Self-repaying option POOLs
Premia and Alchemix are partnering up to bring you the next evolution in capital-efficient yields
Premia is excited to announce the addition of two new markets to the Premia options market on Ethereum mainnet:
- $ALCX / $DAI
- $alETH / $alUSD
The community voted in proposal #QmTphYe to incentivize all four pools with $PREMIA rewards to welcome Alchemix warmly to the Premia family! Each of these markets will have 15% of the total mainnet rewards allocated to them at launch, up for weekly review and adjustment via community governance until a more seamless solution, such as when vePREMIA is implemented.
Multi-Layered Yield
The addition of the alAsset pools introduces a unique yield opportunity for depositors. By depositing ETH or DAI at Alchemix, your assets will be deposited into a yearn vault and you will receive a self-repaying loan in alETH or alUSD.
Depositing either of these assets into a Premia pool will then allow users to potentially earn additional yield in that native token ($alETH or $alUSD) in the form of premiums as well as rewards from the $PREMIA liquidity mining program.
Not just another ETH market
Alchemix users will also be happy to find market-competitive yield on their alAssets (alETH and alUSD), while Premia users will be excited by potential new arbitrage opportunities this pool is likely to introduce as it moves toward market efficiency.
Gone are the days of needing to bridge or use centralized exchanges to take advantage of market arbitrage. Since each alETH is backed 1:1 by ETH and alUSD 1:1 by DAI, there are likely to be plenty of arbitrage opportunities between the existing ETH/DAI pool and the new alETH/alUSD pool.
In addition to the alETH/alUSD pools, the new ALCX pools will offer users deeper capital-efficiency on their DeFi-native tokens, through options trades and new yield primitives. Users can earn yield on their ACLX or DAI by underwriting calls or puts, providing liquidity for this new risk market. This allows users to hedge downside risk or participate in upside gains with a lower exposure profile than holding spot or short-selling. It’s a win, win for everyone in DeFi.
Are the pools capped?
The four new pool additions to Premia will be capped at 20 million notional value to start, to align with all of the other pool caps on the platform. All option pools are under “round-the-clock” monitoring to lift the caps if necessary.
Approved by the Alchemix community in AIP-33, the ALCX [call] pool will be seeded with $1 million notional value of ALCX tokens by the Alchemix DAO — the first protocol to participate in our POOL offering — whereas the alAsset pools will be seeded organically by the community.
What is this POOL I keep hearing about?
Protocol Owned Options Liquidity (POOL), as a new liquidity primitive, allows DAOs and Protocols to bootstrap options/volatility markets for their native tokens. POOL inherently assists in the reduction of sell-side volatility in two ways:
- Providing a token-sink (the CALL pool), where LPs can deposit protocol tokens for yield and option purchasers can potentially acquire their token of choice at a discount to the spot market, through capital-efficient options trades.
- Providing downside hedging opportunities (in the PUT pool), where LPs can deposit stablecoins for yield and option purchasers can hedge their downside exposure, without selling protocol tokens, in a capital-efficient manner.
In addition to reducing downside volatility, protocols that take advantage of POOL can earn an additional source of revenue for their treasury by activating idle native assets through a supporting options/volatility market on Premia. Protocols can earn fees in the form of premiums in the respective pool token, while also taking advantage of the $PREMIA rewards allocated to their respective pools from our Liquidity Mining program.
This provides many of the benefits of Protocol Owned Liquidity (POL), popularized by OHM, in a symbiotic manner with existing POL systems. Protocol Owned DEX Liquidity provides deeper liquidity to smooth volatility on the DEX sell-side, whereas Protocol Owned Options Liquidity helps significantly reduce sell-side volatility by providing both a token sink, where users can still obtain discounted tokens, and access to a new market to hedge downside risks.
When a protocol has both POL & POOL, they are able to deepen their DEX liquidity, while also providing a healthy risk market for users to earn an additional yield on the native token, as well as hedge protocol risk. Hence, there is a strong symbiosis between POL and POOL.
We are excited about the addition of these token pairs to Premia. Alchemix is a staple in DeFi, pioneering their self-repaying loan mechanism. The addition of their protocol token market will add value for Premia users who would like exposure to more DeFi-native assets.
If you work with a protocol or DAO that would benefit from having an options market or have any questions, please don’t hesitate to reach out in our Discord server.
