New tokenized Dai options look to mitigate risk

A new DeFi product, ohmydai, allows users to create put options on DAI, where one party locks up USDC in order to mint ohtokens which then trade on Uniswap. The ohtoken represents the right to sell 1 Dai for 1 USDC. Purchasers of the ohtoken are betting against the price of Dai because if it drops they can exchange it at any time (also known as an American option) with the corresponding amount of Dai for USDC. Those who create the put option are betting the price won’t drop substantially and are paid a premium for taking on this risk.

Why it matters:

• As we highlighted in our recent Messari Pro report, the growth of Dai has the potential to represent an existential threat to Open Finance. For those with Dai exposure, financial instruments such as ohmydai allow them to hedge against this type of risk.
• There is also a downside to options like this as it can create perverse incentives. By creating large profit potential if Dai drops, an actor could buy a large sum of ohtokens and then manipulate the underlying collateral or spot Dai markets to crash the price.