retort to this is “why haven’t existing protocols decided to opt for this approach?” and the answer is simply - a lack of relevant experience. Enterprise-level solutions are a completely different game to DeFi which is typically very easy for newbies to dabble in, with a very low barrier to entry. On the other hand, developing a network of market makers and a variety of brokers, exchanges, dealers to facilitate Optio has necessitated an extended period of time within the finance industry, which is just not accessible by young teams.
While a lot of the secret sauce is derived from our deeply experienced team that has spent decades within TradFi and the relationships that accompany this, much of Optio’s potential is derived from our best-in-class product and feature offering, such as the following:
Volatility Based Matching Engine:
In order for liquidity to be sustained, orders must “hang” and live for an extended period of time and the simplest way this is achieved in TradFi option markets is pricing contracts in volatility, which moves far more slowly than price. This also allows market makers to quote more efficiently and far more accurately, which in turn increases liquidity as there is a greater “variety” of contracts and more granularity.
Despite being so fundamental to traditional option trading platforms, not a single crypto protocol has integrated this methodology which goes back to the idea that institutional parties have become an afterthought within DeFi despite being so necessary to a streamlined experience.
Another feature that is often necessary for market makers, is the concept of innately and automatically hedging their trades without being exposed to slippage as with a traditional order.
This is important because a market maker that has bought option contracts from retail users, they do not necessarily immediately sell it on the open market, and instead wait for another entity (whether institutional or individual) to offer a decent price. The amount of time it takes for this to occur can vary greatly and hence they must hedge the risk of holding these options in the meantime - which can involve initiating trades that are inverse of their risk position.
For example, for bullish positions (or positive delta), directional exposure can be reduced by adding negative delate strategies to the position - Optio will allow and provide this functionality natively, meaning market makers do not have to look to other platforms to achieve this, not to mention able to to automate this, decreasing overhead.
Risk Based Margining/Universal Liquidity Pool:
This concept very simply, allows for market makers to have the ability to be exposed to working orders which are in excess of posted collateral (which is of course risk managed as is achieved within TradFi). When an order is filled, Optio automatically adjusts open orders to reflect new excess equity, and gives enterprises a great deal of flexibility in regards to how they manage their positions - something which hasn’t been catered to due to the rigid nature of many decentralized platforms.
In addition, Optio will also offer leverage on open orders, contingent on participants possessing enough collateral to satisfy risk requirements, because we understand treating open orders identically to filled positions further debilitates the shared liquidity across the application.
While we are focusing on building a consortium of market makers to serve as the fundamental layer of Optio, we also want to ensure we foster competition and our approach consists of a “Fair Allocation Model”. Very simply, this seeks to prevent exceptionally large and deep-pocketed institutions from locking out smaller parties by overwhelming them with volume.
It does this by ensuring that parties at the same price level are incentivised to participate equally in volume, relative to their size within the Optio platform, preventing one institution from simply taking up the entire orderbook. The large players are still incentivised however with the top order (in terms of price and time) receiving slight preferential treatment of about 30% in order to foster competition.
Why StarkNet?
The challenges we’re seeking to resolve and functionality we’re going to offer users, both institutional and individual, while excellent, do bring with them a multitude of technical obstacles that need to be addressed in a way that’s not only reliable, but also provides the infrastructure to expand the product offering and also enable developers to build on top of Optio.
As such, there are indeed a number of blockchain architectures we could’ve adopted to serve as the fundamental groundwork, but as we found, only one stood head and shoulders above the rest - that being StarkNet.
When choosing a technological platform to build on, we considered multiple factors such as ecosystem maturity, execution environment, interoperability, liquidity, composability, rate of adoption, funding, as well as job opportunities for new aspiring and/or switching Solidity developers.
The most popular execution environment in the blockchain industry right now is the Ethereum Virtual Machine (EVM), but there are other options available such as CosmWasm (Cosmos/Tendermint), zkVM (LLVM — zkSync), Substrate (Polkadot), etc. In contrast, the StarkNet's execution environment is called Cairo, which was built by StarkWare in an effort to shy away from EVM, even though it is an L2 solution.
It is actually quite a bold move, since other major competitors like Polygon, Scroll, Aztec and zkSync, are busy developing zkEVM, which mimics the EVM environment, to attract the already well-established Ethereum ecosystem. It is because StarkWare believes that:
As a validity rollup, StarkNet operates on a separate ledger with its own execution environment and uses zero-knowledge proofs to demonstrate the validity of transactions. These proofs of state transitions on Starknet get batched and submitted to Ethereum mainnet where they get verified and committed to Ethereum state (currently stored as calldata, in the future stored in blob storage - see EIP4844) where they achieve finality.
The ZK proofs are based on STARK, a very potential technology which doesn’t require a trusted setup, offers better scalability, more robust quantum-resistant security, and can be verified very quickly. By being a rollup Starknet only needs to have at least one honest sequencer and prover for the state to advance. This means that it can inherit Ethereum’s security guarantees while being orders of magnitude more scalable.
When we seek to explore the reason why StarkWare is on the top of so many people's expectations to dominate the L2 ecosystem, we often conclude that StarkWare has the sufficient technological prowess to meet these expectations.
One recent confirmation of this is the introduction of a recursive proving and fractal layering structure by StarkWare, which has demonstrated its potential as a leader in zero-knowledge proofs as it prepares to launch operator and validator software for network decentralization.
What’s next for Optio?
We’re still hard at work, developing our protocol, both for retail and institutional users and are expecting a launch sometime during 2023. Being such a technical challenge, it’s quite difficult to project an accurate roadmap, but as progress continues, we’ll be constantly updating, growing and nurturing our community.
To get involved, signup for our newsletter at our website, follow us on Twitter for our latest updates and join the Discord and interact with like-minded individuals who are the ground floor of the next juggernaut within the crypto space.
