The Brazilian DeFi protocol for decentralized and non-custodial options buying and selling Pods Finance went into operation on the Ethereum network on Monday, with the mission of offering investors protection against the volatility of the cryptocurrency market.
— Pods (@PodsFinance) October 11, 2021
1 / We are pleased to announce the launch of Pods on the Ethereum Mainnet!!
Pods has been in operation since early June at Polygon, on a limited basis, but from now on protocol users will be able to act as sellers or buyers of call options for cryptocurrencies using the Ethereum blockchain as well. Put options should be added to the platform in the future.
In a statement to Cointelegraph Brasil, Robson Silva, one of the co-founders of the project along with Rafaella Baraldo and Guilherme Viana, spoke about his expectations regarding the new phase of the project:
Pods is launching its first piece of “lego” in the decentralized finance (DeFi) market. The Pods Options protocol introduces a base layer for creating DeFi structured products. From now on, we will start an important phase of improving the product and integrating our options lego with other protocols. We are excited to see people around the world using the protocol to hedge their portfolios, and to create more complex investment strategies.
How does the Pods protocol work?
The Pods protocol offers an experience of hedge user-friendly through Automatic Market Makers (AMM) options.
An option is a contract between two parties in which both parties agree to execute a certain transaction if pre-established conditions are met. The option buyer has the option of buying or selling an asset at a pre-agreed price – the strike price. The option seller, on the other hand, has the obligation to buy or sell the asset if it is the buyer’s desire.
In addition to buying or selling cryptocurrency call options, users can also provide liquidity to the protocol’s Automatic Market Makers (AMM), or create their own option tokens.
To issue them, it is necessary to block the collateral as collateral in an intelligent contract that will contain all the details of the transaction, such as the strike price, the underlying asset, the collateral asset and the expiration date. The number of option tokens will be issued in a 1:1 ratio with the underlying asset.
Option tokens are tokens in the ERC20 standard and can be sold on the secondary market in DEXs (decentralized exchanges) or P2P. Anyone can create these option tokens through Pods.
The difference between creating the token itself or simply buying an option token is that in the first case it is necessary to lock the collateral asset to obtain the option to purchase the underlying asset at the strike price; in the second case, a certain amount is being paid for the option to put the underlying asset at the strike price.
In a first example of integration with other protocols to increase locked capital efficiency and investor profitability, Pods allows AAVE Tokens to be used as collateral in its options contracts.
aTokens earn interest while the collateral is retained during the term of the contract. This functionality was dubbed “smart collateral”, or intelligent guarantee, by the protocol developers.
The Automatic Options Market Maker is a one-way AMM that has the following characteristics:
AMM updates the contract premium price based on the spot market price of the underlying asset, time to maturity, and implied volatility (calculated based on the supply and demand of the option tokens observed in the pool).
Provision of unilateral liquidity
It is possible to add liquidity with just one of the tokens that make up a given pool. The portfolio will track the user’s initial exposure and, at the time the user withdraws liquidity, the withdrawn position should reflect the initial exposure within the new asset allocation. There may be impermanent gain or loss, depending on the return on the investment, in addition to the income generated by AMM transaction fees during the period the assets were blocked.
Imbalance and price changes
If there is no imbalance between the assets that make up a given pool, price variations should not represent losses to liquidity providers.
Fair distribution of pool earnings among liquidity providers
Pool returns are distributed in fair proportion to the assets blocked by liquidity providers.
According to Rafaella Baraldo, Pods Finance’s options AMM model simplifies the user experience by allowing investors to always be “one click away from finding liquidity to enhance the protection of their portfolios.”
Past and Future of Pods
The new phase of Pods Finance crowns a trajectory that began in February 2020, when the trio responsible for the project participated in ETH Denver 2020, a major gathering of the Ethereum blockchain developer community. On the occasion, they presented the prototype of the ohmydefi, whose development resulted in Pods Finance shortly thereafter.
In August 2020, Pods raised $800,000 in a round of pre-seed with venture capital funds and angel investors. Among its consultants, the protocol now has Joseph Delong, CTO of Sushi Swap, and Stani Kulechov, founder and CEO of AAVE.
The release of a protocol token is something that is not in the immediate plans of developers, but it is something that, of course, should happen in the future.
As part of the new stage of the project, Pods is expected to launch an NFT (non-fungible token) campaign entitled “The Wakening”. In addition to rewarding first-time users, the campaign is intended to encourage use of the platform with a new liquidity mining model that rewards investor interaction with NFTs.
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