Dopex: Decentralized Options

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What is Dopex?

Dopex is a decentralized options protocol which aims to maximize liquidity, minimize losses for option writers and maximize gains for option buyers - all in a passive manner for liquidity contributing participants.

Options are essentially contracts that allow its holder to buy (Call) or sell (Put) the underlying asset at a certain price (strike price) to the person that sold the options within a specific amount (expiry) of time. Options are tricky and efficient options that benefit the purchasers and writers alike are even trickier. Dopex is a Decentralized OPtions EXchange platform that aims to solve the nuances and intricacies that come with option writing and purchasing by offering:

  • Fair option pricing

  • Maximum liquidity

  • Capital efficiency for writers

  • Cheaper options for purchasers

  • Incentives for all protocol participants

  • Rebates for option writers in case of losses via rDPX

  • Minimal fees and maximum speed via L2

Overview

In traditional finance and existing Centralized Finance (CeFi) option providers such as Deribit, users have to decide strike prices and option expiries they would like to sell while constantly scanning order books for demand on the buy-side. This can be a tedious and slow process manually and needs constant monitoring — with parameter updates in case it is being done in an automated manner.

Dopex uses Single Staking Option Vaults (SSOVs) to allow anyone to earn a yield passively. This is done by selling options to purchasers with minimal interaction with the protocol. Pool participants can simply deposit base (BTC, ETH etc) or quote (stable coins) assets to a pool. These would then be utilized as liquidity for users looking to purchase call and put options. At the end of every epoch pool participants would be able to collect their share of pool holdings. These include premiums paid for all options relative to the size of the pool as well as additional rewards at the initial stages as an incentive for providing liquidity.

Option purchasers will be presented with call and put options. The strike price for the options will range from -X% of the current Asset price to +X% with constant increments. Eg: If the user wants to buy Bitcoin options and the current price of BTC is 60000$ with 500$ increments and a 10% range. The user will be able to buy options where the strike price ranges from 54k to 66k with 500 dollar increments. These values may differ for each option pool and can be changed via governance votes. Dopex also uses its own innovative and state-of-the-art option pricing model that replicates volatility smiles — which ensures fair and optimized option prices across all strike prices and expiries which in turn benefit both option sellers and buyers. Dopex offers European options and settlement is done physically

What makes Dopex dope?
  • Single Staking Option Vaults (SSOVs)
    SSOVs allow users to lock up tokens for a specified period of time and earn yield on their staked assets. Users will be able to deposit assets into a contract which then sells your deposits as call options to buyers at fixed strikes that they select for end-of-month expiries.

  • Interest rate option vaults (IROs)
    A thriving and liquid IRO (interest rate option) market that allows market participants to purchase/write options for Curve gauge reward APYs. It is the missing piece of the puzzle in the Curve wars, allowing users to speculate/hedge/frontrun curve gauge APYs.

  • Atlantic options - coming soon
    A unique approach to handling option collateral which are otherwise idle and use a "just in time" approach to make these assets productive for use-cases within defi allowing for some pretty cool applications such as: liquidation-free leveraged positions, liquidation-free leveraged bonding, nested put options, stablecoin insurance etc.

  • Option pools - coming soon
    Through the use of option pools, Dopex maximizes liquidity and shares the risk of option writing between all liquidity providers, while not having to deal with any of the complexities that come with option writing manually.

  • Option pricing model
    Dopex uses the Black-Scholes equation to determine option prices. However, unlike other protocols, Dopex ensures that options for all strikes are priced correctly. This is possible through Dopex delegates — who are representatives with staked DPX that are elected to regularly quote multipliers that affect option prices to replicate real supply and demand as well as fair pricing. This provides fair option prices to both buyers and sellers. Initially, Dopex delegates are 5 of the largest derivative trading firms in the crypto space.

  • Rebates for option writers in case of losses via rDPX
    In case an option pool incurs a net loss during an epoch. The Dopex protocols’ rebate token, rDPX, is issued. Rebates are calculated based on the percentage loss incurred by option writers in USD. And a percentage of rDPX relative to the losses incurred is minted and distributed to option pool participants. This ensures superior returns in comparison to writing naked options.

  • Minimal fees and maximum speed via L2
    Dopex is on Arbitrum, which is extremely fast and transactions are relatively far cheaper than interacting with mainnet. 

Official links