Decentralized finance (DeFi) communications protocol Compound detected its governance token, COMP, skyrocket in value when it launched final week. Now, suburbanised choices market Opyn has launched put choices on COMP that can present a security cyberspace of kinds by serving to bearers palliate among the threat ought to COMP’s fortunes take a flip for the more serious inside the ensuant few days.
“We’re excited to launch @compoundfinance COMP puts! You can protect yourself if COMP falls to $150 or lower before July 3rd,” Opyn’s official deal with tweeted early Friday. Several hours later, Universal Market Access (UMA) introduced it’s creating the power to synthetically brief COMP on its suburbanised platform. Opyn closed on over $2 million in funding this previous week.
A put choice is a by-product contract that provides emptor the fitting notwithstandin not the duty to promote the underlying instrument at a planned value on or earlier than a particular date. Meanwhile, name choices mean a proper to purchase, With choices, merchants could make discouraged or optimistic bets at varied value ranges better-known as strikes that expire in several months.
Opyn is providing a put choice on COMP on the strike value of $150, which is able to expire on July 3.
How it really works
A put choice with a $150 strike will be purchased by paying a U.S. dollar-denominated premium, at present $3.76. In return, the emptor will obtain oTokens, which mean the fitting to promote COMP on or earlier than expiry at $150. oTokens will be purchased and offered on an change like Uniswap at any time earlier than expiry.
Meanwhile, the choice seller providing coverage will deposit 150 USDC, a dollar-backed stablecoin, as collateral to make a point there isn’t any liquidation threat.
The put choice on COMP is an American-styled choice, that means the client can train their proper to promote COMP at $150 anytime earlier than July 3. European choices will be exercised only on expiry.
While physical exercise the put choice, the emptor will ship oTokens again to Opyn together with COMP (as a result of oToken is the “right to sell COMP at 150”) and can obtain 150 USDC in return.
As such, one may say the put choice primarily represents the fitting to promote COMP and purchase USDC.
In such an occasion, the max loss for the client is the premium paid, which is the utmost cash the seller could make. “Keep the totality of your premium also as your collateral as long as the plus girdle above the strike price until expiry,” Opyn tweeted.
Even if COMP’s value drops to single digits and even zero, the bearer of the put choice would however be capable to promote COMP at $150.
“Opyn’s put can be used by traders who do not hold COMP but want to speculate on the DeFi token,” Anton Cheng, developer at Opyn.
A dealer with a discouraged view on COMP can simply purchase put choices on the getable strike value of $150. If COMP drops, the oTokens will recognize in worth and merchants can liquidate them on Uniswap.
At press time, COMP is buying and marketing at $250, supported Opyn.co. The governance token went dwell for buying and marketing on June 18 and listed close to $80 on the primary day. In the next three days, its value surged by 500% to $380, triggering a delirium inside the DeFi house.
Such robust rallies are sometimes adopted by choppy value pullbacks. Savvy traders, due to this fact, could purchase the recently launched put choice on COMP to cap draw back dangers.
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