YFI Founder AC Takes You Through His Latest Work Deriswap

DeFi之道

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Andre Cronje has released a brief introduction to Deriswap.

Original Title: "1-Minute Overview of YFI Founder AC's New Project Deriswap"

Original Source: The DeFi Way

On November 23, Yearn Finance (YFI) founder Andre Cronje announced his latest creation, Deriswap. This project combines Swap, Options, and Lending into a single high-capital efficiency contract, providing users with a one-stop trading service. As of now, Deriswap is in the auditing phase, and AC himself has not released the related contract address.

Here is a brief introduction to Deriswap from Andre Cronje's announcement:

I am becoming increasingly obsessed with capital efficiency. The current market liquidity is fragmented. You can choose one in the following protocols:

1. Swap Trading (Uniswap, Sushiswap, Bancor, etc.)

2. Options (Deribit, Hegic, Opyn, Primitive, etc.)

3. Lending (Aave, Compound, DyDx, etc.)

Deriswap (currently undergoing auditing) combines Swap, Options, and Lending into a single high-capital efficiency contract, allowing for asset swaps, options, and lending interactions between two assets.

Let's consider the ETH-BTC pair.

Swap

The swap contract follows the standard Uniswap x * y = k formula, where Liquidity Providers (LPs) supply ETH-BTC as liquidity. Traders can exchange ETH for BTC and vice versa. LPs earn transaction fees.

Oracle

The TWAP Oracle is extended to read data every 30 minutes, allowing us to report realized variance, realized volatility, implied volatility, and price over any selected time series.

Options

The above derivative values allow us to price call/put options using the Black-Scholes options pricing model. These are all American-style options and can settle at any point in time. Settlement occurs in the pair asset, so a call option requires buying the full value, and a put option requires selling the full value.

Marrying swap trading with options is an interesting interplay, where options are a volatility trade, and trading fees are a volatility hedge. Trading against pair volatility (+ve trading fees) offsets the settlement loss of options (-ve settlement).

Furthermore, full settlement should also be chosen as LPs have a perpetual position on their asset pair themselves, settling only the profit would be a permanent loss, but settling the underlying asset would be an impermanent loss. Settlement can be done in an ITM or OTM manner.

Futures

Futures expand and simplify options, where you can pay an additional fee on the base, allowing you to settle with another pair at a user-defined future date.

Lending

Lending expands and simplifies futures, where you pay an extra fee along with collateral, granting you borrowed assets. You can then settle the borrowed assets before a user-defined future date, or the collateral assets are seized.

Secondary Market

Lending, futures, and options are all tokenized through NFTs, enabling the creation and trading of secondary markets.

Conclusion

Deriswap provides a comprehensive, highly capital-efficient market for trading, options, futures, and lending, allowing LPs to maintain risk exposure and enjoy additional fees and rewards.