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Standardized and Exotic Options
Hxro's derivatives protocol is built to support both standardized and exotic options on-chain.
Options are some of the most powerful and dynamic instruments used for hedging risk and speculating on price movement in financial markets. In recent years, options volumes on both equities and non-equities have grown explosively. According to the Options Clearing Corporation, more than 9.87 billion cleared equity and non-equity options traded on centralized exchanges in 2021, with average daily volumes of 39.167 million. This was more than a 32% increase in volume from the previous year.
Crypto options markets have seen exponential growth in volume. According to The Block Research, crypto exchanges cleared over $387 billion notional trading volume of BTC and ETH options in 2021, an increase of more than 443%. While these volumes continue to grow at a staggering rate, a viable decentralized options trading solution has yet to materialize. This has largely been due to the following:
- Prohibitive trading costs due to high network fees
- Options are extremely data intensive and require the ability for liquidity providers to mass quote a chain of options
- A lack of on-chain orderbooks
- The protocol AMM is incapable of dynamically managing its liquidity while offering market takers competitive pricing and fees.
To date, there have been multiple attempts at a viable options offering, with all projects at some point running into one of the issues stated above. This has resulted in many projects offering workaround solutions that while interesting, do not offer a comparable liquidity source to a standard centralized market system.
By introducing an Automated Market Making Protocol capable of solving for dynamic pricing and liquidity risk management issues currently present in other DeFi option protocols, and coupling this with traditional market making participants, Hxro will be capable of presenting a commercial-grade liquidity solution that allows anybody to participate in supplying liquidity to the network.