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The unique feature of FinNexus’s MASP model is that the option pricing model is combined with the AMM mechanism, and different basic assets and different types of option margins are put into a liquid pool.
Written by: Spike Chen
Two years ago, when CEX was calling for wind and rain, the DEX in the order-book mode was still struggling, and the DEX in the AMM mode had quietly brought the competition between the two sides to the same level. Recently, many CEXs have successively launched option products, laid out the derivatives track, and expanded asset types and business scope. At the same time, the decentralized options products that appeared at the same time also subverted the traditional options game rules from the beginning with unique innovations. If the previous battle between centralization and decentralization was the way to catch up with decentralization, now DeFi innovation in many fields has a tendency to accelerate and surpass.
FinNexus’s unique MASP mode
FinNexus announced its new version of its option product business model-MASP mode a month ago. Now the official public beta version has been opened, and we can see the truth through this article. The full name of the MASP model is Multi Assets Single Pool. The official explanation is that this model is a new option issuance and liquidity mechanism that combines the option pricing model and the AMM mechanism. Another innovation of this model is that it combines different basic assets and different types of The option margin is placed in a unified liquidity pool to provide margin support and liquidity support for option transactions.
Advantages of MASP mode option trading
Let’s first look at the difference between option purchases under the MASP model and traditional options:
This is the traditional option trading interface, that is, the unique T-shaped quotation interface for options. Compared with the spot, the T-shaped interface is extremely complicated. The different exercise time selected on the left corresponds to a separate T-shaped quotation. In the quotation, different exercise prices correspond to two types of call and put respectively, and the two types correspond to the bid price and the ask price respectively.
From the perspective of the quotation interface of traditional or centralized options, the complexity is very high.
In the interface of FinNexus, the option quotation interface is greatly simplified. The user enters the exercise price and exercise date through simple operations, and the option type can complete the purchase operation. Very concise, it is rare that decentralized products are better than centralized products in terms of operability.
In fact, the improvement of the interface is only the appearance, the reason for the interface optimization is that the MASP mode is supported in the back. Theoretically speaking, options with different exercise prices and different exercise times can combine countless options, and countless options liquidity is a problem. Therefore, in the traditional T-shaped interface, CEX sets the option exercise time and exercise price to a limited extent. For example, the exercise price is 50 US dollars for one level, and 20 levels are designed to cover the fluctuation range of 1,000 US dollars. Highly liquid options can be designed with more and more intensive gears. For Bitcoin options, currently on Deribit there is a stall of US$125-US$250, with a total of about 20 exercise prices. And about 50% of the exercise price is non-liquid, basically just a display.
In FinNexus’s MASP mode, the option pricing process is controlled by the contract formula. In theory, the contract can open options based on any exercise price and exercise time. Therefore, we can see that in the above interface, the option behavior The weight price can be selected after 2 decimal places. After selection, the contract will automatically calculate the purchase price of the option under the selected conditions. Actually this is not Multi Assets, in theory it is Unlimited Assets.
OPYN, another decentralized option project, actually copied the traditional option model into the contract. In order to ensure liquidity, there are very few options, and a few do not even need a T-type account.
Single Pool is equal to multi-currency option margin pool + liquidity pool
How can the liquidity of the options selected by FinNexus be guaranteed? Can they be bought? In the official description, another advantage of MASP is the Single Pool. The options purchased by the buyer have no counterparty. The counterparty is the Single Pool. The role of this pool is on the one hand the option margin pool, and the other is the liquidity pool. In this way, as long as the margin can be covered, the liquidity of the option is unlimited. In other words, if the size of the current margin pool can support the issuance of 1 million US dollars of options, then users can successfully trade options within 1 million US dollars at any time.
We can see that the current pool change, size, and margin rate can be displayed on the Pool interface. The official has not yet announced what the margin rate of the official version will be, and the margin rate in the test version is very high, exceeding 400%. How to balance the efficiency of capital utilization and the safe estimation of option exercise is the key to the design of margin rate. According to FinNexus’s rigorous attitude towards financial products in the past, it is possible that the priority of the exercise security of the initial margin is higher than the capital utilization rate.
In the current public beta version, joining the pool can support FNX, ETH, USDC, WAN four currencies, because FinNexus recently adjusted the distribution of tokens to 70% for mining and Dao community incentives, and later for the newly added coins to the pool This should be done by voting.
From the MASP model of FinNexus, it can be seen that users who join the margin pool become a collective option counterparty, and are also the LP of the option pool, and will get an LP Token—FPT. The net value of FPT reflects the income of LP—the main source of income. Option fees and transaction fees paid by the buyer.
On Hegic, another decentralized options project, his pool is divided into two, call options use ETH as a single currency pool, and put options use Dai as a single currency pool. The two pools are relatively more risky to a single pool. Part of the risk cannot be hedged within the pool. LP is more entangled in which pool to enter when choosing. In the case of the same margin rate, capital utilization efficiency will be low.
The FinNexus pool provides the function of mining incentives. In addition to sharing the income generated by the option fee, LP Toke-FPT also obtains mining rewards. What is more user-friendly is that when FPT is obtained, mining starts automatically, and No need to mine FPT anymore.
FinNexus’s token distribution
According to the latest token distribution plan of FinNexus, the total amount is 500 million, and the specific ratio is as follows
- 70%-Mining incentives, released year by year for DEX liquidity mining and Single Pool mining
- 4.5%-operating expenses, gas fees and other expenses
- 6.1%-Destroyed in the previous period and in the address 0x0000
- 5%-team and founding investors
- 5%-Insurance pool, used for the final underpinning of unpredictable risks
- 1.7%-Institutional investors, one-year linear release
- 2.7%-current circulation
The above distribution plan better reflects the characteristics of the DeFi community’s co-construction, and also takes into account the considerations of security and long-term operation and incentives.
The risks and imagination of FinNexus
Once the MASP model succeeds, it will be another major innovation in the DeFi field, and its significance for decentralized derivatives is equivalent to the significance of the AMM mechanism for DEX. The risk lies in whether the model can ensure good operation under safe conditions, and how the effectiveness of the option pricing mechanism is continuously verified and improved. Based on the professional financial and development capabilities of the FinNexus team, there is a lot of room for rapid adjustment and improvement of the MASP model.
For centralized options such as BTC, it has just begun. Although the trading volume has repeatedly hit new highs, due to liquidity reasons, the current pricing mechanism is still immature. If decentralized options can have the advantage of pricing competition from the beginning, it will be a key step in the competition between DeFi and Cefi. FinNexus is also the only product that launches BTC options in decentralized options. According to the principles of MASP, in theory, FinNexus can continuously increase the types of options underlying assets, such as other tokens and even traditional financial asset derivatives. From this imagination, although The track is different, a bit Synthetix.
Everyone sees that as DeFi basic assets (borrowing, stablecoins, etc.) mature, the market will surely enter the field of advanced financial products-derivatives. Before you know it, you will find that in the field of DeFi derivatives, the competition between DEX and CEX seems to be starting at the same time.