What are Everlasting Options in DeFi?

Circumstances of birth

Limit Traditional Options to DeFi

An options contract has a lot of options before investing, for example Call (buy), Put (sell), Strike (exercise), Expiry Date (expiry date) … leading to each option product. Select will have separate market.

The liquidity of each market is also different, to meet trading efficiency and needs. With the traditional financial market having abundant liquidity, this problem is not too much of an impact.

With the market DeFi, market liquidity is quite thin, this is an obstacle in product development. Splitting too many markets will fragment liquidity. Every Option (Call/Put) market with a certain level of Strike and Expiry Date will have very little liquidity in the trade.

Slippage in the Buy & Sell (Spread) spread will be quite high, investors spend a lot of unnecessary costs in accessing Options products. In addition, it is not possible to maintain an Options position for a long time (half a year) because Options currently support monthly expiration due to liquidity fragmentation.

Learn about Everlasting Options

The Perpetual American Options product is born with no expiration date. Options holders can exercise their rights at all times – instead of on the expiration date like European Options.

The problem to overcome here is fragmented liquidity, by removing the Expiry Date factor, which eliminates the number of Options, so the liquidity will be more concentrated.

This product in turn poses some more risk to the option seller than to the buyer.

For example: When selling Call Options, the seller will take a big risk if the price drops continuously.

Removing the Expiry Date factor comes with the fact that Options can be exercised at any time, and the risk of the option seller increases.

Options Writers also act as Market Makers, when taking on too much risk, and unable to issue Options in trading. This product can clearly fix one problem and create another, bigger problem. And Everlasting Options was developed to improve the Options model in the decentralized financial market.

Concept

As a form of Perpetual Futures, Everlasting Options has no expiration date and no Funding Fee. Unlike American Perpetual Options, Everlasting Options helps owners approach options in a different direction.

For example:

If you own American Perpetual Options, you can exercise the right to buy/sell for profit
If you own Everlasting, you will approach the direction of owning a Portfolio consisting of many options with options that continuously rebalance with no expiration date.
Instead of exercising profitable options, Everlasting helps you make profit through trading and receiving Funding Fee.

How does it work?

Everlasting Options is a portfolio of Options with the same Strike price and varied Expiry Date levels.

In the White Paper of Dave White and SBF, the Options in the Portfolio have expiry times of 1,2,3,days… with weights of ½, ¼, ⅛.

When each Options expires, the Portfolio will automatically double the position of other Options… so that the Portfolio’s position returns to its original position. Thanks to that, Everlasting Options will have no expiration time.

When each rebalance occurs, there will be 1 Option in the Portfolio that expires and needs to buy new Options. This will cost the Funding Payment (the price measuring tool of Options on the market to adjust to the correct value of that Portfolio.

Funding Payment on Everlasting Options works on Mark-Payoff formula.

Mark: Everlasting Options price is being traded
Payoff: the profit received when 1 Option in the Portfolio matures

If the Mark-Payoff is greater than 0, the buyer (Long) Everlasting Options will pay the Funding Payment and vice versa. Theoretically, the Long side will always pay the Short side.

Everlasting solves the following 2 problems:

Liquidity fragmentation
Reduce the cost of maintaining a long-term position

The Potential of Everlasting Options

If you have read about the DeFi Stack, you can see that the Derivatives array will belong to the majority of the last layers. Most likely this category will be the last point of cash flow.

Options is a more complex product than Futures, potentially taking more time to perfect and attract cash flow.

The potential of this project is clearly visible. Opyn was born, as the foundation for projects built on it, such as StakeDAO, Gamma Portal, and Ribbon. Looking through Everlasting Options, there are likely to be many small projects and ecosystems around the original product.

Of course, it cannot be ruled out that Everlasting Options is not the optimal product because of the limitations that cannot be overcome. If the market still maintains the traditional Options approach to building products, there will be other Protocols developed alongside, helping to optimize larynx and limit risks. And Everlasting Options will have more competition restrictions.

After all, this is still a big question mark in growth potential. Potential and challenges go hand in hand.

Read more: WHAT IS AN OPTION CONTRACT?

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