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@synthetix_io launched binary options on its platform.
Binary options are simple to understand - It is an investment that works like a prediction that can be either right or wrong, nothing in between. https://twitter.com/synthetix_io/status/1277920640025022469
Binary options are simple to understand - It is an investment that works like a prediction that can be either right or wrong, nothing in between. https://twitter.com/synthetix_io/status/1277920640025022469
SNX uses floating auctions to decide on the odds for the market for payout. (will explain it later in the thread)
There are four phases to the trading options.
0. Creation
1. Bidding
2. Trading
3. Maturity
There are four phases to the trading options.
0. Creation
1. Bidding
2. Trading
3. Maturity
Let's take an example market.
https://synthetix.exchange/#/options/0xb3e2163d22ba0a3d929382ef3a316050db56a36f
This market is about (if $snx will trade at >$2) on 2nd July 09:30 UTC time
https://synthetix.exchange/#/options/0xb3e2163d22ba0a3d929382ef3a316050db56a36f
This market is about (if $snx will trade at >$2) on 2nd July 09:30 UTC time
Phase 0: Market creation
To first list the market, the creator has to first seed it with $1000 sUSD and initially decide the odds for longs/shorts. For this market, the creator chose 90% longs ($900 long) vs $100 (shorts)
To first list the market, the creator has to first seed it with $1000 sUSD and initially decide the odds for longs/shorts. For this market, the creator chose 90% longs ($900 long) vs $100 (shorts)
Phase 1:Bidding
Now, people can start bidding on the market. If I feel $snx will be >$2 then I will go "long", if not, then I will go "short". This step is really an interesting one. For any market, the biggest issue is initial liquidity, and bidding helps resolve it to an extent
Now, people can start bidding on the market. If I feel $snx will be >$2 then I will go "long", if not, then I will go "short". This step is really an interesting one. For any market, the biggest issue is initial liquidity, and bidding helps resolve it to an extent
So, how does it work? Synthetix uses "floating auctions" to find the equilibrium odds. Meaning people can bid their side (long/short) before the "trading phase" starts. This is important to decide the odds for payout when the trading begins.
To do this, @synthetix_io uses "Parimutuel style betting". It works by "pooling all bets", then dividing that pool by the total number of units held in wagers that match the winning result.
To make the above calculation easier and customer experience better all bets are done is a single unit of currency (sUSD)
Keep in mind that early bets can swing odds by a long way, because they form a larger proportion of the pool at the time of creation. (How? explained later)
Keep in mind that early bets can swing odds by a long way, because they form a larger proportion of the pool at the time of creation. (How? explained later)
At the end of the bidding period, the long/short ratio was 78% to 22%, meaning 78% think that by 2nd July 09:30 UTC price of $snx will be>$2
So, if you are on right then you will receive 1.28x your money (22% is divided equally among the 78% i.e. 22/78 = 0.28x + x(your capital)
So, if you are on right then you will receive 1.28x your money (22% is divided equally among the 78% i.e. 22/78 = 0.28x + x(your capital)
Phase 2: Trading
Now, let's say you bid based on the odds but something happens after or you want to reduce your risk to hold till maturity. You can trade these positions.
How? Based on your bidding, you can now claim these positions as ERC-20 tokens and trade it via OTC
Now, let's say you bid based on the odds but something happens after or you want to reduce your risk to hold till maturity. You can trade these positions.
How? Based on your bidding, you can now claim these positions as ERC-20 tokens and trade it via OTC
The idea is to reduce the risk of holding till maturity, you can probably sell these tokens at a higher price, say at 90:10 ratio, which reduces your profit but allows you to realize the profit before maturity. Why? the downside is if the price goes below $2 then you lose it all
I sense in the future that @UniswapProtocol markets can be created specifically to trade these options post bidding. These options now trade like regular options in the free market
Phase 3: Maturity
Imagine you didn't do anything and held it to the maturity date then you can now "exercise" your option. Meaning, claim the amount you are entitled to receive (considering, price closes above $2).
Imagine you didn't do anything and held it to the maturity date then you can now "exercise" your option. Meaning, claim the amount you are entitled to receive (considering, price closes above $2).
Note: here >$2 is what matters, so $2.0001 works in your favor but $1.999 doesn't work in your favor. That's binary for you. Also, if you bought via OTC or from someone else before expiry you can "exercise" those tokens on maturity.
Overall, it was a pretty smooth experience of using the options. One of the markets, I am looking forward to is https://synthetix.exchange/#/options/0x4c7be4d2d4970cbbbf23bf86f7effe58327791b7
This is interesting, since bidding ends 2 months before the trading phase and it would interesting to see how it this options evolve.
This is interesting, since bidding ends 2 months before the trading phase and it would interesting to see how it this options evolve.
TL;DR: Synthetix launched binary options, which involves 3 phases - bidding to find equilibrium odds and liquidity, trading it like regular options via otc or @UniswapProtocol (soon), and maturity.
To read about the bidding phase's genius read here https://twitter.com/sourcex44/status/1278295827295825922?s=20
To read about the bidding phase's genius read here https://twitter.com/sourcex44/status/1278295827295825922?s=20
