Ape-tizers:
- Kyan is a one-stop shop for crypto derivatives offering options and perps on the same platform on-chain.
- Kyan comes with a vast feature set, including portfolio margin and a multi-leg strategy builder.
- Portfolio margin is a dynamic risk management and collateral optimization mechanism.
- The multi-leg strategy builder allows traders to open multiple trades simultaneously through a seamless interface.
Kyan: A refresher
The future of on-chain trading is here, and it’s come in the form of Kyan.
Kyan is quite easily one of the most exciting protocols in the industry. It’s an on-chain derivatives trading platform that offers options and perpetuals under one roof with an impressive set of features to support it.
This includes portfolio margin, strategy builder, and a sophisticated risk engine, to name a few.
It’s a one-stop shop for all your crypto derivative needs.
We discussed the finer details of Kyan in our previous article, so check that out if you haven’t already. We also recommend reviewing their blog and socials for more technical breakdowns.
We say that because today, we’re going to be laser-focused on two marquee features:
- Portfolio margin
- Multi-leg strategy builder
Features like these make us believe that Kyan is truly game-changing. In fact, it seems to be evolving into a platform that all of us will eventually use for our trading fix.
So without further ado, let’s jump in.
Portfolio margin on Kyan
Portfolio margin is a dynamic system that computes a user's margin requirements by taking into account the portfolio as a whole rather than assessing the risk for each trade separately.
To truly understand the power of portfolio margin, we need to first compare it to isolated margin, the other popular margin system for derivatives trading.
Isolated margin calculates the risk for one specific position and computes the margin requirement based on that. So let’s say you buy a BTC call option at a certain strike price, and then you buy a separate option contract as a hedge or part of a broader strategy.
- Isolated margin: Under isolated margin, your position is not getting offset effectively because you have separate margin requirements for each trade you’ve opened.
- Portfolio margin: The margin requirements will be calculated for the whole portfolio by calculating how the risks of the two positions will offset each other.
What you get as the end user is a system that’s much more capital efficient. More on the benefits later.
Let’s first examine how this actually works.
The risk engine is at the heart of the portfolio margin feature. It assesses the combined risk of a trader's portfolio and calculates the margin requirement. Based on margin levels, it also plays a role in efficiently liquidating positions.
The engine can be really complex, so for the sake of this article, we’ll keep it brief.
There are two main concepts to keep in mind:
- Initial margin: The amount needed to open a position. The Initial Margin ratio (IMr) calculates the amount of directional risk an account can take.
- Maintenance margin: The balance needed in a user's account to keep positions open. The risk engine uses the Maintenance Margin ratio (MMr) to indicate how close an account is to liquidation.
The IMr and MMr are fed into the risk engine, along with other data, which has its own advanced risk and pricing models to calculate the margin requirements.
So, if a trader's IMr is at 100%, the account can’t take on more directional exposure (but can open trades that reduce risk), which may affect the portfolio’s risk profile.
If a user has a high MMr, say 100%, their account will start undergoing liquidation, which also affects the risk profile.
Taking all of this into account, the portfolio margin system gives the appropriate margin requirement for a trader.
So, why is Kyan’s portfolio margin feature so important?
Well, my fellow degenerate, I’m glad you asked.
1. Capital efficiency
Imagine a trader buys a BTC call option at $40k, sells a put option at $35k, and adds a perp position as a hedge (this is a completely made-up hypothetical strategy that probably doesn’t work).
The portfolio margin feature will assess how each of these three positions offsets each other to gauge risk and then calculate a margin requirement.
The system on Kyan is designed to always optimize users’ accounts for maximum capital efficiency. In ape-speak, it gives users the highest leverage possible at all times. Talk about music to your ears.
So, the margin required will always be lower than using isolated margin, making it a much more efficient use of capital. Your trades will be partially collateralized, and the system remains capital-efficient.
2. Flexibiltiy
The capital efficiency translates to flexibility.
Since the system assesses your risk and gives you the lowest margin requirement, it allows you more flexibility in constructing more complex multi-leg strategies. It also gives you additional flexibility to hedge your position if market conditions deem it necessary.
However, the flexibility is taken a step further with the sub-accounts.
Each sub-account has the margin requirements and risks assessed individually within each sub-account.
So, imagine you have three different multi-leg strategies that you want to deploy. You can create three separate sub-accounts to deploy the three different strategies; the portfolio margin for each account will be separate, plus the risk will be isolated on a portfolio level.
That’s peak flexibility.
3. Optimized collateral usage
The portfolio margin system is considered capital-efficient because it optimizes the use of a trader's collateral.
By, in essence, allowing a trader to use less collateral for a specific strategy, it keeps more funds open to either add legs to an existing strategy or simply add more collateral to an already open position.
4. Simplifying multi-leg strategies
One of Kyan's key features is its relative ease in building multi-leg strategies using perps and options, something the on-chain world has yet to see.
The introduction of portfolio margin simply makes the entire system tick. It simplifies the process of building multi-leg strategies, as risk and margin levels are automatically assessed. Traders will not have to calculate and adjust these nitty-gritty details manually across multiple protocols.
Why is portfolio margin a game-changer?
1. Perfect for professional-grade traders
As we know, a significant chunk of the user base in crypto is retail traders or beginner traders, more so in the on-chain world.
As the industry grows and the market matures, so will the on-chain side of things. This means more sophisticated traders with more capital will use platforms that match their needs.
Kyan is offering exactly that, and the implementation of portfolio margin will play a major role in its success.
Professional-grade traders often employ complex multi-leg strategies, and there’s no better place to execute them than on Kyan.
2. Rivaling CEXes
A full-suite derivative platform with portfolio margin is the norm among CEXes, who have the advantage of being able to leverage off-chain infrastructure.
Kyan is creating a product that will be on par with existing CEXes, if not better. It’s also one of the first protocols to implement portfolio margin at this scale, so if you’re getting the same CEX experience with the benefit of self-custody, Kyan is a no-brainer.
It will be a game changer in terms of bringing more users and liquidity on-chain.
3. Isolated margin coming soon
Although we’ve only discussed portfolio margin thus far, the implementation of isolated margin is also on the roadmap.
Although portfolio margin will be the default, beginner traders who use options for directional exposure through only one open trade might favour isolated margin. So, having the option of both to cater to all types of traders is always a plus point.
Well, now that you’ve understood portfolio margin, let’s discuss another marquee feature on Kyan that is greatly enhanced by portfolio margin: the multi-leg strategy builder.
Multi-leg strategy builder on Kyan
Multi-leg strategies (or combo trades) are trading strategies wherein traders simultaneously open multiple positions to create a structured trade. A combo trade can consist of as few as two legs and go as high as seven legs.
Combo trades are more or less the norm amongst more experienced options traders. Instead of having to manually deploy each leg of strategy and facing issues like slippage, pricing discrepancies, and fluctuating margin requirements, users can deploy a multi-leg strategy on Kyan with instant execution in one click.
Best prices with the best execution, the Kyan way.
There are many pre-existing combo trade strategies like straddles, strangles, butterflies, iron condors, spreads, etc.
Those who are skilled enough often step out of the existing strategies and build their own multi-leg trade.
The gist is that multi-leg trade strategies are a major part of options trading.
Traders, especially the more sophisticated ones, will demand it, but in the current world of on-chain options, the choice is relatively poor. Most platforms allow up to 2-3 leg trades with poor trade execution.
Kyan’s multi-leg strategy builder takes things to the next level.
The multi-leg strategy builder has a sleek interface and seamless execution, making it easy to create and execute different combo trades.
Traders have two options while using the strategy builder. They can either choose one of the preset strategies made readily available by Kyan or they can customize their own strategy.
On top of it being easy to select your strategy, Kyan also uses fill-or-kill (FoK) orders to ensure the execution of the entire trade is seamless.
In the background, Kyan uses something called transaction bundling. This essentially wraps each leg of your trade into one transaction and executes it together.
Hence, on Kyan, you aren’t restricted to two or three leg strategies; you can build it up to seven legs if you desire.
There are a bunch of different strategies available on Kyan (as of press time).
- Directional strategies: Call spread, put spread
- Time-based strategies: Call calendar, put calendar
- Volatility & neutral market strategies: Butterflies, straddles, strangles, iron condors
So, why is Kyan’s multi-leg strategy builder important?
1. Customization
Kyan's customizability is unlike any other on-chain derivatives platform. Not only does Kyan offer a greater variety of preset strategies, but it also gives traders full autonomy over constructing their own complex multi-leg strategies.
Customizability at this level is something that doesn’t exist currently in the on-chain options world.
2. Flexibility
Going hand in hand with customizability is flexibility. The multi-leg strategy builder caters to all types of traders.
The entire setup allows traders to be more flexible in terms of the type of trading strategy they want to execute and how they can allocate their capital across different sub-accounts and strategies.
This level of granular control for the end user is unseen in the on-chain options landscape.
3. Seamless user experience
To tie everything together, they don’t just offer a great product; they provide a great product with a user experience to match.
We all know how tedious it can be to trade on-chain. There are gas fees, transaction approvals, slow transaction processing, clunky interfaces, high slippage, poor liquidity, and the list goes on.
Kyan has mitigated all of these issues, so whether you’re an on-chain noob or an experienced trench-dwelling degen, your combo trading experience on Kyan will be top-notch.
Why is the multi-leg strategy a game-changer?
1. Professional-grade trading
As discussed earlier in this article, the crypto landscape will only continue to mature. That means more sophisticated traders will come on-chain, and they will require products to match their demands.
The multi-leg strategy builder is a perfect example of a product that is catered to make their lives easier.
This is not to say that Kyan is only catered to sophisticated traders—far from it. Kyan caters to all types of traders. It’s just that the on-chain options landscape hasn’t had a product with such a diverse feature set that it can genuinely attract professional-grade traders.
2. Maturing the on-chain derivatives sector
A ripple effect of the above point is that it will grow the on-chain derivatives sector as a whole.
Crypto moves at the speed of light, and the competitors will play catch-up in almost no time. This will keep the Kyan team pushing to improve the product continually. This competition will ultimately benefit us, the end user.
We will get better products, better execution, and all in all, a better on-chain trading experience.
Kyan will do wonders for the on-chain derivatives space.
3. Challenging CEXes
The multi-leg strategy builder is a sleek and sophisticated product, so much so that it can rival the offerings of major CEXes like Deribit and Bybit.
The ultimate goal has always been to bring trading on-chain. Thus far, the benefits of self-custody haven’t been attractive enough to pull users away from the convenient user experience of CEXes.
Now that a platform like Kyan can effectively compete with CEXes, it will lead to a significant influx of users and liquidity on-chain. And as we know, a rising tide lifts all boats.
The road ahead for Kyan
Portfolio margin and the multi-leg strategy builder are only two marquee features out of a vast variety of features.
Kyan also has orderbook functionality for their options and perps offering, an RFQ option, smart accounts (coming soon), chain abstraction (coming soon), and more.
Beyond this, major user experience enhancements like the introduction of isolated margin will also be made, taking Kyan a step towards feature parity with other similar product offerings in DeFi.
At the time of writing this article, Kyan is not live. The testnet beta is expected very soon, so if you want to stay up to date with all the latest updates, register your email on the Kyan landing page and follow them on X with notifications on.
I know it’s hard to believe without a live product, but Kyan is going to be truly game-changing.
Comprehensive feature set, full-suite derivative platform, seamless user experience, and a stacked team with giga chads. It’s a match made in heaven. It would be wise to keep close tabs on the latest developments because this is not something you’d want to miss out on.
Thanks to the Premia team for unlocking this article. All of our research and references are based on public information available in documents, etc., and are presented by blocmates for constructive discussion and analysis. To read more about our editorial policy and disclosures at blocmates, head here.
