Prior to DeFi Derivatives Race, Opyn Will Unveil its ETH

Prior to DeFi derivatives race, Opyn will unveil its ETH token. SQUEETH is about to arrive. The protocol for decentralized options ETH-based liquidity provider (LP). Positions on automated market maker (AMM) exchanges will be hedged. Using Opyn’s Squared ETH or SQUEETH token. Which will be available for purchase soon.

Joe Clark, an Opyn developer, characterized SQUEETH as a “new DeFi primitive”. In a blog post published on December 17 that allows stablecoin/ETH liquidity providers. To earn swap fees while not being subject to the impact of price swings. Inside the Ethereum blockchain for the first time.

Ethereum’s growing ecosystem of decentralized derivatives will benefit. From the addition of the instrument, with DeFi traders able to hedge their positions. Using yield tokenization, leveraged tokens. Structured options products, and futures contracts offered by decentralized protocols. Among other things. Opyn has not stated when the product is expected to be available for purchase.

Power Perpetuals

SQUEETH was first stated in an August research report based on research. From Opyn and Paradigm Research, and it has since gained widespread acceptance. SQUEETH was advertised at the time as one of several “power perpetuals”. That provided returns based on a price curve.

According to Clark’s most recent blog post, SQUEETH is presently being developed. In order to mitigate the temporary loss associated with providing liquidity on an AMM platform. This “quadratic” instrument, according to the developer, enhances hedging against “non-linear position.” Which are instruments that perform in a manner that follows a curve. Such as AMM LP holdings, and hence improves overall risk management.

Depositing equal values of two assets contained in a pair, AMM liquidity providers earn LP tokens. Indicating their position, which can redeemed for the underlying assets. However, fluctuations in asset values result in rebalancing of AMM pools. Resulting in LPs suffering divergent or temporary losses as a result of the rebalancing.

When the price of only one of the assets in an AMM pair increases. This is refer to as an impermanent loss. With the AMM protocol. LP holdings rebalanced so that the asset that is underperforming represents a bigger sum. And the asset that is gaining represents a lower sum. As compared to the original deposit of the liquidity provider.

In order to hedge against this disparity, the price of SQUEETH projected to change. In a manner that is equal to the temporary loss incurred as a result of price volatility.

SQUEETH provides two essential services to stabecoin and ether liquidity providers.

First and foremost, liquidity providers can purchase SQUEETH while maintaining their LP position. In order to offset any temporary losses. This allows them to profit from increases in the value of ether. While simultaneously generating swap fees.

Swap Fees

When utilized in conjunction with a short position utilizing futures contracts. SQUEETH can used to hedge against price declines in Ether. While still receiving swap commissions. “Any non-linear exposure may hedged pretty correctly using both a linear instrument (futures). And a quadratic instrument (SQUEETH),” remarked Clark.

Because SQUEETH acquired with a variable curvature, the developer notes. That it can also used to hedge against long positions on Uniswap version 3. As SQUEETH is purchase with a variable curvature. That corresponds to the concentrated liquidity ranges afforded by version 3 and Prior to DeFi derivatives.

Even though Clark acknowledges that “some residual cubic and higher order words”. Will have a “minor impact” on the effectiveness of the hedge. He finds that “the hedge holds astonishingly well” in the long run.

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