Options

The fees accrual mechanism from borrowing module to dCDS module is through the Collateral Options (derivative) mechanism.

1. Option contract is designed to provide an avenue for borrowers to capture an upside on collateral price by buying a call option at a particular strike price.

2. Option contract is designed to hedge the downside risk of collateral along with achieving high capital efficiency.

3. Option contract also enables the flow of option fees from option buyers i.e. borrowers to Option sellers i.e dCDS holders. This help provide an high yield APY to dCDS holder who have deposited their amount to be utilized in providing volatility hedging to borrowers and achieving a Delta neutral position for protocol.

4. There are 5 variations of strike prices that can be taken by borrowers – 5%, 10%,15%, 20%, 25%. It implies that borrowers will be buying a collateral option on Collateral price on the above percentage ranges for strike prices initially which will spread evenly over time to allow greater flexibility. The option price will decrease from 5% strike price option to 25% strike price option.

Options have rolling maturities which is dependent on collateral price volatility, dCDS/ Collateral Vault ratios, demand & supply of stablecoin credit and USDa stablecoin peg deviation. Since their is no specific maturity and the strike prices selected by borrowers doesn't concentrate the liquidity of dCDS pool so the capital efficiency of options in liquidity management and fees accrual is very high.

Currently their is no option marketplace for users to trade their options with the market but this will be developed over time in the next version of the protocol.

Different mechanisms of Option fees calculation will be detailed out in the whitepaper.