Dynamic Hedging Vault (DHV)
Rysk's first product is the Dynamic Hedging Vault (DHV). This is a hybrid AMM and RFQ for Options. Traders can buy and sell options and option strategies from the pool with tight spreads, whilst LPs generate uncorrelated returns from the options trading flow.
- Traders can buy and sell options at various strikes and expiries, trading through an automated market-driven pricing model. The pricing model is designed to give very tight spreads so users can easily enter and exit positions.
- Traders can construct complex strategies in a single transaction: any strategy that can be built with vanillas can now be constructed in a single transaction with our unique smart contract architecture.
- Traders can collateralise with multiple types of assets and take advantage of rysk's partial collateralisation margin system - rysk is the most capital-efficient on-chain venue to short options.
- Liquidity Providers can access uncorrelated returns, providing a stable, low-risk, and non-directional yield element to their portfolio.
- The DHV uses partial collateralisation for its short positions, therefore, achieving better capital utilisation.
- The DHV can access multiple hedging venues due to its intelligent modular architecture, meaning the DHV will hedge at the cheapest venue. Current integrations include GMX, Uniswap V3 spot trading, Uniswap V3 range order trading and Rage Trade.
- Large traders such as whales and market makers can trade OTC (Over-the-Counter) with the DHV via RFQs, increasing utilisation and de-risking the vault to the benefit of liquidity providers.
Liquidity providers provide USDC collateral to the vault. This collateral is used to collateralise options which are sold to liquidity takers. Liquidity providers receive yield from the premiums of the options sold. As options are hedged by either selling options or opening other positions to shift delta to neutrality, the liquidity providers attain uncorrelated and delta-neutral yield.
Traders purchase options from the vault. Traders can select any strike and expiration for the vault to price (as discussed in #Options-Pricing) and sell to the buyer. The trader will then receive a tokenised representation of their option that they can either sell back to the vault or hold to expiration. If the option expires In The Money (ITM) they can redeem their "winnings" from the vault, otherwise, their option expires worthless and is settled by the DHV. Options sold are European, cash-settled and auto-exercising. Traders can be structured products, market makers, DAOs, protocols, institutional investors, options power users or even retail.