Lessons Learned from Optix V1 and the Journey to V2

Introduction

Optix Protocol V1 was launched last year, marking a pioneering milestone as the only platform where users could purchase options on a variety of altcoins. This unique offering catered to the growing demand for alternative crypto options trading, filling a significant gap in the market. Since its inception, Optix V1 has gained remarkable traction. This post will reflect on what worked with Optix V1 and outline the improvements we aim to make with Optix V2.

What Problem Did V1 Solve?

Options are notoriously complex and confusing. Our goal was to implement a solution that was as simple as executing a trade on a spot exchange. Providing liquidity to a single vault allowed option sellers to offer options across a range of assets, expiries, and strikes. This approach worked to a certain degree but also revealed limitations.

V1 Traction

Optix V1 has achieved over $1.5 million in cumulative trading volume, ranking it as the 7th option protocol by cumulative volume in DefiLlama. 

The total premium collected during this time was $36K.

V1 Limitations

As you can see there is interest and demand with what we built but over time some issues with the approach became apparent:

• Liquidity is constrained
  The only liquidity provided was from the protocol itself. During a trading competition, participants deposited funds to win the prize but promptly removed them afterward. We need traders to be self motivated to provide liquidity on the platform. 

• USD-Only Collateral

  Token holders often want to earn yield on their tokens, so it would be beneficial if any token could be used as collateral when selling options.

• Lack of Trading for Active Contracts

  Option buyers lose value by not being able to trade their positions.

• KYC/AML Requirements

  Options are favored by larger, more traditional institutions that have strict KYC/AML requirements. These users could not use V1.

• Difficulties Pricing

  Option pricing is challenging to get right, and most people aren't sure how to set a fair price.

• Hedging with Perpetuals

  Being able to hedge on the same platform is desirable.

Enhancing Trading Functionality in V2

The feedback was clear: users needed more from the Optix platform. With V2 we address the issues in the following ways:

Altcoin Tokens as Collateral

V2 now allows option markets on any altcoin asset, with the altcoin token as collateral. This benefits token holders, such as teams and VCs, who can sell covered calls on their tokens to generate income.

Tradeable Active Contracts

Integration with Uniswap V4 means option markets are UniV4 pools. This integration offers functionality like concentrated liquidity and limit orders to traders.

KYC/AML-Restricted Options and Perpetuals

Larger traditional finance institutions have strict KYC/AML requirements. Optix V2 provides pools that are KYC/AML restricted, allowing these traders to participate legally.

Improved Option Pricing

The integration with UniV4 enables trading at market or setting limit orders, making it easier for traders to understand what they will be paying or receiving. Optix V2 also introduces transparent and fair price discovery using Dutch auctions, where traders can set parameters such as the amount to sell, starting and ending prices, and auction duration.

Unconstrained Liquidity

In V1, options could only be sold when someone provides liquidity to a vault and sets pricing on that vault. It required specific system knowledge. Now, in V2, anyone can sell options on any token without specific system knowledge. Optix V2 simplifies this process, allowing limit orders, liquidity provision across a range, or swaps, similar to other trading platforms.

Conclusion

The journey from Optix V1 to V2 has been driven by our commitment to listening to our users and continuously improving our platform. The enhancements from V1 to V2 not only address specific user feedback but also reflect a broader vision for the future of trading in the DeFi space. By enhancing functionality, compliance, and risk management tools, Optix Protocol V2 is set to offer a more satisfying, robust, and secure trading experience.

We are excited to see our users leverage these new capabilities as we continue to innovate and lead in the decentralized financial market.