Sirwin
Sirwin

Polynomial Protocol Earn Vaults – A Quick Guide

By paragism | paragism | 6 Nov 2022


Options are popular financial derivatives that give buyers the right, but not the obligation, to buy or sell an underlying asset at an agreed-upon price and date. Generally in TradFi, accredited investors have access to Options and retail investors remain excluded. Traders use these instruments to speculate on investments or hedge against risk. In crypto, many centralized exchanges are offering Options trading for quite a few years with decent accessibility for everyone but post-emergence of DeFi, various on-chain Options protocols came up with unmatched crypto-native benefits. These DeFi Options are accessible to retail investors easily but really complicated instruments and are mostly suitable for sophisticated traders. Polynomial Protocol is a new project that is trying to address this issue. The DeFi Options Vault (DOV) of Polynomial aka ‘Polynomial Earn’ optimises yield by selling options directly to an AMM. The project started in HackMoney 2021 by ETHGlobal with the objective to automate financial derivative strategies to create products that deliver passive yield on various crypto assets. Polynomial also received an allocation from the $OP governance fund and it is dedicated to the ecosystem adoption of low-cost and lightning-fast Ethereum L2 blockchain Optimism.

 

How does it work?

Polynomial is built on top of Synthetix and Lyra and it runs on Optimism. The project has a Call selling and Put sell strategy on the platform. The options are sold weekly basis and the vault generates a return on the deposits. Regular compounding is very important in such a strategy, so the vault keeps on reinvesting the yield for the goal maximisation of the strategy.  The platform supports multiple chains. You can deposit assets from Ethereum mainnet, Arbitrum, Polygon or Optimism. The vaults are synthetic assets developed by Synthetics. If you are using Optimism, you can swap into synthetic assets to deposit into the Earn Vaults using the ‘Swap’ feature of the protocol or you can use an AMM DEX like Uniswap to swap and then deposit. If you are using Ethereum mainnet, Arbitrum or Polygon, the deposited asset is converted automatically to the asset used in the vault and deposited into the vault. In this case, the protocol uses Hop or Optimism bridge to bring the asset to Optimism using Socket and the conversion takes place through Curve. The vaults have a 10% performance fee as of now and there is a withdrawal fee applicable (only if the vaults have an active position).

 

The present vault strategies

Call Selling – Ethereum: This is a weekly automated Call selling strategy. It earns yield by running an automated sETH-collateralized ETH Call selling strategy. To maximize yield, the vault reinvests the yield gained back into the strategy. You can request a withdrawal at any time. There will be a minimum withdrawal time (6-24 hrs) to process the withdrawal. The vault will charge a 1% withdrawal fee for closing the position if the vault has an active position. If you like to stack more ETH regardless of the value, it will suit you.

Put Selling – USD: This is a weekly automated Put selling strategy. It earns yield by running an automated sUSD-collateralized ETH Put selling strategy. To maximize yield, the vault reinvests the yield gained back into the strategy. You can request a withdrawal at any time.There will be a minimum withdrawal time (6-24 hrs) to process the withdrawal. The vault will charge a 1% withdrawal fee for closing the position if the vault has an active position. If you are moderately bullish about ETH, it works for you. The strategy is not ideal for an extremely bearish market.

Call Selling – USD: This is a weekly automated Call selling strategy. It earns yield by running an automated sUSD-collateralized ETH Call selling strategy. To maximize yield, the vault reinvests the yield gained back into the strategy. You can request a withdrawal at any time. There will be a minimum withdrawal time (6-24 hrs) to process the withdrawal. The vault will charge a 1% withdrawal fee for closing the position if the vault has an active position. If you are looking for pure profit and want to do away with the volatility of ETH, it will suit you.

Gamma - USD: This is an experimental automated strategy that uses the underlying asset’s short-term volatility for the profiteering objective. It uses an on-chain delta-neutral strategy combining options and futures. To maximize yield, the vault reinvests the yield gained back into the strategy. You can request a withdrawal at any time. There will be a minimum withdrawal time (6-24 hrs) to process the withdrawal. The vault will charge a 1% withdrawal fee for closing the position if the vault has an active position. The strategy works well if the market is aggressively bullish or bearish. Presently, the vault is paused.

Using vault

You need to select a vault as per your chosen strategy. Suppose, you want to invest in Put Selling – USD vault. These are the steps to invest:

  • Go to Polynomial Protocol DAPP. Connect your Metamask or any other Web3 wallet.

 

  • Select any chain out of Ethereum mainnet, Optimism, Arbitrum One or Polygon. It is preferred to connect to Optimism due to the chain’s low cost and fast transactions.

 

  • You can deposit USDC from any mentioned chain but as the platform runs on Optimism and the vault internally bridges and swaps it to sUSD.  On Optimism chain - USDC, ETH and sUSD deposits are supported. You can use the swap feature of the platform also to convert any other asset to sUSD and then deposit.

 

  • The deposit transaction on Optimism happens quickly but it may take 4-6 hrs for the vault position to be active as the deposits are processed in the queue.

 

  •  After some time, you can see your deposited position. You can monitor the status of your investment in the portfolio section.

Polynomial is a novel protocol on Optimism. It does not rely upon any centralized market maker. The existing vaults are performing well and giving 15-35% yields. The team is working hard to add many more vaults down the line for catering to different kinds of investors. The smart contract vaults are obviously exposed to some code-related risks but these have been audited by Peckshield. Polynomial is already a go-to destination on Optimism for DeFi traders and they are flocking to use the structured vaults. At the time of writing, USD 1,013,523 are locked in all vaults. The project also has the plan to launch an Options aggregation service in near future. Keep a close watch on Polynomial! The next generation DeFi Derivatives Powerhouse is in making!

Follow Polynomial Finance on Twitter to get regular updates and join their vibrant Discord. Also, check this Polynomial Optimism Quest on Galxe where you can earn an NFT. 


Note: The article was first published here.

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paragism
paragism

Cypherpunk. Writing content which I love. Creeping on the blockchain. Twitter - @paragism_


paragism
paragism

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