Let’s talk about options trading. Now before you close this page and pretend you never opened it, I promise this won’t be a snoozefest. If I can get through this, so can you. Just kidding. Options trading is an interesting topic to talk about if you really think about it. Seeing how people multiply their gains by folds, degens turning thousands into millions. Obviously, there’s immense potential of using options in crypto, but of course, if used responsibly. For the purpose of keeping it light and not putting you all to sleep, I wanna focus more on the potential of derivative protocols on Solana, and less on the technicalities of these derivatives.
To my crypto peeps, I’m sure you’ve heard of PsyOptions now. It just recently announced its IEO listing on FTX. In case you‘ve been in a coma or just don’t read any news at all, let me recap. PsyOptions is a decentralized options trading platform that runs on Solana, with a “centralized exchange” user interface. It will be listing its native token PSY on FTX exchange on Jan 18th. As usual, this is not financial advice but only educational content. Please don’t be dumb and always DYOR on any crypto projects.
Table of Contents
1. Summary
2. Overview of PsyOptions
3. Key Features
4. Comparison
5. Tokenomics
6. Concluding Thoughts
Part 1. Summary
The TL;DR for those of you who can’t read for more than 3 minutes. Try Adderall, maybe?
•PsyOptions is an American style options protocol on Solana.
•It won the Solana X Serum DeFi hackathon in Feburary 2021.
•PsyOptions V1 is the clearing and settlement layer for options on Solana. Anyone can create options for and SPL tokens without external dependencies like oracles. These SPL tokens can be crypto, NFTs, tokenized stocks, etc.
•PsyOptions currently sits at #3 in terms of total TVL within Options protocols on Solana.
•$PSY is a governance token that manages the smart contracts, and treasury of tokens through on-chain voting.
•$PSY IEO is set to happen on FTX and Gate on Jan.18th.
•PsyOptions will offer European style options, future, and a dashboard in 2022.
•PsyOptions is no doubt a major contender within the sector, with hopes that it will help expand Solana’s ecosystem further.
Part 2. Overview
PsyOptions is an American style options protocol. What this means is that users are able to close options even before options expire, unlike European style when users can only close it at the expiration date. PsyOptions can handle any and all SPL tokens, the token standard for the Solana blockchain.
The founding team has been focusing on the ecological construction of Solana, and has participated in Solana and Serum’s DeFi hackathon twice. Their first participation, the team created an oracle project inspired by Chainlink, which unfortunately did not receive any ranking or recognition. In February 2021, the team participated once again, with its Solana native DeFi options protocol, and winning the competition. Thus, PsyOptions was born.
After half a year of preparation (technical development, legal compliance, etc.), PsyOptions officially launched on Solana’s mainnet in August 2021 with its v1 version. PsyOptions V1 is the clearing and settlement layer for options on Solana. Anyone can create options for and SPL tokens without external dependencies like oracles. These SPL tokens can be crypto, NFTs, tokenized stocks, etc.
In terms of financing, in October last year, PsyOptions announced the completion of a $3.5M first round of financing, led by Alameda Research, with participation from CMS Holdings, Ledger Prime, MGNR, Wintermute and Airspeed18.
Part 3. Key Features
PsyOptions uses SPL tokens to represent options, which means that they can be traded on any DEXs that support SPL tokens. The protocol is open and has no preset position on the assets, pricing, and transaction methods of options. This grants users more flexibility to create different strategies for each asset.
Anyone can create options for any SPL token using the V1 program. Yes you read that right, anyone can create any option for any SPL token. The end user can set the strike price, the amount of the asset (typically 100 in TradFi), the expiration, and even what asset they would like to denote the option in. Want to write an option for an NFT? You can do that, as long as it’s represented as an SPL. Want to receive ETH instead of a stablecoin when your options get exercised? It will handle that.
Writing an option
To write an option, users have to first lock the underlying asset in the amount specified by the option market. For a SOL/USDC option with underlying asset size of 100, 100 SOL would be locked in order to mint the option token. The option writer will receive two SPL Tokens. One represents the option, which the user may sell to generate yield. The other represents the written contract (the claim on the underlying asset) and can be exchanged for the underlying asset post expiration.
Exercising an option
Holding an option token pre expiration gives the user the ability to exercise by swapping the quote asset for the underlying asset. Whether the option is in the money or out of the money, it’s completely up to the token holder whether or not to exercise.
Part 4. Comparison
When comparing with options protocols across all chains, PsyOptions sits at 7th place with $40.9M TVL. The top two, Ribbon Finance and Opyn, are both protocols on Ethereum. It’s worth noting that within the first 7 protocols, three of them are protocols that are native on the Solana chain.
PsyOptions currently sits at #3 in terms of total TVL within Options protocols on Solana. First and second place are Friktion and Katana respectively, and Chest Finance sits at fourth place with $9.1M TVL. Interestingly, Friktion, Katana, and Chest Finance are all DApps built on top of PsyOptions.
Part 5. Tokenomics
$PSY is a governance token that manages the smart contracts, and treasury of tokens through on-chain voting. Proposals will be made on-chain, and voted on with the $PSY token.
The PSY Token breakdown is as follows:
DAO Treasury 60%
The token allocation for the PsyDAO. These tokens can be unlocked through future governance proposals to further grow the Psy Ecosystem.
Team & Advisors 15%
For building PsyOptions from the ground up.
Contributor Fund 8%
These tokens will be used to fund, and incentivize contributors that help grow the Psy Ecosystem. At this time they have yet to be allocated, and are not a part of the circulating supply.
Private Round (2) 7%
The second funding round with an emphasis on investors who can help PsyOptions grow. Participants of this round got in at the same price as IEO participants.
Private Round (1) 5%
The initial funding round with an emphasis on Market Makers who can provide liquidity for PsyOptions.
IEO 3%
1% FTX, 1% Gate, 1% initial liquidity and rewards initiatives.
Liquidity Provisions 2%
Reserves for market makers on exchanges.
$PSY will only be available through FTX and Gate initially, there will be no staking mechanism in place. Token holders will not receive protocol revenue, the revenue will be deposited into an address that is controlled by governance.
FTX IEO projects have generally had relatively high returns in the past two years, ranking second in the highest return in history, and third in current returns, as shown below:
Part 6. Concluding Thoughts
PsyOptions has been gaining a lot of traction lately mainly due to its upcoming IEO on FTX. The main aspect that sets it apart from other options protocol is that it is an “options factory” and settlement layer. The protocol makes no assumptions on price, allowing users to price how they want. The protocol also makes no assumptions on the size of option contracts. This makes PsyOptions flexible, composable, and allows others to build on top of it.
Being built on Solana, PsyOptions leverages the fast block times to reduce time until settlement and allows traders to have orders placed, filled, or killed in a speed closest to that of a traditional exchange.
Options are represented as SPL tokens, which means that they can be traded on any DEXs that support SPL tokens. Anyone can create new markets on PsyOptions. These combined factors significantly lowers the barrier of entry for options protocol and opens up the doors to the derivatives market.
Looking at its roadmap, PsyOptions has quite a few planned out ahead of its IEO. Currently, it only offers American style options, however the team is working on offering European style options in early 2022. PsyOptions also has plans to venture into futures in Q3 of 2022, which could put it directly in competition with Zeta Markets, an options & futures protocol on Solana. The team is also working on developing a dashboard that will include statistics such as total users, 24h trading volume and other metrics that will help identify PsyOptions’ growth.
Initially, I wanted to do a comparison table of PsyOptions and other options protocol like Zeta, Friktion, etc. (at the request of one very stubborn reader) but had to give up because there just isn’t any information out there for me to compare at all. Although there are very few info on PsyOptions (like, to the point where I got so frustrated bc I couldn’t find any credible sources of info), the project itself seems to be on track in terms of development and growth. The responsiveness of mods in their Discord is definitely reassuring.
PsyOptions is no doubt a major contender within the sector. I’m excited to see what the team will continue to deliver and hopefully it will be a project that will help expand Solana’s ecosystem even more. That’s it for this week’s content, this was a short one given the availability of data. Once again, this is not financial advice but only educational content. Please don’t be dumb and always DYOR on any crypto projects.
Signing off now. XOXO
-SixOhFour
Sources:
https://docs.psyoptions.io/
https://github.com/mithraiclabs/psyoptions/blob/master/README.md
https://medium.com/psyoptions
