Derivatives and Options on ETH - Ayesha Kiani

well hello everyone uh i hope you all are traders because okay better okay so uh yeah so i really hope that all of you are traders because my presentation isn't like a lot like fun like shape shift uh but i will try to tell everyone on how the options and derivative space work in crypto d5 particularly we see that d5 probably would take over the c5 market so that's what i'm here to talk about um great okay so this works uh i work at ledger prime we're a quantitative hedge fund we are owned by ftxus so ftx owns us and ftx derivatives i also teach at nyu tandon i teach blockchain and dlt uh prior to joining uh ledger prime i was at republic where i started republic crypto i'm a pers um angel investor in over 30 projects at this point but i've been in ethereum like since very early on i was a very very early employee at consensus where i took singular dtv which is like now known as breaker through its ico so i have seen the growth of ethereum like vitalik and the team like in front of my eyes and i'm like i couldn't be more proud of that like how far this community has come um so yes like i said we're a multi-strat hedge fund deploying a quantitative and systematic investment approach we currently have about 180 million under management and have worked and invested in over 30 d5 projects the exact number is 55 but then 30 is the number where we're market making we are providing liquidity uh we've set up amm pools uh where are the largest liquidity provider and several c5 options platforms like darabid bit.com ftx derivatives sister company paradigm and cme uh but since 2020 since like you know uh the the rise of d5 we've also been very active users and investors in projects like friction katana ribbon finance open you know they were just here as well dopex and stakedown now we provide consistent and predictable market liquidity ensuring high liquid and market depth and transparent price discovery which allows investors and participants to trade more efficiently most of our investors are institutional that's why um and most most of the capital that we've actually raised is in past year or so and not a single day goes by where the institutional investor doesn't have questions on d5 like why that particular market moves you know faster than c5 so it's it's so given that um in 2021 we kind of saw c5 grew by six percent in uh six times in 12 months while d5 was able to achieve the same relative growth in just uh six months right like if you compare dydx volumes to like bid.com or cme um you would see that there's not a lot of stark difference there anymore uh derebit and obviously ftx us derivatives were the fastest growing platforms both of which you know we're leading markets for but in 2022 uh we have started seeing and then obviously they're given the other ecosystem growth of we see d5 options taking on uh larger volumes than d5 obviously that includes volumes from solana avalanche dot but eth still dominates the market uh platforms on ethereum and then uh eth and btc options uh because they traded on cme which like you find a lot of institutional involvement on um one thing we've started seeing in 2022 which like we've been thoroughly excited about and half of our team is here for that uh we've started seeing more structured products and exotic option trades in the otc market uh which have been you know in traditional finance for like years and in 2022 i think like for past three to four months or so we've started seeing more of such products in d5 so that's also kind of a sign that the market has grown you know it's matured or the traders or the founders that are active uh in the d5 space have you know a better understanding of on how even traditional markets work um this is the current state of c5 option markets obviously the volumes have grown over the years but this doesn't include the otc or non-btc eth market a lot of we have to be very much aware of that a lot of the options trading aside from ether btc does happen in like telegram chats where you know it's it's actually very true um so ftx is going to launch solana options um there's still no up uh there's still no market for like avalanche options uh part of the reason is obviously volumes and part of the reason is that how many traders are like sophisticated enough to trade these markets so that's the issue that you currently see with you know c5 uh you know the growth attributed to influx is obviously sophisticated funds like on the cme level you see um if you know in news or whatnot you read goldman sachs entering crypto it's not that they're entering crypto like just to say hi and hello they're probably just trading btc or eth on the cme level and that's it that's the only thing they would want to touch because it's fully collateralized so that's where the you know institutional level involvement is in c5 uh but obviously it hasn't grown like the d5 market has uh we've been following the traditional markets as blueprint for growth we know very much right now that crypto is here to stay and its own asset class and another asset classes at scale option trade three at 30x at the size of spot markets and we think crypto will be no different right like the charts here present the speed of growth of derivatives for other asset classes as well of size of derivative markets relative to spot this is how currently this c5 option market structure look like it's almost a replica of uh you know any cme order book that you'll see or any um you know any traditional platform you'll there is there's a lot of like order of magnitude more complex than spot especially for market makers because we have to consistently maintain two way of liquidity for all option contracts when you know liquidity is dispersed it's also very very uh computational intensive given automated models and we have to calculate prices for each option on a higher frequency basis and update risk and inventory parameter um like i said this is this is this is a snapshot out of paradigm where we're active traders on but in good news defy like changes it right it has introduced the newer versions of like amm pools and whatnot so the tvl currently right now is one billion uh which was at the end of 2021 this does not include like on how much capital um came in like in past three to three months or so um obviously a vast majority is attributed to on-chain structured products uh d5 projects realize that most users prefer simple automated strategies because you know the investors are still retail at the end of the day so the simplified process is of you know using a yield strategy on like let's say ribbon or whatnot the higher the tvl probably could be um one thing we've started seeing an exponential growth is on option walls because they have the potential to provide a more sustainable return several small strategies have a lower correlation with like general crypto markets and therefore provide users with a diversified source of return walls exist across all chains um but the promise that's coming out of walls right now which we've seen you know out of these defy structured products is obviously defy yields right um we see that it should uh traditionally generated we are lending and trading fees uh you know we're providing liquidity um first on the pool level by offering you know such products that generate yields we are traditional market strategies like cash carry and options writing then retail investors could be anyone in this room they deposit capital into this d5 walls then these projects like turn into uh turn these you know the capital locked into sell options to counter parties again to like us in auction markets to get the best price uh the premium from this the this is then passed on to depositors so like generally across like all structured platforms that we've seen it's just the amm model right it's not like as much of an order book because it is extremely computational heavy and like hard to maintain so again that's the un on-chain mechanism that's been extremely promising you know on the d5 side um obviously there are hurdles we see a lot you know possible option contract uh makes it you know very computationally expensive to build liquid market on chain expensive from gas cost perspective sometimes it's extremely hard uh to trade on a certain network um you know ethereum has its gas issues solana has its tps issues um so still there's you know we still haven't found like a very much like level ground for that um obviously on chain portfolio margining and liquidation system is needed uh very much before you know d5 could completely take over the c5 options we need a lot many more strategies on chain strategies like delta ones which you know in the form of spot perps and future uh we have seen the profs projects that have launched perps first and then options later have uh been doing significantly well in the market um and then obviously right like impermanent loss has been a huge concern for anyone and everyone that's been trading so the other thing is like uh portfolio margining cross margin and liquidation engine enabling partial collateralization obviously this enables greater capital efficiency ability to delta hedge i think the market has gone a lot better in this like delta hedging uh because there's there's many more players like us now than like compared to early 2021 um like i mentioned efficient protocols uh layer two we're counting big time on ethereum's layer two arbitrary polygon uh whenever we're we've been training on these it's a lot more efficient um given that how in little time that they've built um if am a model then the ability to deal with impermanent have theta decay as well as capital efficiency um that's the struggle with like you know amm modeling at this point and then obviously right like as the community grows we need more and more derivative traders and market makers so we could enable um accurate pricing and deep consistent liquidity these are some of our portfolio projects and some of our supported projects when we're saying that we're supporting a project or you know we're working with a project what we're doing is so all the things that i've described in my earlier slides um we're investors in them but then we're also creating their mm pools so um the retail investors can't trade on it and then we're creating markets enough by providing different trading strategies on the other back end that and uh generates yield uh ribbon finance which is like an ethereum darling open uh stakedown we were very much early on investors contributors um stakers and you know we've helped them grow their tvl their training strategies over the years um and we see like even though a lot of it has been like on ethereum given that how much liquid it is on ethereum we see projects literally like replicating the same models on like other chains uh but then you know like at the tps issue at the volumes issue so that's why we think that ethereum currently even leads the entire d5 movement because we've seen on the volume side two of our projects uh open the team was just here everyone has an idea so they're the largest defy options protocol at this point um and what their v2 version has done is partial collateralization of options enabling a more capital efficient environment for option sellers which is extremely important for market makers so in traditional c5 markets right you have to like lock up either full collateral or certain amount of collateral in order to trade uh most of the d5 platforms do the same exact thing but open is one of the first that have started to do partial um that kind of like helps the traders you know not to lock up that word capital into tr uh you know into marking these positions uh so we're kind of like very bullish on uh open v2 at this point um obviously they're robust liquidation engine design enabler user and market makers to provide increased liquidity opens back and is used on a lot of other ethereum's projects as well given on how liquid it has become over the years then obviously ribbon finance we were one of the initial and largest liquidity provider for their structure products and what ribbon basically does is it generates yields for their structured product like walt via on-chain options uh contracts like using open uh protocol which i just mentioned that some projects use in wrapped eath or btc and then ribbon's initial contract design the fact that market makers are initially buying and not selling options and thus capital efficiency for market make is less of a concern as well as of concentration of strike liquidity makes it easy for you know shops like us to consistently provide liquidity in the size akin to c5 markets that eyes on delegates which means professional market makers you know that can provide more capital within their ecosystem to help price and stabilize their options um one thing you'll know is that even though it's an amm pool most of the pricing is very much similar to c5 like especially in dopex's case um you'll see extreme similar pricing on paradigm or in dopex like on certain given days like random days these guys are planning on launching on optimism made net i think um to minimize fees and transaction time and then obviously rebates for option writers are in case of you know lost like through their tokens this kind of like ensures that superior returns in comparison to riding like naked options so there's like you know the safety net for any one of us uh that's looking to grow liquidity is provided there and i think that's all i have to talk about options so i'll open it up for questions [Applause]