In DeFi, options are not yet commonly used, meaning there is no supply nor demand to set a market value for such instruments. By borrowing from known TradFi techniques, Rebus is bringing options trading to DeFi.
Why do investors trade in options?
DeFi options trading is interesting for two reasons:
- Speculative moves like taking a long position with a limit to the potential loss
- For the purpose of hedging other positions.
How do DeFi Options work?
In TradFi options trading, when there is no reference market available, a technique called delta hedging is used to address volatility**.** This technique allows investors to reproduce almost exactly — in the absence of transaction costs and bid/ask spreads — the payoff of an option. This is because the goal is to neutralize the volatility of the asset or asset group.
Using the same, proven delta hedging technique, Rebus maintains an engine (Rebus Delta Hedging Engine) to accomplish the same volatility neutralizing goal as in TradFi. This means investors can both hedge and reproduce the payoff of the options with Rebus playing the counterparty of a generic options buyer.
This product allows an investor to invest in a Liquidity Deposit of Options (Pool). As usual, the Options Products are built as vaults which invest in a third-party DeFi asset or asset basket.
Investment Currency: FIAT
Who invests in these products? Those looking for a low-to-moderate risk DeFi investment opportunity. The product is Market NEUTRAL even if affected by the volatility and trend of the swap prices.
Reward: Rewards scale with the volume of transactions made by the Rebus Delta Hedging Engine utilizing the liquidity in the Pool. The reward is an x% of the reward of the Rebus Delta Hedging Engine.
Duration: Perpetual - redemption is allowed at any time at the market price.
Currency Risk (for investors FIAT based): Medium
Market Risk: Medium
Overall Risk: Medium
Risks: Rapid price decline of a pair.
Opportunities: Increases in the magnitude and volume of options transacted by the Rebus Delta Hedging Engine.