The derivatives market as part of the traditional market was valued at $640 trillion (the value of outstanding derivatives contracts) in the first half of 2019.
Derivatives, which became popular among investors and traders over the past 40 years, help fill the market with liquidity and hedge risks. As the cryptocurrency market developed, the cryptocurrency linked derivatives also began to appear, though their more active application is hindered by the specifics of cryptocurrencies - high volatility, large spread between the buy and sell prices, excessive risks of complete loss of assets. Due to these factors, there are not so many option sellers in the cryptocurrency market, and also high premiums nullify the whole point of using such derivatives.
The DYMMAX protocol allows creating collateral-free derivatives for cryptocurrencies with guaranteed payments based on decentralized smart contracts. The tool utilizes a pricing model adjusted to the specifics of the cryptocurrency market and solves the problem of high premiums and the lack of the cryptocurrency option sellers.
The solution uses a method that does not involve option sellers, but only buyers. According to this method, the collateral-free options with guarantees are issued on the basis of a specifically created money pool.
The option premium is calculated through an auction, during which all participants submit limit orders. DYMMAX auctions take only real rates into account, which reduces the risk of price manipulation by market makers. At the end of the auction, everyone receives contracts at the same time and at the best price, regardless of when the order was placed.
The difference between this model and derivatives on centralized crypto-exchanges is that payments are guaranteed by a combined pool, which eliminates the risk of non-payment on winning contracts.
The key features of the DYMMAX DeFi platform for creating cryptocurrency derivatives are:
- Option sellers are not required, only buyers are enough;
- No spread between the buy and sell prices;
- Guaranteed payments to all participants at the expense of the existing money pool;
- No collateral;
- It is possible to create different options in one auction;
- Ability for participants to create their own options.
In addition, the DYMMAX protocol allows creating different options in the same pool, both classic Call and Put, and also option configurations of any complexity. With the help of DYMMAX, private and institutional investors, as well as hedgers, have a profitable instrument in all market phases (uptrend, downtrend, sideway).
The project is financed by the founders during the beta stage. In the future, the company plans to attract financing through Private Sale, and to conduct additional rounds of funding if necessary.