Frequently Asked Questions
There's a good chance it's been asked before :)
What is Panoptic?
The Panoptic protocol enables the minting, trading, and market-making of perpetual put and call options. All smart contracts are available 24/7 and users can interact with the Panoptic protocol without the need for intermediaries like banks, brokerage firms, clearinghouses, market makers, or centralized exchanges.
How can I use Panoptic?
You can access Panoptic by connecting your wallet to the Panoptic App, which will be deployed on app.panoptic.xyz (COMING SOON...)
What are the key benefits?
Options in Panoptic differ slightly from conventional options. Instead of using a clearinghouse to settle options contracts, the Panoptic protocol uses Liquidity Provider (LP) positions in Uniswap v3 as a fundamental building block for trading long and short options.
Panoptic allows users to access new and improved features when options trading:
1) Panoptic options never expire and are perpetual.
2) Anybody can deploy an options market on any asset in a permissionless manner.
3) Panoptic enables anyone to lend their capital to options traders as a liquidity provider.
4) Pricing is path-dependent and does not involve counterparties (such as market makers).
Panoptic allows users to access new and improved features when options trading:
1) Panoptic options never expire and are perpetual.
2) Anybody can deploy an options market on any asset in a permissionless manner.
3) Panoptic enables anyone to lend their capital to options traders as a liquidity provider.
4) Pricing is path-dependent and does not involve counterparties (such as market makers).
Which assets can I trade?
Panoptic works on any ERC20 token. Panoptic users can create an options market on any token pair that exists on Uniswap V3.
Where will Panoptic launch?
Panoptic will launch on Ethereum mainnet and all EVM-compatible layer 2's where the Uniswap v3 smart contracts have been deployed.
What does it cost to trade?
In addition to paying gas fees, all options traders pay a fixed commission fee to Panoptic liquidity providers when opening a position. This commission fee will be between 10bps and 60bps, depending on protocol utilization.
Is there a token?
No. Panoptic does not have a token at this time.
Wen launch?
Testnet is scheduled for September 2023. Mainnet is scheduled for Q4 2023. See our roadmap.
Will there be a code audit?
Yes. Panoptic was audited by ABDK and is currently undergoing an audit with OpenZeppelin. There will also be an audit by Code4rena in Q2-Q3 2023. See our roadmap.
Can I buy and sell options on leverage?
Yes. Traders can buy options with up to 10x leverage and sell options with up to 5x leverage under normal market conditions. Please note that collateral requirements are dynamic and change in response to pool utilization.
Does Panoptic only allow for limited upside positions?
No. You can create limited upside, unlimited upside, limited downside, and unlimited downside positions by combining put and call options on Panoptic.
Is Panoptic only useful for hedging Uniswap LP positions?
No. While Panoptic allows you to hedge against Uniswap LP positions by shorting them, it also allows you to create puts, calls, straddles, jade lizards, zebra spreads, and many other custom option payoffs!
What tokens can I trade options on?
Any ERC20 tokens. The Panoptic protocol enables permissionless options trading for longtail assets just as Uniswap allows for permissionless spot trading for longtail assets.
Can I sell options at any strike?
Yes.
Can I buy options at any strike?
Yes, as long as there is enough seller liquidity at that strike.
Does someone have to sell an option before I can buy the option?
Yes.
What is the Panoptic liquidity provider (PLP) role? How is this different from the option seller?
The Panoptic liquidity provider (PLP) provides fungible liquidity to the Panoptic pool and receives commission fees in return. This differs from the liquidity provider (LP) who deploys liquidity in a Uniswap V3 pool and receives swap fees in return. The option seller borrows liquidity from the PLP to deploy in a Uniswap V3 pool as an LP. This act of moving liquidity from the Panoptic pool to the Uniswap pool constitutes selling an option.
Example A: Alice is a PLP for the ETH-USDC pool on Panoptic. She can deposit ETH, USDC, or both ETH & USDC into the pool. She receives a share of commission fees in return.
Example B: Bob is an option seller for ETH-USDC options. After depositing some collateral to the ETH-USDC pool on Panoptic (making him a PLP), he borrows a larger amount of ETH & USDC. The Panoptic protocol deploys his borrowed ETH & USDC into the ETH-USDC pool on Uniswap (making him an LP). His LP position on Uniswap has the same payoffs as a short option (making him an option seller).
Example A: Alice is a PLP for the ETH-USDC pool on Panoptic. She can deposit ETH, USDC, or both ETH & USDC into the pool. She receives a share of commission fees in return.
Example B: Bob is an option seller for ETH-USDC options. After depositing some collateral to the ETH-USDC pool on Panoptic (making him a PLP), he borrows a larger amount of ETH & USDC. The Panoptic protocol deploys his borrowed ETH & USDC into the ETH-USDC pool on Uniswap (making him an LP). His LP position on Uniswap has the same payoffs as a short option (making him an option seller).
Do Panoptic liquidity providers (PLPs) suffer impermanent loss (IL)?
No, Panoptic liquidity providers (PLPs) do not suffer IL from Uniswap LP positions. PLPs earn commission fees, and take on protocol risk (e.g. if the Panoptic pool accrues bad debt from failing to liquidate on time, then PLPs can lose capital). However, protocol risk is minimized through a tried-and-true decentralized liquidation network just as Aave, Compound, and dYdX use to prevent protocol insolvency.
Why should I sell an option on Panoptic when I can just LP directly on Uniswap?
Selling an option on Panoptic has the same before-fees payoff as LPing on Uniswap. However, selling an option on Panoptic earns a premium (paid by the option buyer) that is strictly greater than the swap fees earned by an LP position due to the liquidity spread.
What does it cost to sell an option?
Selling an option costs a commission fee and gas fee. The commission fee is 0.2% to 0.6% of the notional value of the option position, depending on the pool utilization at the time of sell. There is no commission fee to close the position.
What does it cost to buy an option?
Buying an option costs a commission fee, premium, and gas fee. The commission fee is 0.2% to 0.6% of the notional value of the option position, depending on the pool utilization at the time of purchase. The premium starts at 0, and accumulates while the underlying price remains in range. There is no commission fee to close the position.
How is the premium calculated?
The premium is equal to the amount of swap fees the borrowed LP position would have earned in the Uniswap pool, multiplied by a spread multiplier.
Example: Alice sells an out-of-the-money (OTM) ETH-USDC put Panoption, with strike = 1000 and width = Ā±10%. Bob buys the OTM put Panoption from Alice for 0 upfront premium. If the ETH-USDC price moves between 909 and 1100, the option is āin rangeā and would have earned swap fees from the Uniswap pool. If the ETH-USDC price is above 1100 or below 909, the option is āout of rangeā and would not have earned any swap fees. Bob owes the total amount of accumulated swap fees to Alice as premium.
Example: Alice sells an out-of-the-money (OTM) ETH-USDC put Panoption, with strike = 1000 and width = Ā±10%. Bob buys the OTM put Panoption from Alice for 0 upfront premium. If the ETH-USDC price moves between 909 and 1100, the option is āin rangeā and would have earned swap fees from the Uniswap pool. If the ETH-USDC price is above 1100 or below 909, the option is āout of rangeā and would not have earned any swap fees. Bob owes the total amount of accumulated swap fees to Alice as premium.
What is the commission fee?
This is the fee to mint an option. When an option seller or buyer opens their position, they pay a commission fee on the notional value of the position. The commission is paid to the PLPs. The commission fee percentage varies between 0.2% - 0.6% based on pool utilization.