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Opyn's new derivative Squeeth tutorial

Read this article in 72 Minutes

Three ways to teach you to quickly participate in squeeth

Original author: Johns

squeeth is an innovative defi derivative invented by the decentralized options team opyn. Construct.

Squeeth is a contract in opyn that tracks the square of the price of Ethereum. The squeeth system works by shifting the payment of funds, usually from longs to shorts. As shown below:

- Longs pay shorts

- Shorts pay longs 2* (eth return) + (eth return)²

- longs and shorts swap implied volatility

- shorts receive staking returns from deposited eth funds

longs squeeth return

There is an easy way to consider the daily return of a squeeth position (if there is no change in implied volatility).

Long squeeth return 2 * (eth return) + (eth return)²-funding

If the funding rate is 0.24% (see below) and the eth return is 5% for a day, the return will be (approximately) for:

2 * (5%) + (5%)² -0.24% = 10.01%

Short squeeze return

Long square return with The short squeeth return instead increases the return on ETH collateral.

Short squeeth return -2 * (eth return)—(eth return)²+ funding + CR*(eth return)

(where CR is the collateral ratio). If the collateral ratio is 2, the return is:

(eth return)² +funding

If the funding rate is 0.24% and the daily eth return is 5%, the return is:

(5%)² +0.24% = -0.01%

Squeeth greeks (squeeks)

Another useful way to think about squeeth returns is to combine returns of different sensitivities.

Squeeth payoff = delta * (change in eth price) + ½ gamma * (change in eth price)² + theta * (change in time) + vega * (change in implied volatility)

We have an example in the spreadsheet here

So if the day goes by and the eth price increases by $100 and the implied volatility increases by 10%, the total value increase is approximately:

44.91 * (100) + 0.5* 0.01878 * (100 )² + 4651.02 * (0.1) + -43653.3 * (1/365) = $4930.4

SqueethLab

SqueethLab is the most advanced of the Squeeth calculation spreadsheets. It has a streamlined interface, two attractive chart colors, and input cells marked by pleasing bright green cells.

Put your own portfolio in Plug it into the spreadsheet here to see how your scream changes over price, volatility and time.

Transaction oSQTH

We use Uniswap V3 as the transaction layer. After creating the squeeth, you can use it in .

We use transaction prices on Uniswap to determine funding rates, so we need people to LP on wSqueeth/ETH pools to have a fully functional system .

Screaming for a long time, you only need to buy this ERC20 Token, when you want to close the position, you sell this ERC-20 back to the pool .

In order to short, you need to provide collateral, mint oSQTHTokens, and then sell them in the Uniswap pool. A location in a vault is represented by ERC-721: sSQU. To close out your position, you need to buy back oSQTH and burn them to unlock your collateral. This is very similar to how you create option tokens.

From an end-user perspective, both long and short positions require collateral: the price to buy on Uniswap or the collateral required to mint

Our core squeeth contract handles minting/burning of oSQTH and adjusts funds to ensure that oSQTHToken is always aligned with the value of eth².

Minting & Burning oSQTH

The core contract is responsible for minting and burning oSQTHTokens and correctly applying funds by updating the normalization factor. We'll cover the architecture of the "Core Contract" in more depth in the Core Controller chapter; now we can walk through the most important use cases.

To mint oSQTH, you need to put down eth collateral, mint wSqueeth, then monitor your treasury to avoid being liquidated. Shorting eth² is risky as you can never fully collateralize your debt .If the price of eth doubles, your debt will increase by 4x, while your collateral will only be worth 2x.

When you want to close a position, You need to buy back oSQTH and burn them. This is similar to borrowing Dai with ETH collateral on Maker.

squeeth tutorial

There are three ways to participate in squeeth, which are long osqth, short osqth, and providing liquidity for the osqth/eth trading pair. The price of osqth is the square of the price of eth, eth doubles, osqth quadruples.

The maximum loss of long: eth to zero, osqth to zero. Maximum benefit: theoretically infinite

Maximum loss for shorting; eth skyrockets and loses all collateral. Maximum profit: eth returns to zero, selling osqth makes money.

Provide the maximum loss of liquidity: eth to zero, osqth to zero. Maximum benefit: theoretically infinite.

Long osqth

Long open

If you think eth will rise in the future, You can buy osqth on osqth or uniswap. The uniswap transaction is relatively simple, just enter the osqth contract address 0xf1b99e3e573a1a9c5e6b2ce818b617f0e664e86b to purchase. Introduce the squeeth purchase tutorial, enter the website, and select trade, long, open in turn. Enter the quantity and click buy.

Long positions (long close)

To close a long position is to sell osqth, which is also operated on uniswap or squeeth. Enter the official website, select trade, long, close, enter the quantity, click sell to close and sell.

Short osqth

Short open

if If you think that the price of eth will fall in the future, you can sell osqth by mortgaging eth to earn rate income. Enter the website, click trade, short, open in turn. Enter the amount of mortgage eth (minimum 6.9eth), set the mortgage rate to safe (below 150 will be liquidated), then you can see the liquidation price, select deposit and sell to issue and sell osqth.

Short closing ( short close)

After you open a short position on osqth, if you want to close the position and exchange it for the collateral eth, you need to go to the market to buy back osqth, then close the position and exchange it for the collateral. Go to the website and select trade, short, close in turn, enter the quantity, and then click bye back and close.

Provide liquidity

In addition to buying and selling osqth, you can also provide liquidity for osqth/eth trading pairs on uniswap to earn income , There are two ways to get osqth, 1. Get osqth through mint to add liquidity. 2. Buy osqth directly on uniswap to add liquidity.