Pantera Partners: An Analysis of On-Chain Exotic Options Cega

Author: Paul Veradittakit, Partner at Pantera Capital

Original Title: 《Exotic Options》

Compiled by: Amber, ForesightNews

In traditional financial markets, the total value of financial derivatives has nearly reached 10 times the total global GDP, far exceeding the value scale of conventional financial markets. This indicates that the DeFi derivatives protocols (which have not yet distanced themselves from the spot market) clearly still have significant upward potential. In fact, the TVL of DeFi derivatives protocols has maintained a healthy growth trend, increasing from $25 billion to nearly $40 billion since the end of 2020. Representative protocols include dYdX, Ribbon, and Opyn, among others. Each protocol offers different derivative products, ranging from perpetual futures contracts to exotic derivatives and automated options trading strategies, most of which are inspired by mature derivative products in traditional financial markets.

Whether in traditional financial markets or in DeFi, the purpose of derivatives is to find the balance point that maximizes the risk/reward of existing assets. These assets can be stocks, bonds, other derivatives, or a basket of assets. Throughout the development of DeFi, many attempts and efforts have been made to reconstruct financial derivatives in a decentralized manner, such as achieving this through over-collateralization. However, Ribbon allows for non-fully collateralized behavior, which undoubtedly further opens up the imaginative space of the DeFi derivatives market. In addition, some protocols have introduced market maker roles to make the risk-reward ratio easier to control. The Cega protocol introduced in this article has launched fixed coupon notes with market makers as counterparties, providing a new DeFi investment option.

Cega: Fixed Coupon Notes

In traditional financial markets, fixed coupon notes (FCN) are structured notes linked to stocks that pay a fixed proportion of dividends at predetermined intervals, with the payment base depending on the price of the securities. Essentially, this is somewhat similar to bonds, as FCNs are interest-bearing debt obligations with a set maturity date. It is important to note that these products may not fully repay the principal at maturity. The final return depends on the difference between the closing price of the worst-performing asset in a basket of designated strike price assets and the strike price, plus all interest dividends during the holding period. Additionally, FCNs are designed with a "knock-out" mechanism; if the asset price of the underlying asset deviates significantly, the FCN will become void and be immediately redeemed, thereby enhancing the liquidity of investors' funds.

Cega's first product: FCN

Key elements of the fixed coupon notes provided by Cega include:

• 2-3 short positions in put options (i.e., selling put options), primarily aimed at earning base returns
• Knock-out barrier
• Knock-in barrier, providing protection against excessive asset price declines

Mainnet Launch

Cega has now launched on the Solana mainnet, accumulating $10 million in TVL as of the time of writing. Currently, Cega has launched three FCN vaults: Cruise Control, Genesis Basket, and Gotta Go Fast. Cruise Control tracks BTC and ETH, while the latter two track BTC, ETH, and SOL.

The difference between Genesis Basket and Gotta Go Fast lies in price decline protection, known as the Knock-In barrier. Genesis Basket offers 90% price decline protection, while Gotta Go Fast offers only 50% price decline protection, but the latter has a higher APY. Currently, the APY for Cruise Control and Genesis Basket is around 10%, while Gotta Go Fast's APY exceeds 200%.

Since the mainnet launch, the number of independent users of Cega has more than doubled in about a week.

Future Development Plans

Cega has launched Cega Super Sanics Utility NFTs, which provide NFT holders with benefits such as airdrop gains and participation in high APY pools. In addition, Cega will introduce more types of exotic options and structured products beyond FCNs in the future, offering users a more diversified investment choice.