CRV - 29 June 2022
The Dopex Community Analyst series is a series of strategies, ideas, opinion pieces and educational resource written by independent contributors from the Dopex community. Every month many knowledgeable community analysts share a short analyses of a coin of their choice and share these with Dopex. The goal of these articles is to empower the community and help Dopex increase SSOV volume & deposits. With these articles we hope to provide users with additional information that will help them in making an informed choice of strategy using our products.
Without further ado let’s jump into our next article.
$CRV Dopex Options Strategy
By: DeFi-B
Quick Stats (as of 07/25/2022)
- Price: $0.788
- Circulating Supply/Max Supply: 392,000,000/1,800,000,000
- Circulating Supply Valuation: $308.6M
- Fully Diluted Valuation: $2.6B
What we will cover today:
- What is Curve really?
- Introducing Dopex’s SSOV (Single-Staking-Option-Vault) enables liquidity providers ($CRV depositors) the ability to earn multiple layers of yield on their $CRV tokens.
- Low-risk bear market options strategy for heading a long $CRV position.
Platform Overview:
We’ve all heard of the Curve wars, but what is Curve really? Curve is an AMM, or automated-market-maker, which allows its users to make trades with pools of money rather than attempting to connect individual buyers and sellers. An AMM is made primarily of two groups - traders and investors. Traders are able to swap their tokens for other tokens for small fee while investors are able to make returns from these fees but must loan out their crypto in order to participate. Without these AMAs in our market, we would have to rely on the order book method similar to that used on Wallstreet where individual buyers and sellers need to be connected. AMMs are much more efficient and quicker than the order book method and have made waves in the DeFi/Crypto space. Curve launched as a “StableSwap” and was used exclusively to swap stablecoins such as USDC, DAI, and others for very low slippage.
As an example, lets say you have 500 USDC and would like to swap for DAI. However, DAI is more “rare“ (less total in the pool) so you receive 480 DAI in return. You have lost 20 DAI to slippage. This is how Curve started; a massive pool of stablecoins to allow investors to swap with minimal slippage. As Curve grew and investors began to fall in love with this coin more options were added to the platform, enabling their users to earn a return on more of their coins such as Ethereum and wrapped Bitcoin. Liquidity Providers earn their returns from the swap fees that $CRV users pay to exchange their tokens. Why hold $CRV? Curve is a DAO or decentralized anonymous organization meaning there is no corporate board but the holders of these tokens vote or protocol changes and hire new developers which is essentially the only use-case for this coin at the moment until they can determine a way to pass their earnings onto their holders. Curve currently operates on the Ethereum and Polygon ($MATIC) networks exclusively.
Option Play: Bear Put Spread
If you’re reading this article, I don’t need to delve into how bad the current state of the market is. However, I will quickly. Nearly all crypto coins are down ~30%+ in the last thirty days. Even blue-chip tokens, those with high market caps, have been pummeled. So how do we play this given current market conditions? $ETH is up 25% in the last seven days as most coins are experiencing a pause in the bloodshed however I believe this to be a brief bull swing in a downward trending market. Bear put spreads are designed to maximize profits while minimizing losses by simultaneously purchasing put options and then also selling put options at a lower strike price on the same underlying asset, with the same expiration date. Why a spread you might ask? Spreads are the fundamental building block of complex option strategies that allow investors to profit from the price in a combination of movements such as up, down, AND sideways. This particular spread allows us to profit from a decrease or from sideways movements (from your collected premiums).
Buying a put is fairly straightforward, but what does it mean to sell puts and deposit funds into Dopex’s SSOV, and what risks come with this? Are funds safu? Yes, your funds are entirely safu while you become an options liquidity provider. $2CRV is needed to sell $CRV put options on Dopex although calls are currently not available. Those $2CRV will now be used to sell puts on Dopex’s open option market (at your selected strike price) and accrue a premium. Premiums are paid in the underlying asset ($2CRV in this case) while your APY rewards will be paid out via $DPX, Dopex’s native governance token (none in this case although this is available with many other tokens enabling users to earn multiple layers of yield). Let us take a look at how the past epoch $2CRV depositors fared. $1.10 strike price earned an APY of 44.54%, $0.95 strike price earned 49.55%, and the lowest, $0.80 earned an APY of 26.69%. Bear put spreads net profit when the underlying price of the asset declines or moves sideways.
“DeFi. Wat risk of depositing in Dopex SSOV?
- Let us examine this scenario:
- Worst case: Being a bear call spread, we are betting on a general decline in the price of the coin. With that, if the market ends up reaching levels of previous highs and makes a bull run, we will lose out on that upside. This type of option strategy is best used to minimize the cost of holding your longs/as a hedge against your high conviction plays.
- Best case: The maximum profit an investor can expect from this options strategy is the difference between the strike prices minus the cost of the options.
Disclaimer: Author owns spot position in $CRV. These statements are intended to disclose any conflict of interest and should not be misconstrued as a recommendation to purchase any token. This content is for informational purposes only and you should not make decisions based solely on it. This is not investment advice.
—
Views expressed in this article are the author’s own and not reflective of the position or professional views from Dopex.io.
Dopex reimburses analyst contributors with a small payout to partially compensate the time spent on research and writing. For questions feel free to jump into our discord (discord.gg/dopex) and chat with the team or analyst contributors directly.
———
About Dopex
Dopex is a decentralized options protocol that aims to maximize liquidity, minimize losses for option writers and maximize gains for option buyers — all in a passive manner. Dopex uses option pools to allow anyone to earn a yield passively. Offering value to both option sellers and buyers by ensuring fair and optimized option prices across all strike prices and expiries. This is thanks to our own innovative and state-of-the-art option pricing model that replicates volatility smiles.
📱Stay Connected
Follow our official social media accounts and visit our website to stay up to date with everything Dopex. Twitter | Discord | Website
🚨IMPORTANT
Be careful of fake Telegram groups, Discord servers and Twitter accounts trying to impersonate Dopex. Always verify that you are on our official Discord server, Twitter page, or website.
← Back to Blog