01 is gearing up to release binary options, everlasting options, and a suite of composable derivatives, first on devnet and followed quickly by mainnet. The goal is to build out powerful derivatives that can be traded efficiently by traders of all backgrounds, thanks to Solana’s cost-efficiency, all while setting the foundation for more innovative products to be layered on top.
☝️ A Quick Primer on Derivatives
For the uninitiated (if you already know this, feel free to skip to next section), imagine what finance would look like if it were a video game. Stocks would be the vanilla game mode — the original form of the game that shipped out of the box.
Derivatives are financial products built on top of stocks with their own unique properties. In our analogy, derivatives would be new exotic game modes that developers add through game updates. These new game modes retain elements of the original game’s functionality.
Analogy aside, derivatives are powerful unique financial tools that, once understood, can expand a trader’s optionality many-folds. 01’s team has a strong background in tradfi, engineering, and product design, and plans to make UX and onboarding as easy as possible so that new traders can quickly benefit from powerful derivatives without a masters degree in finance.
📈 01 Binary Options
First in the lineup is the simple yet powerful binary option. Binary options are contracts in which traders either go long or short depending on whether they think an underlying asset will be above or below a predetermined strike price by a predetermined expiration time (e.g. will BTC be above $47,000 by midnight on Friday?). Once the expiration time reached, all shares that correctly predicted the price movement will earn a fixed payout (cash-settled), while the opposite positions will expire worthless. Traders can close their positions before the expiration for an early exit or to minimize loss. Traders can also take on leveraged positions for more buying power.
The price of the contract at any given time generally represents the market’s sentiment and belief in whether the underlying asset will expire above or below the strike. Binary options vastly simplify the process of trading price movements, all while offering asymmetric return profiles.
Our binary option markets will initially be powered by a specialized AMM based on the liquidity-sensitive LMSR model. This allows our market maker to provide instant liquidity to traders, all while protecting LPs from impermanent loss (thanks to some custom adjustments). We will be going into greater detail on the AMM mechanism in a future article.
🌅 01 Everlasting Options
Our most exciting release will be an exchange for everlasting options, first outlined by Dave White and Sam Bankman-Fried in their whitepaper here. Everlastings bring the power and efficiency of perpetuals to options. Each everlasting contract essentially represents a portfolio of options that continuously roll over. You might be familiar with how different vanilla option contracts have different expiries. With everlastings, they are all consolidated and bundled into a single contract that has, for all intents and purposes, no expiry. Moreover, you might also know that different option contracts have different strikes. We are introducing the floating-strike everlasting option that utilizes a constantly readjusted strike price based on an exponentially-weighted average of prices over time. This allows us to also consolidate all the different strike prices into a single intuitive floating-strike. Traders will also be able to take on leveraged positions.
A funding rate in the form of
funding rate = mark price - payout will be paid regularly from longs to shorts to ensure that the everlasting price remains close to its actual payout. Everlastings will be a much more intuitive and DeFi friendly way to trade options and will provide unique opportunities to hedge, speculate, and trade.
Our everlastings markets will initially be powered by the Serum orderbook and a virtual automated market maker as backstop liquidity. This will allow traders to benefit from both the AMM’s instant liquidity in times of low volume and the efficiency of a fully decentralized orderbook thanks to Serum.
We will release more information on specific specs of the markets in a future article.
🥞 01 Composable Derivatives
Both binary options and everlastings will serve as building blocks for new DeFi-native composable assets. These assets aim to make trading in DeFi much more accessible and efficient for retail traders. We’re very excited about this, and will announce the exact specs in the near future.
- Efficient derivatives markets (orderbook powered by Serum)
- Innovative assets
- Cross-collateral (including with Saber Labs’ LP tokens, and more in the works)
- Decentralization first
- Powered by Solana
We are already 2.5k community members strong in our discord. Don’t be late to the party ;)
Telegram Announcements: https://t.me/onboard01
(Disclaimer: none of this is financial advice)
Thanks to Durden#5129 for reviewing and editing.