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Y2K Turbo Options: Crypto Options Done The Right Way

February 23, 2024

In conclusion

Options. The instrument that was initially created as a hedging tool but eventually ended up being used as a tool to hypergamble your way to generational wealth. 

I’m sure most of you are familiar with options by now, but a quick refresher never hurt anybody. An options contract gives the buyer the right to either buy or sell the underlying asset off the contract, depending on the type of contract they hold. 

Call options allow the holder to buy the asset at a certain price within a specific timeframe, and a put option allows the holder to sell the asset. It is, of course, a lot more complex when you start getting into premiums and the Greeks, but I will not bore you with those details today. 

Numbers around this are a little iffy, but estimates suggest that the size of the global options market is anywhere between $11T-$13T. Yes, you read that correctly - trillion with a T. 

For context, the total market capitalization of the entire crypto industry is around $1.9T. 

The reason options are so popular is because they are versatile. People can hedge risks from other investments through options; it’s often a cheaper way to long/short a certain asset, and it offers unparalleled flexibility and customizability in terms of how someone can build and manage their positions. 

They play an important role in every asset class. 

Therefore, it’s only natural that we’ve seen a rise in crypto options over the past few years. 

The crypto options landscape 

Crypto options are still very much nascent, and teams are still working out what's the best way to bring them on-chain.

In terms of volume, crypto options have been growing steadily, but as with perps, it’s CEXs that dominate volume in this realm.

The most popular venues are Deribit, Binance, OKX, and Delta Exchange. Between these four venues, they averaged a combined volume of $45B over the past six months only on BTC and ETH.  

When you compare this to on-chain options platforms, they’ve averaged around $300M in volume over the past six months, with the bigger players being Aevo, Lyra, Dopex, and Typus. 

If you look at CEX volume, then it's clear that there is a strong and growing demand for crypto options. As the industry grows bigger, this demand will only continue to increase. However, the gap between CEX options and DEX options is absolutely massive. 

I’m sure you can guess the general reasons for this. Transaction times are slow, liquidity is not great, there are often price oracle failures that mess up the contract prices, and there is an ever-present smart contract risk. These issues are largely applicable to any form of trading or derivative instrument on-chain, but it’s a problem that will only be solved over the long run as the underlying infrastructure improves. 

The bigger issue is that they are simply too complex to use and understand. 

Due to how blockchains work, it’s very difficult to set up a fully on-chain options market that would work with a similar efficiency to that of a CEX. Similar to how implementing orderbooks fully on-chain has proved to be difficult for perps protocols. 

Teams, therefore, had to come up with completely new mechanisms to make options viable on-chain. We have options AMMs where liquidity pools are designed in a way to algorithmically price options. There are option vaults (commonly known as DOVs) where users can interact with pre-defined options strategies. 

There are also structured product protocols that have come up with completely new types of products that somewhat emulate traditional options in a way more suited to an on-chain environment. 

While all this innovation is necessary and great, the fact of the matter is they will most likely not be used by anyone outside a crypto native audience that’s deep in the weeds on-chain. 

They need to be significantly simpler to use to attract a broader audience. 

We believe the gigabrains at Y2K may have gone and done just that. They recently released their new ‘turbo options’ product, which looks incredibly promising. So today, we will be taking you through this new options product and showing you why it may be a huge step forward for on-chain options. 

What are Turbo Options?

Turbo options are just like the call options and put options that are commonly used in TradFi. A ‘turbo-up’ option is the call potion, and a ‘turbo-down’ option is the put option. 

The key difference here with turbo options is that the asset deposited by the user is the same asset that will be speculated on. By doing this, instead of using a stablecoin, you are able to turbocharge your returns on the options contract. 

Let me explain how it works. 

For those of you who have already used Y2K’s Earthquake product, you may be familiar with the experience. 

There are two options presented when you open up the turbo options product. Collateral & Premium. 

If you want to buy an option and speculate, you select the ‘Premium’ tab. Once you do that, you can choose between buying a turbo-up option to speculate on the price going up or a turbo-down option if you think the market will go down. 

On the flip side, you have the ‘Collateral’ option. Over here, you can sell options to buyers and have the same options of turbo-up and turbo-down. 

Here is where the magic of using the deposit token as the asset being speculated on comes in. 

There are two general ways in which you would look to use this product. You either believe:

  1. Numba go up 
  2. Numba go down or sideways 

Let’s look at the first scenario where you think the market goes up. The obvious thing to do here is to, of course, buy premium on turbo-up. If the market goes up, your option will pay off, but the added bonus is that your deposited asset has also gone up in value, and therefore, your returns have been turbocharged. 

The other thing you can do is provide collateral on turbo-down. The reason for doing this is that Y2K gives you a certain yield when you provide collateral. So, if you do this, and the price stays above the strike price, you will keep earning yield on your collateral token. 

Now for scenario number two, where you expect the market to go down or sideways, you filthy bera.

You can first buy a premium on turbo-down. As the price goes down and hits the strike price, you will get paid out in multiples of the deposit token. So, while the price of the underlying asset has gone down, you have increased your stack of said asset. 

The other option is to provide collateral to turbo-up markets. So, since the token’s price will stay below the strike price, you can keep earning a yield every epoch, which is essentially akin to collecting premiums. 

The Y2K turbo options market is a place for you to turbocharge your options returns, earn yield on your assets, and also hedge your trades from elsewhere. But most importantly, it is done in a simple, intuitive, and user-friendly way. 

If you’d like a visual explainer of how this turbo options market works, then check the thread linked below. 

Concluding thoughts 

If you’ve been in DeFi for a while, you probably know about Y2K already. You don’t need me to sing them their praises because their track record speaks for itself. They are a team filled with gigabrains bringing you on-chain products that are actually useful. 

Options is a multi-trillion dollar industry, and on-chain options haven’t even cracked the $1B mark. The scope for growth is absolutely immense here. The turbo options product made by Y2K is by far the most promising product we have seen in the market, and we expect to see big things in the near future.

Keep your eyes on this one, anon. 

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