Proposal for Bancor Call options

Bancor Improvement Proposal for Bancor Call options
Author: SuperUMAns

Bancor has collaborated with UMA before and a great opportunity to continue working together would be Call options. This is a BIP to launch Bancor Call Options, using the UMA protocol.

What is a Call Option and how can they benefit Bancor?

A Call Option gives the buyer the right but not the obligation to buy an asset at a specified price(strike) at a specific time period(expiry). This tool gives a person the ability to speculate on the appreciation of an asset with leverage, while limiting downside. However, the value of that option could depreciate quickly to zero, if it does not trade above strike price.

Here is a learning session, presented by Kevin Chan from UMA and former Treasury desk manager at Goldman Sachs New York. Notion – The all-in-one workspace for your notes, tasks, wikis, and databases.

Benefits or what Call Options can do for Bancor.

If you are bullish on Bancor, you can buy Bancor Call Options for limited, downside exposure on a rally. Holders of Bancor, could collect a premium, while waiting to take profits, by minting Options and selling them. It would provide a premium, plus a way of taking profits, during a rally.

Futheremore, we believe that Bancor is the only “missing party” in the call options menu at UMA: We have Balancer, Sushi, and Uniswap. We’d like to be able to co-market this product and build a stronger relationship between Bancor and UMA.

Risk and concerns for the Bancor community.

The ecosystem fund would lock up Bancor tokens, into UMA audited contracts to mint Calls. As a sponsor and LP, the ecosystem’s “risk” would be that if Bancor goes over the strike price, it would be selling Bancor into the market as the price climbs. This is a “right way” risk for the foundation. This is less about foundation earning, and more about the foundation having a capital efficient way to provide a service to Bancor token holders.

UMA would suggest the foundation pull liquidity before expiry(1 week) otherwise call options can expire “out of money” and create strange situations with regard to impermanent loss. When foundation pulls liquidity, the outstanding Call Options would essentially be untradeable and only redeemable if in the money on expiry date.

Proposal

UMA proposes, to use some Bancor tokens from ecosystem funds to provide liquidity for Bancor call options, with a strike price of X and expire at X date, which will be set at time of Call Option release. The SuperUMAns can help you decide on those X factors which can be similar to other Call Options already running off the UMA protocol. The Bancor and UMA will have occasion to work together and cross promote our coordination efforts.

Call Options on UMA are fully collateralized, this means that to mint 1 call option there needs to be 1 BNT locked as collateral. To provide $2M in liquidity for options priced at 10% of the current token price will require $20M in BNT.
UMA’s contracts have been audited by Open Zeppelin and currently secure $200M TVL without incident.

Here are some economic considerations from Kevin, who is our treasurer and the goldman guy:
Well it’s generally a benefit for the project’s tokenholders. It creates a liquid call options market that their token holders can benefit from. The treasury itself just gains some trading fees which may not be much. The more complex component is the project sells vol into the market and that acts to dampen price volatility.
As for risks the project will lose some tokens if the market rallies past the strike but effectively they are rewarding people who are bullish their project. And the project actually loses less than just outright selling the option just the impermanent loss from it.

Steps Forward

If the Bancor community supports this BIP, the UMA team of SuperUMAns, are eager to support implementation of the UMA protocol in regards to this BIP. The required governance proposals are already being passed in the UMA Protocol, so it should take little time on Bancor Call Options using the UMA protocol.

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Has my vote of approval. :+1:

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@ccc how can we get this in front of more people in your community to get this ball rolling?

would like to see what @mbr has to say but we absolutely need call option.

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Would it be cool if I got a hold of some SuperUMAns, and maybe go hang in your guys discord and talk about it a bit?

I’d be happy to host a Jami rendezvous if anyone wants to take that route; proprietary platforms and all that.

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Some questions from my end (I am sure I will have some more as I read your docs)

  1. Which venue will a trader use to buy a call option minted in your platform? If we mint BNT call options where would someone actually purchase them? Is there some UMA DEX that one would use for buying these options?

  2. When the call option expires, what mechanism determines the price at the time of expiry? How do you determine whether the option expired worthless or whether the buyer is owed payment?

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Hi! Clayton from UMA here, I’m the community lead.

  1. We already have a UI! You can see here: https://mysynths.finance/ – You’ll notice all the other calls avaliable, other than UMA’s own, are AMMs – Just missing Bancor!

  2. This goes to the core of what UMA is all about – We are an oracle solution. I wont go into crazy detail here, but the quick explanation is that the price gets pushed on chain via our optimistic oracle. The oracle asks “What was the price of BNT at timestamp xx:xx:xx?” – And a proposer can post a bond and submit their answer. Someone else could post a bond and dispute, at which point it would go to the tokenholders for a vote. It’s hard to sound convincing with a summary, but I can jump to the “it also does work” datapoint: UMA has over $200M in TVL that has been secured in this fashion for almost a year

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if we can implement this aswell as stop-losses and take profits along with full featured charts it would be a big leap ahead of all other current DEXs. we should get this done ASAP. also by what @clayton_uma is saying this could add a huge chunk of volume to the protocol.

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We were thinking about coming over for a visit with some fellow SuperUMAns tonight in your discord to visit talk about call options would that be ok?

Was thinking about coming over to your guys discord tonight n maybe talk some call options and hang out for a bit, think that would be ok?

Think it would be cool to come visit you guys in your discord tonight? I can bring some SuperUMAns over to hang and talk Call Options, with the Bancor community. That way we can answer any questions you guys might have?

We were thinking about coming and hanging out in your guys discord tonight,talk a little Call Options and just hang out and answer any questions the Bancor community might have, and just get to know each other a bit?

There is a “call options” channel under the governance section in discord that can be use to discuss. Feel free to drop in there.

Sounds good will do. I’ll drop you a email with a time here after a bit, if you could help spread the word on your end ,that would be great. Also thanks.

Cool idea, there is very easy to implement design already working. Checkout Siren. Fork and go.

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We will be coming to Call Options channel at 0:00 UTC, if you could let some people know, that would be great, I will post in your Call Options discordcas well, thanks, you have been great

Were going to come hang out in your guys discord Call Options channel tonight, at 0:00UTC, hope you can join us and please help spread the word

Here are some economic considerations from Kevin, who is our treasurer and the goldman guy:

Well it’s generally a benefit for the project’s tokenholders. It creates a liquid call options market that their token holders can benefit from. The treasury itself just gains some trading fees which may not be much. The more complex component is the project sells vol into the market and that acts to dampen price volatility.

As for risks the project will lose some tokens if the market rallies past the strike but effectively they are rewarding people who are bullish their project. And the project actually loses less than just outright selling the option just the impermanent loss from it.

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Spent some time talking to the guys in the discord chat, I encourage people to come by get any questions answered the UMA guys are all great. Beyond regular options I think their KPI options could also have great merit in helping grow our Volume and TVL. also, this article gave me a good idea as to how they work : UMA Call Options Now Live. Building Call Options on UMA (Part 2) | by Kevin Chan | UMA Project | Mar, 2021 | Medium

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