{"title":"Option Contracts in the DeFi Ecosystem: Opportunities, Solutions, and Technical Challenges","authors":"Srisht Fateh Singh, Vladyslav Nekriach, Panagiotis Michalopoulos, Andreas Veneris, Jeffrey Klinck","doi":"10.1002/nem.70005","DOIUrl":null,"url":null,"abstract":"<p>This paper investigates the current landscape of option trading platforms for cryptocurrencies, encompassing both centralized and decentralized exchanges. Option contracts in cryptocurrency markets offer functionalities akin to traditional markets, providing investors with tools to mitigate risks, particularly those arising from price volatility, while also allowing them to capitalize on future volatility trends. The paper discusses these applications of option contracts in the context of decentralized finance (DeFi), emphasizing their utility in managing market uncertainties. Despite a recent surge in the trading volume of options contracts on cryptocurrencies, decentralized platforms account for less than 1<i>%</i> of this total volume. Hence, this paper takes a closer look by examining the design choices of these platforms to understand the challenges hindering their growth and adoption. It identifies technical, financial, and adoption-related challenges that decentralized exchanges face and provides commentary on existing platform responses. Subsequently, the paper analyzes the impact of absent options markets on the inefficiencies of automated market maker liquidity. It examines historical on-chain data for 14 ERC20 token pairs on Ethereum. The analysis shows 1143 instances in which deeper liquidity levels, as high as <span></span><math>\n <semantics>\n <mrow>\n <mo>×</mo>\n <mn>6</mn>\n </mrow>\n <annotation>$$ \\times 6 $$</annotation>\n </semantics></math> more, could have been achieved by establishing an options market.</p>","PeriodicalId":14154,"journal":{"name":"International Journal of Network Management","volume":"35 2","pages":""},"PeriodicalIF":1.5000,"publicationDate":"2025-02-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1002/nem.70005","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Journal of Network Management","FirstCategoryId":"94","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1002/nem.70005","RegionNum":4,"RegionCategory":"计算机科学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"COMPUTER SCIENCE, INFORMATION SYSTEMS","Score":null,"Total":0}
Option Contracts in the DeFi Ecosystem: Opportunities, Solutions, and Technical Challenges
This paper investigates the current landscape of option trading platforms for cryptocurrencies, encompassing both centralized and decentralized exchanges. Option contracts in cryptocurrency markets offer functionalities akin to traditional markets, providing investors with tools to mitigate risks, particularly those arising from price volatility, while also allowing them to capitalize on future volatility trends. The paper discusses these applications of option contracts in the context of decentralized finance (DeFi), emphasizing their utility in managing market uncertainties. Despite a recent surge in the trading volume of options contracts on cryptocurrencies, decentralized platforms account for less than 1% of this total volume. Hence, this paper takes a closer look by examining the design choices of these platforms to understand the challenges hindering their growth and adoption. It identifies technical, financial, and adoption-related challenges that decentralized exchanges face and provides commentary on existing platform responses. Subsequently, the paper analyzes the impact of absent options markets on the inefficiencies of automated market maker liquidity. It examines historical on-chain data for 14 ERC20 token pairs on Ethereum. The analysis shows 1143 instances in which deeper liquidity levels, as high as more, could have been achieved by establishing an options market.
期刊介绍：
Modern computer networks and communication systems are increasing in size, scope, and heterogeneity. The promise of a single end-to-end technology has not been realized and likely never will occur. The decreasing cost of bandwidth is increasing the possible applications of computer networks and communication systems to entirely new domains. Problems in integrating heterogeneous wired and wireless technologies, ensuring security and quality of service, and reliably operating large-scale systems including the inclusion of cloud computing have all emerged as important topics. The one constant is the need for network management. Challenges in network management have never been greater than they are today. The International Journal of Network Management is the forum for researchers, developers, and practitioners in network management to present their work to an international audience. The journal is dedicated to the dissemination of information, which will enable improved management, operation, and maintenance of computer networks and communication systems. The journal is peer reviewed and publishes original papers (both theoretical and experimental) by leading researchers, practitioners, and consultants from universities, research laboratories, and companies around the world. Issues with thematic or guest-edited special topics typically occur several times per year. Topic areas for the journal are largely defined by the taxonomy for network and service management developed by IFIP WG6.6, together with IEEE-CNOM, the IRTF-NMRG and the Emanics Network of Excellence.
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