What are NFT options? What protocols are in the pipeline? How to use them?
Original text: “NFT Derivatives Report: Understanding NFT Option Agreements with Zero Basics”
From BendDAO to Sudoswap, more and more NFT-FI projects have appeared in everyone’s field of vision. These projects without exception try to solve some pain points in the NFT market. For example, Sudoswap hopes to make liquidity by adopting AMM. Providers provide instant liquidity for NFT transactions. BendDAO can solve the needs of instant lending for blue-chip NFT holders through peer-to-peer pools. This article will focus on another track – NFT options, and will explain NFTs The basic concept of options, the horizontal comparison of NFT option track projects and possible future development directions. The article only represents personal opinions.
What are NFT options?
Before learning about NFT options, we can review the definition of options in traditional financial markets:
Option is the right to choose whether to trade or not. When the option buyer pays the premium (Premium), it is entitled to the contract seller within a specific time (or at a specific time) (Expiration Date) in accordance with the agreed conditions or the strike price (Exercise Price, Strike Price, or exercise price, strike price), the right to buy or sell a certain amount of the underlying, this right is called an option. If this right is to buy the subject matter, it is called a call option (Call Option, or called a call option, a call option), referred to as a call right; if this right is to sell the subject matter, it is called a put option (Put Option, Or called short option, put option), referred to as put.
From this deduction, we can know that an NFT option consists of the following basic elements
– Underlying Asset: Refers to the NFT assets to be traded (including NFTs with specified NFT Collections and certain IDs under a specific NFT Collection).
– Expiration Date: The expiration date refers to the option that the buyer can effectively exercise only within a specific time (or at a specific time).
– Strike Price: The strike price is the price at which the buyer of the contract buys or sells a particular subject matter on the strike date.
– Premium: Premium refers to the fee charged by the seller of the option to sell the right.
The issuer of the option can create a right to buy or sell NFT at the strike price (Strike Price) before the expiration date (or at a specific time) (Expriation Date) and receive the option fee (Premium). The buyer of the option By paying the premium (Premium), one can buy or sell NFTs at the strike price (Strike Price) before the expiry date (or at a specific time).
We can explain the basic operation of NFT options by observing a case, for example:
Alice holds a CryptoPunk NFT with ID #1000, Alice chooses to create a right to buy the NFT (sell call option)
“Buy CryptoPunk#1000 at 100ETH before December 31, 2022, the premium price is 10ETH”
In this case, the subject matter is CryptoPunk#1000. Once the right is purchased, Alice can receive 10ETH of the option premium as income.
And Bob can get the right to buy this NFT with 100 ETH before December 31, 2022 by paying Alice an option premium of 10 ETH.
If the price of CryptoPunk reaches 150ETH before the expiration date, Bob can exercise the right, that is, buy this NFT at 100ETH, and then sell this NFT at the price of 150ETH in the market.
And if the price of CryptoPunk reaches 70ETH before the expiration date, Bob can give up the right and lose 10ETH.
Advantages of NFT Options
The birth of NFT option products fills the gap of existing derivatives tools in the NFT market, and clearly shows some advantages
Compared with spot markets such as OpenSea and LooksRare, NFT options can provide NFT buyers with a certain leverage effect. Buyers of NFT options can pay a certain premium to lock in the price of NFT for a period of time. In other words, the price of the premium will be much lower than the spot price of NFT. And the biggest loss is only the premium itself.
In the current NFT market, a large proportion of NFTs are composed of artworks and PFP assets, while there are fewer equity NFTs. Therefore, in addition to obtaining FT airdrops (such as APE) and project V2, NFT holders In addition to the income brought by Mint, there is a lack of a certain source of income. NFT options can enable users to obtain the income of premiums by creating options.
NFT Option Agreement
The author investigated the following NFT option agreements (projects are sorted by product launch time)
– Nifty Option
Website : https://niftyoptions.org/
Nifty Options is one of the earliest NFT protocols, the project was released in September 2021, and its product design is relatively simple.
In the product design of Nifty Options. The creator of the order is equal to the holder of the right, while the participant of the market receives the option fee and is responsible for fulfilling the obligation.
In Nifty Options, the order creator can fill in its underlying, option premium, strike price and strike date to generate a put option (Long Put) for his NFT. The order creator will need to pledge the set option premium to Nifty In the Option contract, when market participant B buys, B needs to pledge the Token of the strike price set by the order creator into the Nifty Option contract, and obtain the option premium set by the order creator.
Therefore, on the market page, when users choose Purchase Option, they do not need to “buy options”, but instead charge a certain amount of premium and assume the obligation to purchase NFTs.
Summary: As the earliest NFT option agreement, Nifty demonstrates the application of NFT options very well, and has the contract security guarantee of the first 10 million US dollars of TVL. However, due to the simplicity of the product design, only NFT holders can create rights (rather than obligation), it will greatly limit the liquidity of the market. In addition, since Nifty Options adopts the whole chain process, it will cause a high gas cost when there is no counterparty in the peer-to-peer market.
Putty’s project was established in January 2022, and released existing products on August 30, 2022. In Putty Finanece, users have more choices. Users can choose Put (sell)/Call (buy) To combine Long (long)/Short (short) combination to meet different needs.
When a user creates a “Put – x days – Long” in Putty, which is similar to the design of Nifty Options, the order creator is the party with the rights and needs to set the option details and pledge the premium. For order participants, the The premium can be collected but the Token corresponding to the performance price needs to be pledged as a guarantee for the performance of the obligation.
When a user creates a “Put – x days – Short” in Putty, the creator of the order is the party with the obligation. The creator can set the option details and pledge the same token as the strike price as a guarantee for fulfilling the obligation. The order Participants need to pay a certain premium to obtain the right to sell the designated NFT in the future.
When a user creates a “Long – x days – Call” in Putty, the order creator is the party with the right and needs to set the option details and pledge the premium, and the order participant can collect the premium but need to pledge the order creation The NFT required by the user is used as a guarantee for fulfilling the obligation.
When a user creates a “Short – x days – Call” in Putty, the order creator is the party with the obligation, and the user can set the option details and pledge NFT as a guarantee for fulfilling the obligation. The order participant needs to pay a certain amount The premium to obtain the right to buy the specified NFT in the future.
Summary: Putty’s latest product, released on August 30, 2022, demonstrated the basic functions required by a peer-to-peer NFT options market, and also provided many brighter functions. In addition to supporting designated NFTs, Putty also supports NFT Floor, Bundle and ERC20. Also provides option price calculators to help order creators and order participants evaluate option prices. However, Putty’s products currently only support 10 NFT projects, and do not support user-defined additions Project, I hope Putty can open the function of custom project in the future.
Website : hook.xyz
Hook Protocol was created in February 2022 and has been released on the Ethereum mainnet.
The option creator chooses to create a Call Option according to the NFT category, and selects the exercise date, exercise price and corresponding option premium set by the system. Option buyers can choose the corresponding option to purchase in the Collection, and have the right to follow the exercise date after paying the option premium. Purchased at the strike price.
Summary: On the Hook Create Option page, currently only supports the creation of Long Call options, and only supports the two Collections of CryptoPunk and Good Minds. In the execution selection, the monthly fixed date is also selected. And gives the specified in the system Suggested premiums under different strike prices (users can adjust). It can be seen that Hook is trying to create a pre-standard NFT option agreement through preset conditions. However, since the current project is still in the early stage, the preset conditions are reduced. Whether the market threshold will limit the diversified needs of users is unknown.
Website : openland.wtf
Openland was created in September 2021 and is currently running on the Goerli testnet.
Compared with similar projects, OpenLand’s product design is similar to an NFT Marketplace, which is relatively closer to the usage habits of NFT users, and the rights and obligations of the creator and participants of the order are relatively clearly divided. In short, the order’s The creator is the obligated party, and everything that can be purchased in the market is the right. It is worth mentioning that when the participant buys the option in OpenLand, he will receive the Option NFT representing this right and can be listed in the NFT Marketplace Transfer to gain early access to the intrinsic value of the option
When the order creator creates a “Put” in Openland, it means that the creator is obliged to purchase the subject matter at the agreed price in the future.
When the order creator user creates a “Call” in Openland, it means that the creator is obliged to sell the subject matter at the agreed price in the future.
When an order participant buys a “Put Option” in OpenLand, it means that it has the right to sell the subject matter at an agreed price in the future
When an order participant purchases a “Call Option” in OpenLand, it means that it has the right to purchase the subject matter at an agreed price in the future
OpenLand’s products take the form of Marketplace that NFT users are more accustomed to, and at the same time make options a transferable form of NFT. The cost of point-to-point order matching also uses the method of off-chain signature issuance and on-chain transaction to save money The cost of users. In addition, OpenLand also provides NFT’s Forward (forward) contract in addition to options to allow users to bet on the value of NFT. However, since OpenLand has not announced its project roadmap, the project The mainnet launch time is unknown.
The project was founded in May 2022, participated in EthGlobal, and appeared in institutional research reports as a representative project of the NFT option track many times, but the project is not currently online.
Website : capsid.one
The project was founded in January 2022, and announced a seed round of financing of $3 million on August 4, 2022. The product is not yet online.
The project was created in January 2022 and incubated by @AlphaVentureDAO, and is not currently online.
The birth of NFT options provides many new ideas and the possibility of forming structured products for the development of NFTfi. For example, MetaStreet and Putty, the NFT peer-to-peer market liquidity providers, have recently cooperated. MetaStreet is on NFTfi (peer-to-peer NFT lending market). Provided 3 CryptoPunks with an annualized 10% borrowing rate. In order to hedge their risk exposure, MetaStreet purchased a put option on the CryptoPunk floor price on Putty (annualized fee of 5% for the option premium), so Metastreet’s Get a risk-free position and get a 5% spread.
Compared with NFT, NFT’s option protocol is earlier, and it also faces many challenges. Some of the NFT option protocols mentioned above are based on the peer-to-peer market, and the peer-to-peer market allows users to create and trade more freely. , but will face more decentralized liquidity. The peer-to-peer solution requires more fair option pricing, and perhaps a market-making solution similar to Sudoswap may bring some thinking and opportunities for NFT option agreements. At the same time, NFT assets The evolution of the category may also bring NFT options into the field of more and more people.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/one-article-to-understand-the-nft-option-agreement-and-representative-projects/
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