Dual-Asset Financing Manager

Dual-Asset Financing Manager (DAFM) provides investors with a larger risk/reward appetite with a higher degree of diversification and more investment options.

It increases investors' potential yields by selling option-based contracts or option-based contract combinations and reaping premiums.

It allows investors to customize their risk and return which is directly affected by the ratio of the principal invested to the option contract sold.

Product Principle and Design

Here is a simple scenario that lends more context on the significance of Asteria’s of Dual-Asset Financing Manager module:

Up Covered Call

• If the current price of BTC is 50,870 USDT, a moderately bullish investor, who believe BTC would reach 52,000 USDT by 2022-01-07, deposits 1 unit of the underlying asset (BTC in this case), and at the same time system sells a European call option on the behalf of the investor with an exercise price of 52,000 USDT to receive premiums.

• If on 2022-01-07, the price of the underlying asset rises to 52,500 USDT (above 52,000 USDT), the call option is exercised, and the investor gets 52,000 USDT, (but will lose 1 unit of BTC).

• The platform will then return the premiums sold at the beginning of the transaction to investors as investment income(promised APY 34.45% as example at subscription).

• If on 2022-01-07, the price failed to reach 52,000 USDT, the premium would be converted as BTC and promised APY 34.45% is reflected with additional BTC returned to the investor.

• For holders of BTC, a mild increase in the underlying price is the most favorable.

Down Put Selling

• If the current price of BTC is 50,870 USDT, a cautiously bullish investor deposits 48,000 USDT, and at the same time sells a European put option with an exercise price of 48,000 USDT to receive premiums.

• If the price of the underlying asset drops to 46,000 USDT (less than 48,000 USDT) when the product expires, the put option is exercised, and the investor gets 1 unit of BTC and loses 48,000 USDT at the same time.

• The platform will then return the premiums (converted to BTC) sold at the beginning of the transaction to investors as investment income.

• For USDT holders, it is most advantageous for the underlying price to be no less than 3,800 USDT.

In addition, through other combinations of options, more innovative financial products can be constructed to help investors express their views on the future trend of the target asset and obtain higher returns in different market environments and through well-suited strategies.

DAFM Advantages

Dual-Asset Financing Manager itself has many advantages, especially for Asteria as decentralized options ecosystem:

• Unlike options based centralized exchange products, DeFi options contracts themselves have more dynamic risk management and hedging costs. For example, the cost of delta hedging by trading the underlying assets and the hedging error on a decentralized exchange, are currently higher than those on centralized exchanges. At the same time, dynamic risk management itself relies on the liquidity of the entire underlying market, which brings risks to both buyers and sellers of option contracts.

• Dual-Asset Financing Manager is essentially selling options to obtain premiums to increase investment income and meet the need of investors who need to hedge against unpaid losses are the buyers of options, such as Impermanent Loss Hedger users. As such both types of end users and their needs can be synergistically fulfilled and matched through calculation, the option contract positions that are being dynamically managed can be greatly reduced. Additionally, the capital efficiency is much elevated and option default risk can be dampened significantly.

• In addition, many investors like to use option-based products to obtain low-cost, high leverage without liquidity risk. By calculating their needs and converting them into equivalent dual-currency products and applying asset management strategies based on Dual-Asset Financing Manager, can dramatically enhance the competitiveness of Asteria platform product.

In short, the core competitiveness of Dual-Asset Financing Manager and future product that to be implemented it depends largely on the efficient integration of buyers and sellers of options through more customized contract design, reduced costs on dynamic hedging, and reduced counterparty risk during options execution. Compared to the conventional options-based market making, the Dual-Asset Financing strategy can enable both the buyer and seller of options to reduce transaction costs (lower bid-ask spreads and errors caused by not being able to find a suitable contract).

Option sellers in centralized exchanges mainly comprise professional market makers and professional investors with larger risk and reward appetites. Through option logic design, the DAFM strategies can absorb investors who are pursuing relatively stable returns but who are not able to bear incoming risk from the options market, to participate as option sellers. Such investors are actually good supplements to impermanent loss hedging buyers and institutional investors who conduct free hedging or have risk management needs. Both parties have relatively long and stable investment cycles. A surge in interest and willingness of investors to achieve impeccable wealth management through dual DAFM modules is potentially bound to surpass traditional risk-oriented market making traffic.