Options are a vital piece of our financial system used by both hedgers and speculators alike.

In crypto, they have just started taking hold as volumes inc. 10x over the course of 2020

In DeFi, they have yet to make a splash but that will change soon. Let’s explore.

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The first tailwind is obvious - Deribit just forced users to KYC

A non-negligible share of options traders likely prefer to remain anonymous and will look for other alternatives

(great insight Jack)

But that doesn’t even touch the surface of why DeFi options could take off

As we expand beyond plain vanilla dex/lending products with more complex financial instruments, the composable nature of DeFi opens up a whole new realm of possibilities

This seemingly infinite design space of products will offer zero to one innovations

Like what you ask?

For example - there are billions of $ LPing on AMMs

As you probably know by now impermanent loss can meaningfully eat into returns if the price deviates substantially in either direction

Thankfully there are strategies using options that are used to mitigate volatility risk

To protect against major price swings you could create a strangle

This involves purchasing a put and call option that make you money when the price deviates past the strike prices on either side

This hedging product could be neatly packaged to allow you to select any time frame and strike price that fits your preference using a pooled liquidity model such as @HegicOptions

Since you are trading against a pool of collateral you don’t need to worry about illiquidity on options that are longer-dated or deeply out of the money

In this case, your counterparty on any trade is the $93 mil sitting in Hegic

This is merely one example of what can be done with fully customizable options products

I’d venture to say by the end of the year we’ll see a wide array built on top of the protocols that are looking to “decentralize Deribit” https://messari.io/screener/decentralized-deribit-A4A712D3