AOTP Outstandings
Last updated
Last updated
Asteria Finance Lab would build a variety of options and options-based products. Each type of option would be implemented specifically with a dynamic and suitable pricing engine with solid mathematical theories like Black-Scholes model and its variances.
Meanwhile, in Asteria's pricing models, the underlying asset price needs to be acquired as the input parameter of the B-S model and Delta hedging, and implied volatility (IV) is crucial in the algorithms. Unlike other decentralized option protocols, Asteria chose a strategic partner with API3, a state-of-the-art Oracle service provider based on DAO governance.
To become one of their Airnodes, as First-Party Provider and DAO governors, significantly reducing the possible risk of malicious price manipulation from third-party providers. On the API3 Airnode server, Asteria will achieve real-time high-frequency Volatility calculations and estimations; meanwhile, as an IV feed provider publishing the professional and transparent indicator for decentralized option market.
AOTP differs from other decentralized options trading protocols thanks to a professional risk control system: the continuous and stable market-making operation requires a comprehensive risk control system.
The main risks faced by option market makers are Delta Risk, Liquidity Risk, Gamma risk, Vega risk, and Credit Risk.
Delta Risk Control: Directional risk is the main risk of options market makers. AOTP eliminates Delta risk through the dynamic hedging mechanism detailed in Chapter 2, so not be repeated here.
Liquidity Risk Control is one of the unique designs of Asteria’s decentralized AOMM system, and it is also the core mechanism that distinguishes AOTP from other decentralized options market-making platforms.
Asteria’s AOMM evaluates the liquidity of the underlying assets and the adequacy of the current capital pool to provide both price and quantity quotation to ensure the continuous market-making operation.
Early liquidation is supported for all options contracts by AOTP. For speculators who close their positions in advance, AOTP quotes based on real-time option pricing, liquidity, and trade costs. Speculators can choose to continue holding or closing positions according to the quoted price.
The maximum number of sellable option contracts that can be carried on the AOTP platform depends on the availability of the market maker’s capital, which Asteria yield farming aggregator will place into lending platforms for exchanging stable coins for hedging purposes. The interest income is also another source as the market maker’s profit elevates the capital efficiency.
For unhedgeable risk parameters caused by the liquidity crisis of the underlying assets, the AOTP platform has designed a downward discount mechanism, which results in an automatic half-return transaction. In which case, speculators give up part of their potential gains in exchange for the ability of market makers to fulfill their obligations in the settlement.
Professionalism and Stability are the most significant advantages of Asteria.
Gamma Risk Control: Gamma risk is the acceleration risk that the option price jumps due to the price shift of the underlying, coming from discontinuous dynamic hedging. The best situation for market makers to effectively control Gamma risk would be to trade different types of option structures to diversify option structures and parameters. AOTP provides multiple customizable option types to satisfy customers’ varied speculation needs and reduce Gamma risk through diversification. The reduction of hedging risk lowers hedging costs, which is another comparative advantage of AOTP.
Vega Risk Control: Vega risks mainly come from the pricing. If Gamma risk is out of consideration, the uncertainty of option hedging cost primarily comes from volatility fluctuation of the underlying asset. Therefore, Vega risk is also called non-directional risk. AOTP innovatively applies dynamic volatility estimation of the underlying asset for Vega risk control.
Credit Risk Control: Asteria’s decentralized options market makers mainly sell options. For exotic options such as Snowball options and Phoenix options, the margin is required if the buyer is in an obligation position. If the investor cannot meet the margin call in time, the market-making mechanism will automatically liquidate the position to ensure the effective operation of the contract.
ATOP shared collateral pool represents the investors who wish to discover yield generation out of the Asteria ecosystem and also stands at the center of the trading system for the system to run smoothly.
The first usage of the pool asset would be used for hedging purposes to make sure market makers/sellers would fulfill the obligations when buyers exercise the options contracts. Assets could be allocated in 3 types of markets: spot, perpetual futures, and other option exchanges. The 2nd and 3rd markets could be applied to provide leverage on principles. Hedging Aggregator Engine would dynamically evaluate the liquidity and trading situations of those three types of markets and adjust positions among them to lower hedging principal and eliminate platform dependency.
Besides being employed for hedging, pool assets will be divided into 2 portions, the first portion will be reserved for user withdrawal and the second portion will become a major part of the collateral pool and will be deployed into Yield Aggregator Engine for reallocation on secure and stable yield generation protocols and platforms. $ATAT holders would have governance rights to decide which protocols and platforms to allocate into.
The gas cost of the Ethereum main network has been increasing in proportion to the expense for option buyers. Asteria ecosystem would be deployed on state-of-the-art scalable solutions such as Avalanche, Solana, and Metis Layer2, which would greatly expand the system's scalability, reduce the time and gas cost of options transactions, and build a high-frequency trading foundation for the inevitable outbreak of the options market.
