We are excited to announce that Auctus ($AUC) is the first on-chain options protocol to improve capital efficiency of on-chain options pools by integrating with Aave’s USDC lending markets.
Option markets, whether decentralized or centralized, live and die by liquidity. The winner takes all when it comes to options as experienced with Deribit in comparison to CME and LedgerX.
On-chain we see no clear winner yet. While Hegic is sitting in the lead, even Hegic saw its ETH options pool dwindle from a peak of 68k ETH down to just 19k ETH.
For on-chain options to succeed, options liquidity providers/market makers need to be able to do their job both profitably AND with a competitive risk-reward profile compared to other returns available in DeFi.
While inflationary token models may ease the pain for the short term, options pools must be self-sustaining by design if they want to eat the TradFi options market, which stands at a staggering Quadrillion USD market size.
There are a few ways to make option pools more efficient.
What’s one of the key differentiators between Deribit and LedgerX? One is marginable and one is fully collateralized. While the latter may be comforting, it’s the former that dominates in volume due to near-perfect spreads.
In order to make pools more capital efficient, options pools need to be marginable. This however is not possible without significant risk on L1. We’re exploring options (no pun intended) to bring marginable options to L2.
2. Interest bearing collateral
Writing fully collateralized options leads to a lot of capital being locked up, sitting around doing nothing. In order to make writing options more competitive than lending markets, we’ve decided to combine the two. Instead of lending out USDC on Aave, you can now write put options on ETH and wBTC earning premium for the option AND the interest you generate on Aave.
Capital efficiency sits at the heart of DeFi. While traditional brokerages and banks would capitalize on your asset as part of their balance sheet, on-chain options now allow you to capitalize on your asset while they are locked up as collateral.
The Aave integration is live as of today on Auctus’ put options pools, available here:
The race for #1 in the on-chain options space has all but just begun. Whoever can create a profitable experience for liquidity providers will win in the end. In the end aggregators are likely to pull the best pricing and liquidity from multiple option protocols. Whoever can provide the most efficient pool design will enable both better pricing and liquidity for end users, which will in turn will make it the number one volume recipient from aggregators.
Auctus will continue to innovate how options pools are approached on the mission to become the #1 options protocol.