Moret has just started its beta test! Everyone is welcomed to join the process of testing this innovative DeFi platform for options trading. The beta test lasts until Christmas. And by New Year, we will be preparing for the premier release!
There are a couple of ways to participate in the beta test: provide liquidity, buy or sell options or run Moret bots.
The liquidity pool of Moret runs alongside an automatic hedging bot on-chain. This bot dynamically adjusts the ratio between USDC and the tokens options are traded on (e.g. WETH or WBTC) so it reduces the impermanent losses of liquidity providers.
In return for providing liquidity to the pool, LPs get the option premiums paid by the option traders. For a typical 1-day at-the-money call option on ETH price, the premium is about 2% of token price. By underwriting only 1-day options, the LPs can potentially collect as much as 700% worth of premium every year!
Moret offers a broad range of option transactions. On the most basic level, traders can buy European call or put options on ETH and BTC by paying the premiums denominated in USDC. The implied volatility on the back of the option premium is determined, using a constant product market maker formula, by the size of the liquidity pool and the amount of options to be purchased. The bigger the capacity of liquidity pool and smaller the option contract, the lower the implied volatility would be. There is no fees for entering option contracts.
In addition, traders can enter short option positions. Instead of naked sells, you can enter ‘covered’ sell position, in which you put down collateral equal to the full price of the token minus the option premium. At expiry, you get the full collateral back if the contract ends out of money, effectively earning the option premium. Here the implied volatility also depends on the constant product rule. But since selling options reduces the total demand, the implied volatility is lower. In extreme cases, the implied volatility could be lower than the running historical volatility, indicating a negative premium.
What’s more, Moret provides trading in tokens linking directly to volatilities. Although this won’t be available for testing at the moment, once it’s added to the next stage of the deployment, traders can buy or sell volatility tokens, convert them into option contracts and exchange them at other DEX. This would be the most promising component of the protocol which we are very excited about.
Set up bots
There are a few ways for bots to get involved in Moret protocol. One way is to run the expire bot which settles the option contracts when they are at their expiry time. In settling the contracts, the address that runs the bots will be compensated with 1% of any positive payoffs of that option contracts, in order to compensate and incentivise bot participations.
The other way is to join the core hedging process by running the hedge bot. However, only a very limited number of approved users are allowed to run this hedge bot. And we are continuously improving this process in collaboration with 1Inch.
As with beta test, please be mindful of the potential bugs in the protocol. We can’t be responsible for any losses but we will aim to compensate losses of any beta testers during the test period as much as we possibly can.