According to Glassnode data, the total market value of DeFi is US$13.022 billion, and the areas involved include currency, lending, synthetic assets, tool architecture (such as oracles), exchanges, derivatives, etc. Among them, in the field of derivatives , Options are almost a blank, so FinNexus, Chainlink and other institutions predict that decentralized options will become the next DeFi hotspot, or a life-saving straw for Bitcoin contracts.
The main reason why decentralized options can become the next DeFi hotspot is that it can solve the major pain points of investors participating in options in traditional finance and the current decentralized options.
1. From the nature of options, an option is a type of contract that gives the option holder the right to purchase or sell an asset at a fixed price on a certain date. The buyer of an option has only power but no obligations, and the seller of an option has only obligations but no rights. This disparity of rights and obligations results in different risk attributes between the buyer and the seller. The buyer’s risk is to lose the premium, but the potential gain is unlimited; the seller’s gain is to earn the premium, but the potential loss is unlimited, which creates risks And the income is not equal.
2. Even with professional institutional participants, as a seller, to control your own risks, you also need a wealth of risk hedging tools in the market to hedge your own potential risks. At present, in the DeFi field, hedging tools are obviously not rich enough.
3. Traditional options rely on the order book to match transactions, which requires professional market makers. If it is carried out on the chain, there are problems of low efficiency and high cost. Not long ago, the GAS fee on Ethereum reached 300Gwei, and the high fee would greatly reduce the enthusiasm of users to participate.
4. Due to liquidity issues, for buyers, option buyers cannot choose their desired option products, such as products with different underlying assets, different exercise prices or expiry dates.
In response to the above problems, DeFi's decentralized liquidity options were born. By establishing a liquid option margin pool as the counterparty to all users who purchase options, option fees and other agreement rewards will be pooled into this pool, and those who join the pool The users share, and the benefits and risks of all options will also be shared and borne by the users of the entire pool.
The potential of the decentralized option liquidity pool lies in the ability to create options for any basic asset. These basic assets are not only digital currencies such as BTC, but also traditional financial assets. Compared with centralized options, it removes the middleman and counterparty, has unlimited liquidity, and can also pledge mining.
With the popularity of DeFi decentralized options, in order to reduce the risk of their own liquidation, the trading strategy of option + contract hedging will be used by more people. After opening option hedging, even if the contract is liquidated, the option will be profitable. The part is much larger than the contract principal, so no matter what, ultimately it can remain profitable. But there are still many people who do not grasp the profound meaning of hedging, so I will talk about it in detail today.
Bitcoin contracts can make money when they break out! Strongest risk hedging strategy
For example, the current price of Bitcoin is $10,000
1. Suppose you use 2,000 yuan to open 20 times leverage to go long
2. At the same time, open a put option to hedge on BitOffer (cost of $20)
✅The first type, when Bitcoin rises by $500, the increase is 5%
1. Go long with 20 times leverage and make 100% profit, which is 2,000 yuan
2. The put option loses the principal, which is 20 US dollars (140 yuan)
3. 2000-140=1860 yuan (net profit)
✅The second type, when Bitcoin falls by 500 US dollars, the drop is 5%
1. Go long with 20 times leverage, the contract will be liquidated and a loss of 2,000 yuan
2. Put option profit of 500 US dollars, which is 3,500 yuan
3. 3500-2000-140=1360 yuan (net profit)
Note: Open the hedging strategy, the contract hits the liquidation, the account is still profitable
Of course, this is just one way of playing the contract. In fact, there are many ways to play, and I haven't shown them all. On the whole, if you use hedging to play contracts, you can achieve profit regardless of the ups and downs, and you can make money even if your position is liquidated.
But it should be noted that the above options specifically refer to the world's first BTC option (American) on the BitOffer exchange. It has 0 margin, 0 handling fee, and no liquidation mechanism. If you choose traditional European options such as OKEX and JEX, you cannot carry out such contract hedging, and there is liquidity risk, so you must pay attention.