Moret unveiled: volatility hedging with 1inch
Moret is an automatic market maker for ETH/BTC options on Polygon chain. The liquidity providers to the ETH or BTC pool act as market makers for both sides of option trades. In a liquid and two-sided market, the buy orders and sell orders are roughly balanced, resulting in small market risk to the liquidity providers. However, that’s not normally the case for ETH and BTC options. The LPs farming yields in a liquidity pool without a hedging mechanism are likely subject to substantial loss if market is trendy or extremely volatile.
Moret tries to mitigate this loss for liquidity providers by creating the hedging mechanism. Hedge positions in ETH or BTC are calculated based on the aggregate Delta position of the option vaults, and are bought and sold via 1inch Aggregation Protocol for getting the best executions. More details could be found in Moret’s wiki page: https://meridian-moretti.gitbook.io/moret/investments/market-making-protocol
Since the hedging mechanism directly impacts the reduction of losses for all liquidity providers, it is prudent to align the benefits and responsibilities of running the hedges. Only the majority holders of the liquidity pool could be authorised to run the hedging bots. Initially the access is granted on an ad-hoc basis, and then the authorisation process would be moved to DAO framework when the governance token is launched.
Contact us on https://t.me/moret_options if you’d like to know about Moret protocol.