Options have existed on-chain for years, but due to fragmented liquidity across options tokens with different strikes and expiries, and an inefficient UX around settlement compared to centralized venues, they have never gained much traction. Ribbon Finance was one of the more popular implementations of options on chain, which packaged Opyn’s options as a structured product and created efficiencies by handling the sales and settlement themselves. Still, this was only for limited use cases and only ever reached a few hundred million dollars a week in volumes at the peak, compared to Deribit which does billions a day.
Today, derivatives are dominant offchain, but options can generally only be found on the largest of assets. For users that want to trade options on-chain, a viable option (no pun intended) hasn’t existed until now. Panoptic has architected an options protocol that solves these liquidity and settlement issues, but also offers benefits to buyers and sellers only available using this type of structure on-chain.
A new type of Option, on-chain ready
Panoptic started from a realization that providing concentrated liquidity on Uniswap v3 is analogous to selling options in traditional finance. As a liquidity layer on top of Uni v3, the protocol facilitates the “renting” of liquidity and movement of it into and out of Uni v3 to create perpetual options (with no expiry date and a streaming premium).
The premium earned/paid is equal to the trading fees from the Uniswap pool, plus a buyers spread. The viability of this model is backed by the team’s research, which showed that the value of these synthetic options positions and the premiums paid closely track Black Scholes over time (assuming implied volatility follows normal market behaviors, as it would need to for Black Scholes to properly value any type of options).
One of the largest benefits of this structure is that there is no need to bootstrap liquidity. With Panoptic, new options markets can be created on any two assets where there is sufficient liquidity in Uni v3 (where trading fees, and therefore streaming premium, can’t be manipulated).
When liquidity is moved from the Panoptic pool to Uni v3, it creates the sale of a perpetual option that doesn’t have an upfront premium, and at inception, doesn’t have a buyer; this means that users can “sell options to no one” and collect a premium over time without counterparties needed on the buy side. After a position is sold, it can then be bought by a user wanting to go long the option; they in turn pay the premium over time as they accrue to the position, allowing for things like purchasing of insurance at much less of an upfront cost.
Panoptic is a brainchild of Guillaume Lambert (CEO), a Professor at Cornell University in the school of Applied Engineering and Physics. He began writing about his research into Uniswap v3 and options which caught the eye of Jesper Kristensen (COO), a Cornell PhD in the same department, who reached out to him to discuss further. The two ended up combining forces to co-found Panoptic, the productization of these ideas.
Guillaume has an extensive academic history, as a Postdoctoral Researcher and Fellow at NYU and UChicago, as well as visiting scholar at Harvard’s Wyss Institute. In his free time he has garnered a huge following with his options analysis and trading, which he has leveraged into a large community for Panoptic. Jesper worked as a Web2 software developer for many years, and more recently was a quant focused on risk and machine learning at a hedge fund, while also working on a variety of DeFi applications. With a strong academic and financial foundation, the team is well positioned to build a large, sustainable options protocol.
Panoptic solves the liquidity fragmentation issues that have plagued past iterations of options on-chain and offers new benefits to both buyers and sellers not available on centralized venues. As a 0 to 1 for options, Panoptic will change the way we look at options and catalyze the growth of new options markets for assets large and small.