In a recent blog post, PancakeSwap, a leading decentralized exchange, announced its collaboration with Stryke, formerly known as Dopex, to launch CLAMM Options Trading. This move not only enhances the trading market within the DeFi space but also marks a robust step in integrating robust options trading protocols with PancakeSwap’s trading platform, enhancing its v3 pools.
PancakeSwap Boosts Its Option Trading Sector
PancakeSwap has partnered with Stryke (formerly known as Dopex) to launch CLAMM Options Trading, marking a notable advancement in the decentralized finance (DeFi) sector. This new offering enhances the creation of on-chain options liquidity, permitting users to effortlessly engage in options trading, accumulate premiums, and receive swap fees. The partnership highlights a significant progression in DeFi, effectively merging the robust platform of PancakeSwap with the innovative options protocol developed by Stryke.
⚡️Introducing CLAMM Options Trading on PancakeSwap in Collaboration with @stryke_xyz
💜💙You can now trade options, build on-chain options liquidity, earn premiums, and earn swap fees on @arbitrum PancakeSwap https://t.co/YP1mfEVEh4https://t.co/JrbJWPgZd7
— PancakeSwap v4🥞 (@PancakeSwap) April 8, 2024
PancakeSwap is set to introduce its American-style CLAMM options on the Arbitrum chain, bringing a new level of flexibility to the market with expiry durations ranging from 1 to 24 hours. These options will be available in markets including ARB/USDC, WETH/USDC, and WBTC/USDC, featuring both call and put types.
The strike prices for these options will be determined based on v3 pool ticks, and they will offer a variety of expiry durations such as 1, 2, 6, 12, and 24 hours. Moreover, to enhance user experience and prevent potential losses from in-the-money options expiring worthless, the platform will allow users to exercise their positions before closure. An auto-exercise feature is also available, enabling users to automatically realize profits at expiry without the need for further actions.
Options are financial instruments in the form of contracts that provide purchasers with the right, but not the obligation, to purchase or sell an asset at a specified strike price in the future. Buyers of options pay a fee, known as a premium, for this privilege. Should the market conditions turn adverse, the buyers have the option to allow the contract to expire, with their losses capped at the amount of the premium. On the other hand, if the market trends favorably, they can exercise the option to secure profits.
These contracts are typically divided into two main types: “call” and “put” options. A call option gives the holder the right to buy the underlying asset at the strike price, whereas a put option grants the holder the right to sell the asset at the agreed-upon price.
PancakeSwap’s V4 Launch Nears
The CLAMM options protocol unveils a novel dual liquidity provision system that benefits both options traders and PancakeSwap v3 pools. This system operates by allowing users to add liquidity to CLAMM options, which simultaneously contributes to the corresponding PancakeSwap v3 (CLAMM) pool within a specified price range.
When an options trader initiates a position, the necessary liquidity is drawn from the v3 pool to support the sale of options, enabling the trader to assume the role of an options seller and earn a premium. Additionally, any liquidity not actively engaged in trades remains in the PancakeSwap v3 pool, where it has the potential to generate trading fees, provided the pool’s price stays within the selected liquidity range.
This setup ensures a consistent payoff from selling options and supplying liquidity to the v3 pool, maintaining the same IL or token balance, thus not increasing the user’s risk compared to traditional liquidity provision methods. Moreover, the risks to users are minimized since the unutilized liquidity due to lower demand for buying options, and liquidity placed in inactive price ranges, may not earn fees, reducing the financial exposure for participants.
Later this year, PancakeSwap is set to launch its fourth version, introducing four major enhancements: hooks, custom pool types, singleton, and flash accounting. These features are designed to streamline on-chain trading, making it more cost-effective and efficient for its users. Set to release in the third quarter on both the Ethereum and BNB Chain networks, this new version promises to offer better asset pricing, lower gas usage, and reduced costs associated with deployment.