FAQ
What are the asset classes in which Opus expects to make markets?
Currently, Crypto and FX Options. In the future, it will extend to other asset classes.
Why is Opus a superior marketplace to other CeFi and DeFi option exchanges?
Unlike CeFi and DeFi exchanges, Opus does not rely on outside option market makers prone to predatory self-dealing that can be highly unreliable and disruptive to maintaining fair and stable markets - especially during periods of higher market volatility. Instead, Opus supplies its own option price to OpusAMM to ensure secure on-demand rates that are tight, fast, and accurate regardless of underlying market conditions.
Moreover, CeFi and DeFi exchanges use pre-determined option contracts and a host of confusing formulaic and algorithmically determined strikes and maturities that makes them rigid, opaque, and user un-friendly. In contrast, because Opus uses its own volatility curves to price any option queried, it delivers a flexible on-demand and transparent trading platform with universal access and utility for any customer type.
On which blockchain are you building?
Ethereum, Polygon, Arbitrum.
What is the reasoning behind using Etherum as Opus’ blockchain choice? Why Polygon and Arbitrum?
Ethereum is the most secure chain and currently has the most users - both mission critical variable to Opus’ long term success. The very simple structure of Opus' Smart Contracts ensure low gas fees even on Mainnet.
Polygon is fast and scalable and other derivative trading focused firms are using its chain giving Opus confidence that it’s well-tested and being continuously improved.
Arbitrum is currently the most active L2, thriving with new derivative markets.
What are Option Smart Contracts? How do they and the blockchain serve to reduce Wall Street’s expensive operational overhead?
Opus plans to establish an “ERC-type standard” for options via its proprietary OSCs to create chain interoperability and composability that will be the standard bearer through which all option contracts are traded across blockchains. By harnessing the power and operational efficiency afforded by combining blockchain and smart contract technologies, Opus is able to remove much of the expensive overhead within Wall Street’s sales and trading business model.
How are you planning to create access to passive market making revenues using an AI and smart contract driven ecosystem?
Think Uniswap for options except Opus also has OpusARM which:
Drives the implied volatility prices used in the OPCI and OPMC interfaces;
Risk manages the LP pool’s positions;
Eliminates the potential for protocol hacking and theft.
How will Opus solve the global scarcity of real returns?
By monetizing:
Option implied volatility bid-offer spreads;
Implied volatility pricing inefficiencies constantly occurring throughout the options markets;
Crypto’s inherently higher actual and option implied volatility that translate into much higher potential return per unit of risk, to name a few.
How will Opus’ ecosystem empower both the LPs and LTs?
Empowers both by:
Leveling the market’s field of play by allowing anyone, anywhere, anytime to make or take a price;
Creating ownership by proxy and directly through self-dealing;
Passing through trading economics for all Opus users by removing significant tradfi overhead costs;
Delivering streaming and on-demand liquidity;
Providing transactional transparency and market data through open-source informational flows. For example:
LPs are placed in the market making seat giving them a competitive trading advantage via the bid offer spread and consequently access to market returns they would typically not have the ability to create for themselves. Being a market maker is a privileged market position typically reserved for banks and large liquidity providers. Now LP’s can occupy and benefit from a part of the market that historically they have not had access.
LTs are benefitting from tighter spreads and product choices that in many cases are not accessible at tradfi brokers, CEXs, or DEXs. By cutting away tradfi’s expensive overhead, Opus is able to pass the savings back to its LT’s through additional product choices and tighter prices. More product depth and transparent market information flows results in better trading and risk management decisions. We want both our LPs and LTs to succeed.
What is sustainable option volatility? Why does it free Opus from using tokenomic schemes to deliver outsized returns?
Crypto’s underlying actual and option implied volatilities have been very high (compared to tradfi) which natively produces the market conditions to generate larger sustainable returns. Also, because these volatility driven returns are native to the market’s natural trading state, they obviate the need to use tokenomic schemes to incentivize DEX use through artificially inflated returns that are economically untenable.
Moreover, broadly speaking, implied volatility price inefficiencies are constantly occurring in the options market. These inefficiencies exist because supply and demand forces from myriad types of market participants acting with individual bias across price and time cause implied volatility term surfaces to become unreflective of actual underlying market conditions. OpusARM uses these price inefficiencies to capitalize three dimensionally across changes in price, volatility, and time and deliver another source of sustainable revenue for its LPs.
How does OpusARM use price inefficiencies to capitalize three dimensionally across changes in price, volatility, and time to deliver another source of sustainable revenue for Opus’ LPs?
This question enters into the proprietary sphere of OpusDigital’s market making and risk management playbook. In summary, OpusARM has a set of tools that tells it what volatility is worth and how and when to optimally price and position across an implied volatility curve surface. These tools drive OpusARM’s optimization modeling.
Taking a page from traditional portfolio management, OpusARM works to stay on an efficient risk/reward ratio frontier. Trading elements like carry, market volatility, and direction inform OpusARM and ultimately its market making and risk management process that generates returns across changes in price, volatility, and time.
Regarding the competitive landscape, what makes Opus different from other exchanges like Deribit and Uniswap?
Deribit and Uniswap cover some but not all of the space Opus' occupies holistically. For example, Deribit is simply a broker acting as price conduit and clearer to a preferred list of market makers. If their market makers stop streaming prices then Deribit ceases to operate. Opus, however, is a fully inclusive and self-sustaining sales and trading ecosystem providing passive market making, professional risk management, and easy cash settlement for anyone, anywhere, and anytime.
Additionally, Deribit only offers preset standardized option products that makes the platform rigid and limited in its customer utility. Opus, however, offers customizable OTC level products that meet exact customer needs. By curating its own option volatility curve surfaces, Opus ensures on-demand pricing that promotes liquidity, customer loyalty, and a growing market share.
Moreover, Uniswap’s singular focus on crypto makes them susceptible to market downturns that can depress trading flows. Opus, however, will initially focus on both crypto and FX with a long term mandate to scale into other asset classes as its ecosystem grows.
Also, unlike Opus’ risk management focus, Uniswap exposes its LPs to potential losses by not helping them manage the inherent risks in its passive market making model. An attempt via its Uniswap v3 product to provide risk management has instead added leverage through increased negative gamma and a fiduciary failure for LPs told their losses are “impermanent”.
Instead, Opus’ on demand pricing and product depth uses crypto’s unique characteristics to offer directed solutions native to the market’s underlying and implied volatility.
Are LP pools the counterparty to all LT trades?
Yes, Opus’ LP’s deposit their liquidity into AMM liquidity pools and act as trading counterparty to all LT trades.
How do LP’s benefit from market making, trading fees and profitable management of LP pool positions? Is there a trader or computer model controlling the market making and risk management process?
OpusARM driven tools and trading "playbook" controls the LP pool’s market making and risk management strategic process. These tools drive OpusARM’s optimization modeling and ability to deliver multiple LP pool revenue streams that are indifferent to underlying market conditions. The efficiency with which OpusArm models volatility and manages risk determines how competitive its price making and resulting trading volumes and fees will be.
What is the difference between an LP being ARMed or UnARMed?
Typically, LPs will permission Opus to manage their risk in which case they are considered ARMed and be both passive market maker and risk taker. However, some LP’s may choose to manage their own portfolio risk. In these cases, LPs will be considered UnARMed and be passive market makers but active risk takers, with all LT trades being be passed through to them (and reflected on their individual dashboard) on an LPU driven pro rata basis.
Are oracles used?
Unlike most conventional DEX AMMs, OpusMarkets does not rely on oracles for the data it uses to price options. De-linking from outside oracles removes risks that an oracle may feed OpusAMM with wrong prices or experience a system-wide outage that would ultimately put OpusAMM at risk. Instead, OpusARM is the option pricing oracle for OpusAMM. This configuration creates a unique buffer and fail-safe mechanism to protect against potential oracle failures.
How does an LT interface with OpusAMM?
The LTs will trade with OpusAMM’s option pricing chain interface (OPCI) and its option pricing and minting calculator (OPMC). The OPCI will show prices for on-the-run options and the OPMC will confirm option contract details and execute the option smart contract minting process. Once an LT choses an option to trade either on the OPCI or on an RFQ basis, the OPMC will populate the specific contract terms which are then confirmed and minted by the LT.
Note: the OPMC is always needed to confirm trade details and mint options. The OPCI is not a click and deal screen. Also, option prices will be on a timer and if pricing a live option (i.e. there is no delta hedge being executed with the option contract) the option’s price will move with the current spot price. Once the trade is executed, the option will be minted and the transaction recorded on the blockchain.
Are OpusAMM’s prices driven by OpusARM?
Option prices are managed and distributed by OpusAMM which is managed and driven by OpusARM. Drawing an analogy to tradfi’s sales and trading dealing process, a salesperson needs to communicate with the market maker to receive a price for a customer’s option request. The trader (i.e. OpusARM) controls the price and the salesperson (i.e. OpusAMM) distributes the price to the customer.
How often are option prices updated?
Prices on the OPCI are updating continuously. OpusAMM will call for the implied volatility from OpusARM for each on-the-run and RFQ interest.
When are LP pool NAVs published?
LP pool’s NAV are calculated continuously and settled daily for withdrawal purposes.
Are LP pool withdrawal requests transacted immediately?
Withdrawal requests are processed on a T+1 basis. This is done to avoid gaming the daily LPU NAV settlement and provide a window if needed for Opus to free up liquidity that may in use by a liquidity pool.
How are LT option premiums handled?
All option contracts and their premiums are managed by OpusTreasury which:
Takes custody of the option premiums,
Identifies each LT transaction through a unique trade ID and customer ID account number, and
Manages the books and records for both the LP pools and the LT individual accounts.
How does the option expiration process work?
Expiration starts at 7:45 AM UTC and ends at 8:00 AM UTC each day. The official settlement price used to cash settle each expiring option will be the average price during this 15 minute period.
Does every option go through the expiration process?
Yes, every option traded at OpusMarkets will go through the expiration process, but if positions are offset then there will be no economic effect on an LP pool or LT account.
What fees does OpusDigital charge?
Management Fees are collected on the LP pool's average monthly TVL;
Incentive Fees are collected on the profitability of the pool according to it month-over-month change in LPU NAV;
LT Trading Fees are paid per transaction.
Note: if an LP leaves a pool before month-end, a pro rata calculation is made to assess the management and incentive fees due to OpusMarkets at that time of withdrawal.
How are LT trading fees handled?
LT trading fees are deposited into OpusTreasury, divided, and held in two separate accounts in the name of: the Insurance Fund and OpusDigital.
Who decides how much of each trading fee collected is allocated to the insurance fund?
Initially Opus will decide what percentage of the fees are credited to the insurance fund and are expected to be driven by the amount of pool risk, liquidity, and market volatility. In the future, the manner with which the insurance fund is managed could be determined by holders of an Opus governance token.
How are incentive fees paid to OpusDigital determined?
Incentive fees are a function of the LP pool’s profitability as determined by its monthly LPU NAV. Fees are deposited into OpusTreasury and held in OpusDigital’s account.
Note: There is a high water mark governor on the monthly incentive fee. The incentive fee is not paid if the LPU NAV is lower than the previous month’s LPU NAV as calculated on the last day of each month.
How do circuit breakers work? Is it used for market volatility or just technical issues?
Opus’ circuit breaker rules are not discretionary and will be clearly defined about when they will be used. For example, if there is a technical issue, an attempted protocol hack, or any non-market related issue, Opus needs to be able to slow or completely halt trading to protect the ecosystem and its customers from harm.
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