Telegram AMA Recap on September 10th
On Friday, September 10th, we had a Telegram AMA. The following shows a recap of the questions with 0xAlpha’s inspiring answers.
0xAlpha: Hello~ Deri fellows. Hope you guys had fun with our Everlasting Options. I see a lot of questions accumulated in the community, especially for the options.
Q1: Is the funding fee charged only once at the opening of a position? Or after every block?
A1: No, it’s not just charged up-front (this is where everlasting options differ from classic ones).
Assuming you are referring to the funding fee of Everlasting Option. It’s accrued per second but is settled every time you take an action (say, add some position).
It’s similar for Perpetual Futures, the only difference is the funding of Perpetual Futures is accrued per block.
Q2: Love the options but do have a couple of questions…I don’t know which to use, options or futures, is there somewhere that can show me the costs of each? From where I’m looking it's really kinda opaque — a single real-world example would bring a lot of clarity!
A2: The rationale between choosing from Futures vs. Options is that what kind of risk you are willing to take/hedge and what kind of costs you are willing to pay. The good thing about futures is that the funding fee is pretty small (fluctuating around 0). So it’s like free. But, let’s say you are long BTCUSD, you make profits when BTC goes up whereas you bear loss when it goes down. The risk profile is symmetric. However, let’s say you are long some out-of-money BTCUSD option with strike at 50000. The risk profile is asymmetric: you make profits when BTC goes above 50000 whereas you have little loss when it goes down. But there is no free lunch. For such asymmetric benefit, you need to pay the option premium, which in the case of Everlasting Options is the funding fees that you need to pay (presumably much higher than that of Futures).
Q3: So, the second question is since the funding fee is paid from the longs to the shorts, can you get paid to go short?
A3: Of course. That is how it works: you collect funding fees for the short positions that you hold.
Q4: I’m still unsure of what the funding fees are (options & perp futures)
A4: For the general understanding of the funding fee mechanism I suggest you read our whitepapers.
Q5: On the Future trading page I can see the total net position (aka overhang). But can I also somewhere see the total gross long and short positions? To estimate my overall risk as a liquidity provider because I have to hold the other side to the overhang (total longs minus total shorts). Same with options?
A5: No. It’s not the same thing for options.
The funding fee of perp futures is solely corresponding to the total net position (aka overhang). That is, funding is 0 if longs and shorts are balanced. But that’s not the case for options. Longs always pay shorts funding fees, which is actually the option premium that is paid continuously. In other words, even when longs and shorts are balanced, the funding is still positive.
As for “But can I also somewhere see the total gross long and short positions?”, we will add that part of info to the trading page. That being said, for your purpose (“To estimate my overall risk as a liquidity provider”), your overall risk is solely determined with the “total net position”. That’s all you need.
Q6: Will bridge open to bsc matic network?
A6: Not in the short future. This is because Matic is not yet another blockchain. It’s a layer2 of ETH so it already has its built-in mechanism of bridging tokens from ETH (layer1) to Matic (layer2).
Q7: On the Future trading page I can see the total net position (aka overhang). But can I also somewhere see the total gross long and short positions? To estimate my overall risk as a liquidity provider because I have to hold the other side to the overhang (total longs minus total shorts). Because if the net position = gross total => my risk is higher as if net position = only e.g. 5% of the gross total. Because in the latter case I will earn from the other 95% without any directional risk and can compensate partly my net exposure. If the net position = total position would mean I am taking the other side without earning from any netted position.
A7: It’s not exactly true. when you add liquidity now, whatever fees paid by the long and short positions already there has nothing to do with you. so this is not true: “If the net position = total position would mean I am taking the other side without earning from any netted position.”
the only thing that concerns you in regards of risk is the total net position.
Q8: By the way, a negative net position means the takers are bearish? Means the liquidity provider takes a long position? And that’s the same for futures and options?
A8: A negative net position means there are more short positions than long. You can make your own inference that the takers are bearish, but this is not a very strong logic. I personally would not base my investment decision on this signal. But everybody has his/her own way of reading the market. I don’t own the truth of market.
Means the liquidity provider takes a long position? — Yes
And that’s the same for futures and options? Option is a bit more complicated. Long a put might indicate a bearish view.
Q9: BTW really hoping DERI will release the new UI soon?! Having a poor product market fit right now… Maybe catch onto the wave of dydx tonight too
A9: We are working on that. Actually, this has been mentioned quite some times. But it would be more helpful if you could be a bit more specific?
Like which specific part you dislike about our UI?
Don’t get me. I am defending myself. I just would like to know more details.
Q10: 1)I find it important to stay ahead of the market, in order to do so I Guess bridging Sol and Dot is essential, have you guys schedule it? 2) everlasting options are doing great and i want to congratulate for that. As another member of the chat said , opyn has projects that use the opyn option platform to build products on top of that ,that are easy to use and more friendly. Are you guys doing something about?? 3) good cex listing was a long time pre-announce thing, is it eventually coming? Love you guys , take care and keep building
Q10: 1. We are looking into Solana. As for DOT, we don’t have plan with it yet.
2. Yes, we are working on to bring in other DeFi projects to make use of Deri futures & options (just like what Ribbon does with Opyn).
Also, we will roll out a big plan to boost a Deri ecosystem, i.e. a whole bunch of other projects that are based on Deri Futures & options. Actually we recently initiated two bounty programs.
3. Yes, we are working on that too.
Q11: People are now waiting for concrete steps, listen to us instead of blocking the critic, thank you
A11: We are listening but I am sure I get your point. Could you be more specific on your suggestions?
Q12: ERC-721 DPT is destroyed ?
A12: The DPT token is only burned when your position is forced liquidated.
Q13: 1) When would the new revamped front-end launch to the public, any teaser for community feedback on what’s good and not
2) How would you plan to solve the product-market fit to either cater a wider audience, or fine tune and focus on a niche group of target customers
3) What’s the growth plan looking forward on getting more users, eg: simplifying UX, targeting geo-blocked users like US / China
4) Any supports and the seed investors of Deri could provide / have provided for the growth of Deri
5) Ventures support and community seems to mainly be China based, I would suggest Deri do a follow-up round with investors with a more global view to expand on target audience (Defiance, Multicoin, Alameda, 3AC …)
6) Can we get the token icon and price on BSCScan
A13: 1. we have a general suggestion channel (https://airtable.com/shrNTLjwoIIwcm4O1). But here I geuss you are specifically tallking about the feedbacks on the UI. Do you have a specific suggestion regarding “ teaser for community feedback”. Please share with us.
2. I think a good product can find its best users. Option has a wide range of potential use-cases. I would hope it could serve both the pro option traders as well as the vast majority.
3. This question is big. We are doing a lot of things here, include partnership with other projects, organizing trading competitions, etc. What you said is of course part of our work too.
4. Some of our investors are users of our products themselves (some of them are very professional ones, top in this field). Some provides a lot of other supports. In general, they’ve been very helpful.
5. Yes, you are right. While we have non-China-based investors like GSR, CryptoDorm, we do have a large percentage of our investors from China. However, some more international investor are coming on board very soon. They will be annouced in the coming several weeks. (We are in talk with some of the ones you mentioned).
6. Hmm, thanks for reminding. The op team shall take care of this.
Q14: What is the plan of increasing the liquidity pool on pancake and Uni
A14: Guess you were referring to pancake and sushi. Currently we have a pretty decent DERI APY for LPing on these two DEX. Going forward, we will cooperate with them again to see if we have something similay to the Syrup farmining like we did before.
Q15: Do you have a plan of listing on CEX as well?
A15: Yes, we do.
Q16: Hi! I’m testing out the new options functionality and noticed that I have an unrealized Pnl. According to the docs(https://deri-protocol.medium.com/introducing-deri-protocols-everlasting-options-235e8b6961a9) its possible for a call option to be ‘Speculation without downside risk’ and ‘his total loss would be the funding fees paid’. I’m confused about this as my Pnl continues to fluctuate. This would appear to tell me that I can lose more than the cost to setup the position + funding fees. Can you clarify please?
A16: “Speculation without downside risk” is a rough description.
It really means the following:
say you long a BTCUSD call option with strike of 50000 and currently BTCUSD is at 45000. If BTCUSD goes down to, say 40000, you will only have a very small PnL (much smaller than 5000). in this scenario, you still see a PnL but it’s very small, so almost negligible compared with the price change (5000). However, if BTCUSD goes up to 55000, your PnL will be +5000.
This can be see from the orange curve below. On the left side of 50000, the curve is not flat, but pretty close to flat. Your PnL associated to BTCUSD price change below 50000 is the part of the curve to left of 50000, which is pretty close to flat (even though it’s not literally flat)
Q17: Hi Archer, is the report out yet? I saw the 50mm volume update. Are there any details of how many Deri were repurchased?
A17: Not yet. There are some protocol fee accumulated already, which you can check out on our smart contract (ProtocolFeeAccrued). But we didn’t initiate a DERI purchase&burn yet. Will do that in the future. If you have a suggestion about the algorithm of this purchase&burn, please share with us.
Q18: Ja, sure, long put = bearish. However, just to reconfirm: If net position = negative => liquidity providers are long. In both cases everlasting options and Futures.
A18: Yes, that is correct. The core mechanism is: the pool is playing the role of counterparty, in both cases.
Q19: How can BUSD mining lose money
A19: The liquidity pool is playing the role of counterparty, which bears a market risk.
Q20: Is there a pnl yield curve for mining?
A20: We are working on a displaying moduel for the PnL. This will be rolled out soon.
Q21: How to calculate the handlin fee
A21: It’s explained on the trading page. if you move your mouse to the transaction fee (within the Contract Info panel), you will see a hove explaining how transaction fee is charged.
Q22: Why does long need to charge a margin
A22: Well this is where everlasting options differ from classic ones. For classic ones, the premium is paid from long to short up-front. However, for everlasting options you don’t pay anything up-front, you only pay premiums in the form of funding fee. So you are required to deposit margin even if you are long an option.
Q23: Why is the liquidation price not displayed
A23: there are two cases when a “liquiditation price” is not displayed:
- — : this means you will not be liquidated for price move in this direction
?: this means our simple algorithm cannot determine your liquidation price in this direction. please manage your risk carefully.
Q24: How to calculate the margin for each open position
A24: Move your mouse to the “Initial Margin” in the Contract Info panel, you will see the details in the hover.
Q25: Will the option price appear negative
A25: Theoretically, option price should never be negative. However, there is no mechanism in our DPMM algorithm to stop this scenario. So hypothetically if there is a huge selling order, it might cause DPMM to give a negative price, under some special circumstances. If that happens, you can buy in to take the arbitrage. That is, you get paid to own an option (isn’t that good?😎)
Q26: Why can’t Short receive premium
A26: when you are short an option, you are accruing premium (i.e. the funding fee) per second. you can see this from the trading webpage, the “position” panel.
Q27: Is there an option teaching
A27: We already made some tutorials and we will make more.
Q28: How is the return of an option calculated
A28: Please refer to our whitepaper for this question.
Q29: What happens when options open two positions in opposite directions at the same time
A29: You cannot open a long and a short position of the same symbool simutaneously. If you enter a long option and then go short for the same volume of the same option, you end up with an empty position. It’s just like you closed your long position.
Q30: How is option price calculated
A30: Please refer to our whitepaper, or this article specifically for everlasting option pricing:
https://deri-protocol.medium.com/pricing-continuously-funded-everlasting-options-acf609a06937
Q31: Why is my profit only 30% after the option price has doubled ten times
A31: well some condition info are missed here so I really cannot figure out what happened. If you could provide the complete information, I am sure the team will help you.
Q32: How do spot and futures hedge options?
A32: well for that you would need to really learn options. This question is way beyond the scope of AMA. I recommend you to read this book:
Q33: Are unrealized profits and losses and fund fees deducted and added to the balance in real time?
A33: Yes, they are counted in the real-time dynamic balance.
Q34: Unrealized profit and loss and capital fees are not included in the margin
A34: Yes, they are counted in.
Q35: Is the dynamic effective balance a full margin?
A35: Yes, it is
Q36: How to exercise options
A36: You don’t excercise an everlasting options. In the case you want to realize your unrealized PnL, you just sell it.
As a matter of fact, traders tend to not excercise classic options either (even though it’s perfectly fine for classic option traders to do so). In classic option market, when traders want to realize their unrealized PnL of an option, they usually choose to sell it, as long as there is enough liquidity.
Q37: Can options have more price directions?
A37: we will add more strikes when it’s needed.
Q38: Might it be easier to show a percentage of the overhang relative to the liquidity pool. Then I could immediately see for what portion of my liquidity I am receiving funding fees as a liquidity provider in return for the risk and what part of my liquidity is at no directional risk. If I got it right?
A38: I think you might get it incorrectly. Let’s say there 100 long positions and 90 short positions. Even though all the 100 positions pay the funding fee, the pool only collect the funding from the surplus 10 positions. Funding fee paid by the other 90 long positions are going to the 90 short positions. So, as a LP, only that 10 surplus positions concern you, both for the risks and for the funding fee that you are earning.
In other words, there is no such a thing as “what part of my liquidity is at no directional risk”. All liquidity you provided is earning the funding fee and bears with risk for that 10 surplus positions.
Q39: I second the adding more strikes as I was hoping to get used to how the options are working and a $10,000 differential is a big gap…
A39: It would be difficult to support too many of them. just imagine BTC price will fluctuate in a wide range and we would need to cover that. If we set denser strikes, there will be a huge number of strikes…
Base on our experience, only those strikes at *0000 would have big open interests. Therefore, we only have strikes at the prices of *0000.
Q40: As a seller of options do you an approach/way to limit your total risk?
A40: Currently funding fee is the way to manage risk (net position will push funding fee up/down).
But in the future we might introduce more dynamic and active ways of managing risks.
0xAlpha: bye guys. enjoy your journy with Deri Protocol. Happy mining and trading!
About Deri Protocol
Deri Protocol = (Perpetual Futures + Everlasting Options) x Decentralized.
Deri is the DeFi way to trade derivatives: to hedge, to speculate, to arbitrage, all on chain. With Deri Protocol, trades are executed under AMM paradigm and positions are tokenized as NFTs, highly composable with other DeFi projects. Having provided an on-chain mechanism to exchange risk exposures precisely and capital-efficiently, Deri Protocol has minted one of the most important blocks of the DeFi infrastructure.
