On-Chain Options: Dopex

Today, crypto options make up a small percentage of total trading volume and open interest as perpetual futures and spot are by far the dominant instruments. However, we believe that over the coming years crypto options will gain market share as the industry continues to mature.

Smart contract based options volumes are negligible at present but should not be ignored. Given the opacity of the largest crypto options exchange, Deribit, options trading is in a prime position for non-custodial on-chain adoption as the technologies and user experiences enhance; particularly thanks to the lack of trust in centralized exchanges caused by FTX and Celsius. We echo this same sentiment across the entire DeFi sector with a particular focal point of on-chain derivatives.

Models for facilitating the exchange of on-chain options include RFQ auctions (traditional options vaults), CLOBs (Aevo), and AMMs like the model Dopex deploys. Dopex is a decentralized options vault protocol built on Arbitrum and has multiple products, not dissimilar to Ribbon Finance. Most notably, the protocol sells options based on an algorithmic pricing model as opposed to Ribbon’s RFQ auctions. Choosing to build on Arbitrum could be an optimal choice given the lower gas fees accompanied by its growing community, ecosystem, and general hype as the most dominant Ethereum L2 ahead of its inevitable token airdrop. The dApp is founded by anons TzTok-Chad witherblock, and has a vibrant, astute, and passionate community.

SSOVs

Dopex deploys single staking options vaults (SSOVs) that function just like other options vaults (Ribbon, Thetanuts, Friktion, etc). Anyone can deposit certain assets as collateral for the protocol to programmatically sell covered calls or cash secured puts against. Vault depositors are the options writers (sellers). Supported assets include ETH, BTC, DPX, GMX, CRV, and GOHM. All cash secured put SSOVs use 2CRV as collateral, an LP token representative of shares in Curve’s USDC/USDT pool, which receives a supplemental ~1% APY from Curve trading fees and CRV emissions.