The peer-to-pool binary options settlement protocol (“BIOPSET”) is going full degen. Option expiration will no longer be determinate in the traditional dimensions of time (like minutes and seconds) but rather the numerical order of change derived from an oracle.
If this sounds like fun to you, let’s dig into this most exciting change in protocol behavior in this article.
If you need a refresher on binary options, read this. If you don’t know what version 4 is all about, read this.
Traditionally, options expire based on units of time like years, months, days, hours, or even minutes and seconds. BIOPSET V4 is veering away from this traditional option expiration (i.e. based on the standard dimensions of time) in favor of the order of price updates received from a Chainlink oracle.
Think of BIOPSET V4 binary options as having oracle-based expiration.
Oracle-Based Expiration
All options expire. With binary options, at expiration, the options are either valuable (“in-the-money” or “ITM”) or worthless (“out-of-the-money” or “OTM”).
Like all other financial derivatives, binary options traditionally expire after a specified period. The period is defined in terms of years, months, days, or hours. In the case of BIOPSET V4 binary options presently on Kovan, the period is defined in terms of seconds.
Options buyers choose an expiration that best suits their timeframe and price prognostications for the underlying asset at that point in the future.
In oracle-based expiration, options buyers choose an expiration based on the update number of the oracle. That means options buyers could choose to have their options expire after one (1) update or after a thousand updates. The period is completely customizable by the options trader.
There is a major difference between the two styles of expiration: oracle-based expiration is presently indeterminate. That means that a trader cannot know a priori exactly when expiration occurs. Statistics and probabilities will aid the trader, but these degen options are stochastic financial derivatives.
A New Class Of Derivatives
This kind of completely customizable financial derivative is only doable in a non-custodial decentralized derivatives protocol like BIOPSET because the counterparty of the trader is the writer-funded pool. [1]
The implications of oracle-based duration (i.e. “oracle-derived duration”) mean that BIOPSET has created a new class of financial derivatives. The value of the derivatives is no longer dependent on the future price of the underlying asset at a specific time, but rather the future price of the underlying asset after a specific update is received from the oracle.
Degen derivatives are actually “oracle derivatives” and degen options are “oracle options”. Degen just sounds cooler.
Either way, the implications are huge for BIOPSET. The chief benefits that BIOPSET traders can expect as a consequence of oracle-derived duration are:
- Customizable Duration
- Improved Settlement
From the perspective of a designer of the BIOPSET protocol aspiring to create another lego in decentralized finance (“DeFi”), having settlement oracle-derived makes the protocol much cleaner and more reliable.
Traders will find a fine-tunable option duration most beneficial in their pursuit to beat the pool (“house”) and make 2X gains in the zero-sum game that binary options trading is.
Unknowables
How will the market react to this financial innovation? It was borne out of necessity. Shalaquiana was searching for a way to handle the intermittent nature of Chainlink oracle updates and turned a bug into a feature.
Will the market find value in it? Maybe someday, the DeFi community will turn to BIOPSET to get a precise indication on the price direction of supported assets and build smart contracts based on those indications. That is certainly the hope of the protocol designers. Time will tell.
Don’t like degen binary options? Then speak up. Join the discussion on Discord.
Don’t understand what BIOPset V4 is? Then read here:
To learn even more about BIOPset, please subscribe/follow/check out:
Website: https://biopset.com/
Twitter: https://twitter.com/biopset
Discord: https://discord.com/invite/4SRYBNdE3r
Telegram: https://t.me/BIOPset
Documentation: https://docs.biopset.com/
Please remember trading binary options is risky. That’s why financial derivatives are heavily regulated in certain jurisdictions.
This article is educational. Nothing in this article is financial advice. Always do your research.
[1] In reality, there is an upper limit to the number of updates. The parameter will be defined in the protocol and based on the upper time limit options sellers (“writers”) feel comfortable supporting. The Settlement DAO can change the parameter by creating proposals and voting with their BIOP V4 tokens.
