Premia Community Call Summary July 9, 2021
First things first: if you’d prefer to listen to the community call rather than read this article, you can check it out here.
It’s been a successful past couple of weeks launching the trading competition and testing the interface for Premia 2.0. We appreciate all the community members who’ve provided feedback on the Rinkeby testnet, your feedback is helping us build the best options platform in DeFi.
If you’re not whitelisted and would like to participate in the trading competition, let us know on our discord. We will set you up with the testnet tokens so the competition is completely free and there’s $150,000 DAI and NFT prizes (those are real, not testnet).
Lessons Learned in the Trading Competition So Far
Let’s talk about the good things first:
- The core financial mechanics work as intended
- Users understand the “Price level” intuitively
- Pools converge towards meaningful utilization, as was anticipated
The core financial mechanics regarding c-level values, pool levels, and price values are operating the way we expected. Users don’t seem to be experiencing any issues understanding the platform. And the high utilization rate is working as intended such that the pool capital is being utilized in a meaningful percentage. This confirmation of our thesis is very encouraging.
Unfortunately it’s not all good news, here’s the bad news:
- In order to prevent exploitability of the pricing function, we needed to limit some of the pricing parameters. Limiting the range of strike prices is a stop-gap measure to prevent this.
- The next meaningful breakthrough we will be working on will be the implied volatility surface proxy
- One dimensional C level is less than ideal and only a temporary solution
The issue with needing to limit option parameters to prevent exploitability is due to the function of the C level being the same at all strikes and maturities. We plan to fix this one-dimensional C level issue in the future by assigning a C value for each combination of strike price and maturity. That would allow the C value to track each specific option and not just the pool as a whole
What We Still Expect to Learn from the Trading Competition
The more data we have, the better we can make sure that:
- Our liquidity provider returns make sense in line with the market
- There are no systemic exploitabilities introduced by extremely volatile market conditions
- Users are able to navigate the “price level” mechanic and are not trading at random
- The price level mechanic continues to function as intended
Preparing for Mainnet Launch
Our main focus right now is preparation for mainnet launch, we are ironing out the front end bugs with the help of our community feedback. We’ve been improving performance issues, getting rid of pesky bugs, and implementing quality of life improvements.
We are also testing vault behavior making sure we are engineering less volatility for liquidity providers so that they can count on their returns being more stable over time. We are also working to ensure that we are not disrupting the “price levels” set in place or the micro-economic integrity of the system.
We need to improve the liquidity rewards in preparation for mainnet launch. In order to incentivize organic volume we need to look into liquidity rewards in the form of $PREMIA rewards in a way that avoids wash trading and minimizes gas costs.
Eliminating exploitability is done, this was solved by narrowing the input range, a temporary solution while we still have one dimensional C levels.
Lastly, we need to complete our contract audits. Our core library SolidState has been fully audited with flying colors aside from a few low level issues. We have auditors on standby for our core contracts and we will have them start working on the audits after the trading competition is finished and all the feedback has been implemented.
What the Future Holds for Premia
Layer 2
We’re looking at Arbitrum as well as considering other layer 2 options. We’re also looking at Optimism and zk-rollups.
The reason we are looking at Layer 2 options:
- To improve our AMM design and the vault sophistication we can offer
- To create better financial engineering at lower gas prices
Things we can do on layer 2 that aren’t possible on L1:
- Active vault strategies utilizing market conditions or other variables
- Vault balance sheet management
- Improved pool accounting paradigm (fully amortized P&L)
- Better tailored liquidity rewards
- New complex product categories
- New secondary market infrastructure paradigms
Overall, layer 2 allows us to explore more complexity and more options that aren’t possible due to gas constraints on L1.
IVOL Proxy
IVOL proxy (an implied volatility oracle) is the final meaningful breakthrough left to solve for option markets on Layer 1. Unfortunately no solution currently exists but we’ve been actively leading research and development in the space.
An IVOL proxy would allow us to offer further dated options, wider strike ranges, and can fine tune our derivatives pricing to give the most optimal price based on market conditions.
There’s 3 ways to solve this:
- Dynamic proxy from past data
- Dynamic proxy from real-time data, via transformation function
- Peer-to-pool market driven dynamic proxy (drawback: requires more baseline liquidity)
More will be explained over time as we fine tune details and finalize the IVOL proxy design.
Last but not least, we want to remind you that we are in the final week of the trading competition. It’s completely free, all testnet tokens will be provided to you, and there’s a chance to win from the $150k in DAI prize pool as well as NFTs.
Join the discord and let us know your wallet address to get whitelisted and start trading in the competition.
