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A list of frequently asked questions about DeVol Network
What does DeVol Stand for?
DeVol stands for "Decentralized Volatility".
What is the DeVol Protocol?
The DeVol protocol is a fully decentralized protocol built on Solana. The protocol is a breakthrough Automated Market Maker (AMM) for the on-chain pricing, trading and settlement of any linear and non-linear derivative financial payoff, including options, futures and beyond. The AMM is powered by a unique pricing methodology based on a fundamental new way of looking at risk by decomposing payoffs into a series of elementary units we call ”Standard Risk Blocks” (SRBs).
What are Standard Risk Blocks?
Standard Risk Blocks (SRBs) are a new kind of financial primitive that that can be assembled to synthetically price, trade, and settle any customizable financial payoff, including that of traditional options and futures. Each SRB is a payout unit associated with a unique price interval, or range. Think of SRBs as a series of small price interval that can be added up to build a larger price range. Each stake in a specific SRB is the right to receive (for a long position) or the obligation to pay (for a short position) a state-contingent payoff via the smart contract, namely 1 unit of base currency (e.g. 1 USDC) if at expiration the underlier ends up in the SRB-specific price range. SRBs don't overlap, so at expiration there is only one SRB that has a payment obligation. (All other SRBs are "off the hook" so to speak.) Each SRB is priced on the basis of the probability that the underlier will end up in its specific price range at expiration.
Every time an option is initialized on DeVol, the smart contract computes an expected price range for the underlier over the time to maturity. By design, this covers 99.9% of the distribution, clipping off the tails (meaning we exclude outlier events). The SRB system is set up by dividing this expected range into a series of SRBs (currently, 95 of them). The payoff diagram of a traditional option can be replicated via a linear combination of stakes in SRBs. When a trader buys or sells a position (i.e. an option), it is immediately converted into stakes in SRBs so as to synthetically recreate the option payoff.
SRBs provide a ton of flexibility since they are individual building blocks that can be used to atomically build, price and settle any desired payoff. The SRB system is the reason that DeVol excels at spreads and complex orders.
What is DeVol?
DeVol is a front-end platform interface that allows traders and liquidity providers to interact with the DeVol protocol.
How is DeVol different?
DeVol is not an order book AMM and does not rely on marker makers quoting two-way prices with a bid-ask spread. Anyone can provide liquidity and passively earn yield from market making, by contributing capital to a liquidity pool for a given trading pair and initialization schedule. Unlike centralized providers which have opaque balance sheets and are subject to counterparty risk, the DeVol protocol provides on-chain transparency and full collateralization for liquidity pools to cover all potential payoffs.
DeVol is powered by the DeVol protocol. The DeVol AMM is used for price discovery and to provide maximum liquidity, capital efficiency, low fees, and full collateralization for settlement. The AMM solves what we call the AMM dilemma for options, and more generally non-linear assets, namely the issues of liquidity fragmentation and negative selection. (To learn more, read our Whitepaper). It is able to do that because of its asset pricing methodology that decomposes risk into small fungible units via the SRB system. SRBs are a new financial primitive and can be used to synthetically price and recreate any derivative payoff, including that of traditional options. All options on DeVol are priced and settled on the basis of SRBs.
Which cryptocurrencies are supported as the underlying?
We currently support Bitcoin. More to be announced soon.
Is there physical delivery of the underlying?
No. Option on DeVol are "crypto-settled". This means that there is no delivery of the underlying crypto. When the option expires, buyers and sellers agree to settle the profit & loss of the option based on the observed price of the crypto underlier relative to the base currency, that is the cryptocurrency used for settlement (we currently support USDC). For example, with the trading pair BTC/USDC, buyers and sellers agree to settle the profit & loss of the option based on the observed price of BTC/USDC. There is no obligation to deliver or receive any BTC.
What is a trading pair?
A trading pair is a combination of underlying and base currency for settlement. We currently support the trading pair BTC/USDC, meaning the underlying is BTC and options are USDC-settled. We will be adding more trading pairs. The platform can easily handle any combination of underlier and cryptocurrency for settlement: SOL/USDC, SOL/BTC, ETH/BTC, etc. Sky is the limit!
Can I deposit fiat currency like USD or EUR?
No. We only support cryptocurrencies and stablecoins.
Are Options European or American style?
Only European Style options are supported.
How do I sign up to create an account?
Click the “Launch App” button on the https://www.devol.network
Is the platform functional 24/7?
Yes. The trading hours on DeVol are 24/7.
What wallet is supported?
Phantom wallet is currently supported. For more information on Phantom, click here. We also support other wallets like Brave, Solflare, Exodus, Trust Wallet, Glow, and Nightly.
How can I trust that my funds are safe?
DeVol does not take custody of your funds. The DeVol Protocol has access to your wallet funds for trading and collateral purposes via your DeVol Trading Account. To keep your funds safe, transfers can only be made to and from the Wallet Account (i.e. your Phantom wallet) linked to your DeVol Trading Account.
I recently joined, what are the differences between my accounts?
• Wallet Account
In order to trade on DeVol, you first need a specific address in a wallet like Phantom. You must link your wallet account to the DeVol Protocol.
• DeVol Trading Account
During the onboarding process, you will create a DeVol Trading Account. This is managed by the DeVol Protocol, and linked to your Wallet Account. The Trading Account is used to trade on DeVol.
For security purposes, funds can only go to and from your Wallet Account linked to this DeVol Trading Account. Deposits and withdrawals to and from this DeVol Trading Account have to be signed by your wallet.
• DeVol Signer Account
During the onboarding process, you may also create a DeVol Signer Account, which is used to pay transaction fees directly on the Solana blockchain. This is optional. For users with wallets that don't support auto signing, the Signer Account avoids the need to sign each trade.
Why do the strike prices not look standard?
Strikes look a little different on DeVol than on other platforms. This is because the strikes that are listed as the central strikes of the Standard Risk Block system.
Can I choose a custom strike price for an option I am buying or selling?
No. You can only buy and sell strikes that are displayed. Currently, we have 95 strikes to choose from.
Why is there no bid/ask spread?
There is no order book and no traditional market makers providing two-way quotes and earning the bid/ask spread. Instead, liquidity is provided by liquidity pools.
Does DeVol use an order book?
On DeVol there are no designated market makers, there is no order book, and there is no bid/ask spread for a market maker to earn fees. Instead, we have an AMM liquidity provision structure that democratizes market-making and allows anyone to provide liquidity.
Why am I getting an error message saying “option order is too big”?
The notional value of each trade cannot exceed 2.5% of the size of the Liquidity Pool. Therefore, a given order may be rejected even if you have enough funds in your DeVol Trading Account.
Why am I not able to trade 30 minutes before expiration?
Trading is disallowed in the 30 minute window before option expiration to minimize the potential for price manipulation.
Why is the light at the top right of DeVol sometimes red?
A red light means your DeVol Signer Account and DeVol Trading Account are not connected to the Solana blockchain. They must be reconnected in order to trade. A green light means your DeVol Accounts are connected to the Solana blockchain.
In my Portfolio, what does it mean when "Status" changes from “Trading” to a blinking red “Payoff”?
When you see “Payoff” blinking red it means the option in your portfolio is no longer trading because it is past the expiry date and it has matured. You must manually settle the trade which will free up your options capacity. In order to do this, click the three yellow menu bars to the left of your Trading Pair, and in the dropdown menu, click Payoff.
What does Options Capacity mean?
Options Capacity is the maximum number of unique expiration dates and trading pairs you can have in your portfolio. For example, with a capacity of 4, a trader can have a maximum of 4 separate expiration dates, and each expiration date can only have one trading pair. Within each expiration date and trading pair, the trader may trade an unlimited number of option contracts. You can increase your Options Capacity by paying SOL from your DeVol Signer Account to the Solana Blockchain.
Where does the liquidity come from on DeVol?
Liquidity on DeVol is provided by liquidity pools set up for a specific underlier and expiration date. The pools are designed to contain sufficient collateral for a given option (a specific underlying crypto and expiration date), across all strikes, so as to cover all possible outcomes across the distribution of the final price of the underlier at expiration, excluding extreme tails. Over 99.9% of the distribution is covered (3 standard deviations on each side).
What is a liquidity pool?
Liquidity pools are crowdsourced pools of cryptocurrencies or tokens that are locked in a smart contract to facilitate trades. A liquidity pool takes the opposite exposure for all trades in a specific expiration. If a trader wants to buy an option, this means selling them the position. If a traders wants to sell an option, this means entering into the position.
What is a Liquidity Provider (LP)?
An LP is someone who contributes base currency (cryptocurrencies or tokens) to a liquidity pool that supports a specific trading pair (underlier/base currency) and option expiration. Anyone can be an LP and deposit to or withdraw from a pool at any time.
What kind of a yield can I expect as an LP?
LPs earn a return associated with the pool overall exposure as a result of buying or selling options as needed to meet traders’ needs, taking the opposite side of traders’ orders with respect to all strikes during the active trading period. When a new trade comes in, the AMM price impact function evaluates the expected change in liquidity and inventory risk after each trade and charges two separate price impacts:
(1) Mark price impact. This is the adjustment to price due to the impact of the trade on liquidity.
(2) Risk price impact. This is the adjustment to price due to the contribution of the trade to total inventory risk given all prior existing pool/LP positions.
The actual yield of a given pool cannot be predicted. It is a function of its aggregate volatility exposure (ultimately will depend on what trades are needed to accommodate traders), the difference between realized and implied volatility, and the performance of the underlier. However, through the design of the price impact function (and particularly the risk impact), in the long run LPs are properly compensated for providing liquidity to DeVol.
Are LPs subject to impermanent loss?
No, LPs are not subject to impermanent loss. There is only one coin in a liquidity pool (typically a stablecoin).
What are the trading fees on DeVol?
DeVol charges a flat transaction fee of 0.5 basis points (0.005%) per nominal value for each SRB stake bought or sold. Depending on market conditions (implied volatility), this comes out to between 0.01% - 0.03% of the notional value of each trade.
Can I use margin for options on DeVol?
No. Options on DeVol are fully collateralized. This means that if you sell individual options, the DeVol Protocol will calculate and block in your Trading Account the maximum amount of funds you could lose. This blocked amount will show up as collateral in the Order Manager and Portfolio Windows.
However, we are continually innovating, so stay tuned -- we may introduce margin trading in a later version.
What if I want to sell options, but I don’t have enough funds to post the required collateral?
If you don’t have enough collateral, you can lower the number of options you want to sell until your collateral is sufficient.
As an LP, can I withdraw my funds from a Liquidity Pool?
Yes, you can add and withdraw funds from a liquidity pool at any time. Note, however, that withdrawals during option trading are subject to an early withdrawal penalty. Further, withdrawals that would result in the pool balance being insufficient to cover its maximum potential obligation are de facto disallowed.
Where can developers access API information?
API information coming soon.
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