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Valorem: A New Approach to DeFi Options
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Key Takeaways
11 min read
  • Perpetuals are currently the most popular derivative in crypto markets, accounting for over 90% of trading volume on derivative DEXs. In contrast, options trading accounted for just $2 million in volume compared to decentralized perpetuals' $1 billion in a 24-hour period.
  • Valorem combines on-chain and off-chain designs, including an on-chain order book and settlement, and off-chain Request-For-Quotation (RFQ), allowing it to tap into professional market maker liquidity while mitigating on-chain computation and latency issues.
  • Valorem Trade's Request-For-Quote (RFQ) system is designed to be resistant to Miner Extractable Value (MEV), with quote requests and responses visible only to the involved parties.
  • The protocol allows users to create new option types in a permissionless way, and due to its composable nature, it can serve as a foundation for more complex derivative structures.

Introduction

Perpetuals currently hold the title for the most popular derivative within the crypto markets, accounting for more than 90% of trading volume on derivative DEXs, largely attributed to their simplicity. A trader needs to specify only his view (long/short) and size expressed in leverage. Conversely, options, which are prevalent in traditional markets, are not as popular in the crypto sphere. The complexity of options requires consideration of multiple factors such as the strike price, strike date, and the impact of the 'Greeks' on the contract price, making it less attractive for the average trader.

Valorem aims to change the game by building a permissionless options protocol on Arbitrum that allows to write options on any...