Understand FTX's latest IEO project "PsyOptions" in one article

OdailyNews
2022-01-06 10:36:40
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PsyOptions is a decentralized options protocol built on the Solana blockchain, distinguished by its focus on physical delivery and American options.

Author: Qin Xiaofeng

On January 4, Beijing time, the cryptocurrency trading platform FTX announced that the latest IEO project is the DeFi options protocol PsyOptions (see the end of the article for specific rules).

PsyOptions** is a decentralized options protocol built on the Solana blockchain, distinguished by its focus on physical delivery and American options.** According to the official introduction, PsyOptions aims to "bring the feel of TradFi to DeFi" by building a decentralized, permissionless, community-owned financial services platform.

The founding team of PsyOptions has been focused on the construction of the Solana ecosystem and has participated twice in the DeFi "hackathon" events organized by Solana & Serum. In the first "hackathon," the team created an oracle project inspired by Chainlink but did not achieve a ranking; unfortunately, they fell short. In the "hackathon" event in February this year, the team targeted the DeFi derivatives track and created a DeFi options protocol for the Solana ecosystem, ultimately winning the championship, leading to the birth of PsyOptions.

After six months of preparation (technical development, legal compliance), PsyOptions officially launched on the Solana mainnet in August last year, releasing version 1. PsyOptions V1 serves as the clearing and settlement layer for options on Solana. Without external dependencies (i.e., oracles), anyone can create options for any SPL standard token in a completely trustless manner at any time, including tokens, NFTs, and tokenized stocks.

"The core protocol is completely trustless, making no assumptions about how options should be traded or priced, allowing users to price as they wish, and Serum's market makers will price the options as they see fit," PsyOptions stated.

Options are defined as giving the buyer the right, but not the obligation, to buy or sell the underlying asset at an agreed price and date. In PsyOptions options, five concepts are involved: underlying asset, quoted asset, contract size, strike price, and expiration date. Below, we specifically introduce the use cases of PsyOptions options.

Assuming the current price of SOL is 170 USDT, user Xiao Qin believes that the price of SOL will fall or remain stable in the future, while user Xiao Zhang believes that the price of SOL will soar. At this point, both can choose to trade options to hedge their risks. They agree that one month later, Xiao Zhang will buy 100 SOL from Xiao Qin at a price of 190 USDT. To ensure the contract is fulfilled on time, they generate a SOL/SUDT call option through the PsyOptions options protocol, with Xiao Zhang as the buyer of the call option and Xiao Qin as the seller. In the above case, the underlying asset is SOL, the quoted asset is USDT, the contract size is 100, the strike price is 190 USDT, and the expiration date is one month later.

In terms of specific operations, Xiao Qin needs to first pledge 100 SOL into the options protocol to ensure normal repayment later; after the pledge is completed, he will receive two tokens—an options token and an equity token, both of which are SPL token standards.

The "options token" can be sold to Xiao Zhang, with the specific price set by Xiao Qin, which can be sold at a premium; upon expiration, if the price of SOL rises to 170 USDT or above, Xiao Zhang can buy the agreed quantity of SOL at the strike price of 170 USDT using the options token; if SOL does not reach 170 USDT, Xiao Zhang can choose not to exercise the option and simply let it expire. In either case, the options token will be destroyed upon expiration.

The "equity token" represents a claim on the underlying asset, and after the option expires and the debt to the option buyer is repaid, the remaining underlying asset belongs to the equity token. For example, if upon expiration, Xiao Zhang takes 70 SOL, then Xiao Qin's "equity token" will only have 30 SOL left; if Xiao Zhang lets it expire, the equity token will still be 100 SOL.

From the above introduction, we find that PsyOptions options are represented as SPL tokens, which means they can be traded on any DEX that supports SPL tokens, becoming a foundational module that can be combined with other DeFi protocols. For example, options tokens and equity tokens can be used for collateralized lending before the expiration date, although their value may continuously decline as the expiration approaches. This design also reflects the flexibility and composability of the PsyOptions protocol.

Additionally, the final settlement of PsyOptions options is physical settlement, allowing users to obtain the underlying asset (i.e., SOL mentioned earlier, or other coin-based assets), while currently, the vast majority of options or futures adopt cash settlement (i.e., using stablecoins like USDT for settlement).

Both methods have their pros and cons. For loyal users of coin-based assets, they may prefer physical settlement; however, in some infrastructures where cross-chain tools are not well developed, such as the current situation where the number of BTC locked on the Solana blockchain is less than a few thousand, physical settlement may be limited, making cash settlement more advantageous. Furthermore, the PsyOptions protocol requires users to lock the underlying assets, resulting in the locked tokens being unavailable for governance or other yield-generating strategies.

In terms of financing, in October last year, PsyOptions announced the completion of a $3.5 million first round of financing, led by Alameda Research, with participation from CMS Holdings, Ledger Prime, MGNR, Wintermute, and Airspeed18.

Regarding tokens, the native token of the PsyOptions protocol is PSY, which is also the governance token of the project, allowing for voting management of the income generated by the protocol, with a staking mechanism to be launched in the future. According to official plans, 3% of the total PSY tokens will soon be available for IEO on FTX and Gate. Cryptorank data shows that the return rates of FTX IEO projects have generally been high over the past two years, with the highest historical return rate ranking second and the current return rate ranking third, as shown below:

Understand FTX's latest IEO project "PsyOptions" in one article FTX also announced today the specific rules for participating in the PsyOptions IEO. For details, please refer to the official announcement: https://help.ftx.com/hc/zh-cn/articles/4414515394836

  • Users must stake ≥150 FTT and pass KYC Level 2 certification before 13:00 (UTC) on January 17, 2022, to participate in this round of PsyOptions presale.

  • Due to a recent surge in identity verification applications, all users who submit identity verification applications after 13:00 (UTC) on January 11, 2022, cannot be guaranteed to participate in the presale event.

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