Opyn

Opyn is a protocol that enables the creation and trading of options. Opyn serves as the infrastructure for protocols such as Ribbon and Stake DAO.

Basics

• Founded in: 2019
• Based in:
• Live (13-2-2020) on mainnet.
• Insurance markets. First use cases are Compound and DAI.

• From CoinDesk (12-2-2020):

"The new product, from a company called Opyn, allows people to take out options on stablecoin deposits, allowing users to hedge against the risk of a catastrophic event wiping out Compound's books. "You can make a claim at any time. You don't have to prove anything to anyone," Zubin Koticha, one of the three co-founders behind the new product, told CoinDesk.

Opyn's first product will offer a hedge, what financial types call a "put option," which will guarantee that users can recover most of their lost capital if Compound has a disaster. "Options are great oracles of volatility and risk in traditional markets," Koticha said."

History

• From this blog (25-6-2020):

"Opyn made its first trial on the market for margin trading services in 2019, but pivoted towards a protection and insurance platform in February 2020."

Audits & Exploits

• Opyn offers two bug bounties: up to $1m for Squeeth, and up to $900k for Gamma (28-4-2022). Bug bounty program can be found here (11-2020). None according to Blockchain Security DB (29-6-2020), which does show 1 audit (2-2020).

• Scored 84% on DeFi Safety (28-4-2022):

"Code is almost fully covered at 98.262%. Opyn has undergone formal verification. Multiple audits have been performed and documented before and after deployment. Findings are public and multiple fixes were deployed."

• From their V2 announcement (29-12-2020):

"Gamma Protocol was audited by Open Zeplin (report will be publicly available before December 31st, 2020), formal verification was completed by Certora and the Opyn Bug Bounty has been running for over 4 weeks.

Further security audits will be running in the next few months to ensure there are up-to-date audits with the latest security best practices to identify new technologies that might contain current undiscovered vulnerabilities."

• Previously scored a 80% (9-2020); "Single audit reference in their docs (Security section)."

Bugs/Exploits

• Had a hack (5-8-2020) on Opyn's Ethereum put options. From Crypto Briefing:

"The team secured 572,165 USDC from its contract, but the hacker still got away with 371,260 USDC. Opyn is decentralized, and the team cannot shut it down in the case of emergency. The hacker used an exploit in Opyn protocol’s options tokens (oTokens) to steal collateral from users who sold these ETH puts. Opyn responded to the exploit by removing the ability to buy corresponding oTokens and draining their own protocol’s smart contract to liquidate ETH puts, saving further collateral from exploitation. A total of 572,165 USDC was drained from the contract. While security firm OpenZeppelin audited the contracts, the exploit was outside of the audit’s scope, Opyn team announced it would release more technical details on the exploit at a later date. The team reacted responsibly to the attack, promising full reimbursement for ETH put oTokens sellers who lost money in the hack. For purchasers of ETH put oTokens, the team offered to buy the tokens with a 20% markup on Deribit to compensate them for damages. Opyn is taking other measures to prevent future exploits. In its latest report, the team stated that it would review its internal security and testing practices while increasing its bug bounty rewards. Moreover, it will conduct additional audits besides those already scheduled with Open Zeppelin. Finally, the contracts will go through Echidna, a program for testing smart-contracts created by the well-established audit firm Trail of Bits.

• DeFi Weekly wrote a piece on how it unfolded (6-8-2020).
• According to later reports $943.000 got stolen, and the remainder got saved by Samczsun (6-8-2020).
• A breakdown of it's audits and subsequent exploit by Secureum can be found here (14-2-2021);

"Overall, there were some red flags raised by the audit, six months before the exploit, which were presumably fixed. But the exploited vulnerability unfortunately got introduced during the audit and hence remained undiscovered."

Governance

Admin Keys

• From DeFi Safety (28-4-2022):

"Admin Controls are clearly labelled here. Opyn's admin control information clearly mentions upgradeability of smart contracts. However, the extent thereof is vaguely described as "modules" and does not explicitly detail which particular smart contracts are upgradeable or not. Opyn's partial and full pause control is documented and explained in this location. There is no evidence of testing but capabilities are partially described. No Timelock information was documented."

Token

Token Details

• From DeFi Weekly (23-6-2020):

“This release will include margining for capital efficiency, enable options spreads and combinations positions, and create the infrastructure to add governance down the line,” co-founder Alexis Gauba told CoinDesk. The update should be released later this year.”

This hints strongly towards a governance token.

• From this blog (25-6-2020):

"OPYN is an options platform built on “Convexity Protocol,” which is a generalized options protocol built on the Ethereum blockchain that allows users to create options using oTokens. The oTokens are supported by the Convexity Protocol through oToken smart contracts. Each instance of an oToken smart contract must specify some of 8 different parameters: (1) time of expiry, (2) underlying asset, (3) strike price, (4) strike asset, (5) call or put, (6) type of collateral, (7) margin requirement of collateral, and finally (8) whether the option is either American or European. In order to focus liquidity on only a few markets, OPYN is currently the only entity that can specify these parameters and create specific oTokens at the moment. Options sellers then create options by locking up collateral for the period of time specified in the interface and minting oTokens. Each oToken protects a unit of the specified underlying asset. Options sellers sell these oTokens on Uniswap to earn premiums."

Tech

• Whitepaper can be found here.
• Code can be viewed here (22-7-2020). From DeFi Safety (28-4-2022):

"Opyn has an adequate development history at 360 commits and 14 branches. Data found here."

• Built on: built on the “Convexity Protocol,” which is a generalized options protocol built on the Ethereum blockchain. Also on Arbitrum and Avalanche (28-4-2022).

How it works

• Whitepaper can be read here (12-11-2019).
• From CoinDesk (12-2-2020):

"Opyn isn't offering insurance in the traditional sense. There will be no credit check or claims process or even proof the person owns the asset being insured (more on that below). In fact, starting out, Opyn isn’t even going to ask users to submit know-your-customer (KYC) forms.

The team’s ethereum-based Convexity protocol can make all kinds of options, Koticha said. For now, it's simply making put options to protect Compound users.  

To explain that first product, we need to back up and talk about how Compound works. If someone makes a deposit onto Compound of, say, 100 DAI, he gets cDAI tokens back. cDAI tokens appreciate in the user’s wallet at whatever rate the underlying asset is appreciating. This makes deposits on Compound tradeable. For simplicity's sake, let's say 1 DAI equaled 1 cDAI (it doesn't, but let's say it does). With Opyn, someone pays a small fee to buy an oToken. That oToken would be good for a year (for now). At any time, any holder of an oToken could turn in their cToken and their oToken and get back (for example) .95 DAI (there will always be a little bit of a haircut). 

The advantage for insuring these deposits is guaranteed free money in exchange for staking ETH as collateral. How much the user earns will be determined by the market. New oTokens will be sold via Uniswap and the price will be determined algorithmically. So, for a borrower, if someone put 1,000 DAI into Compound, he could go out and buy 1,000 DAI worth of oTokens for what should be a modest fee in normal times. He’ll then feel safe for the next year knowing he can get most of his deposit back if something terrible happened to Compound.  

Note: You don't actually have to hold cTokens to buy oTokens, which has interesting implications for the market. Imagine a trader who foresaw a liquidity run on Compound. He might buy up a bunch of oTokens (a so-called "naked put") knowing people will sell their cTokens for pennies on the dollar if Compound got wiped. Of course, if they do that, the price of oTokens would start rising and other people would see that and wonder why. "It's an early warning signal for the community that something is not necessarily right," Koticha said."

• From Our Network #13 (19-3-2020):

"Insurance providers must maintain a minimum collateralization ratio of 140%. Given recent ETH price volatility, a decentralized response has formed with community members liquidating on the platform.

• From this blog (25-6-2020):

"For now, users must collateralize put oTokens with 100% USDC in the amount of the ETH strike price of that particular smart contract. Sellers of call oTokens have to lockup ETH in the vault, knowing that if price moves above the strike price they will be receiving USDC back instead of ETH when they redeem their collateral."

Upgrades

• Is working on (25-6-2020) a V2. Got live (29-12-2020):

1. "Gamma Protocol: the most powerful, capital efficient DeFi options protocol;
2. An updated interface for trading options using Gamma Protocol

Opyn v2 has many new features and technical improvements compared to Opyn v1."

Oracle Method

• From DeFi Safety (28-4-2022):

"Opyn's oracle source is fully documented at this location. The contracts dependent are all identified. There is relevant software function documentation. However, there is lack of detail regarding the feeds' timeframes/refresh rates of data. Opyn does not mention front running or does not document any countermeasure against it. Opyn's documentation describes the mitigation of flash mint exploits here."

• From their blog (29-12-2020):

"Cash settlement requires an oracle to determine the payout at expiry. The Gamma Protocol architecture is generalizable to allow for different oracles for different assets.

WETH-USDC options are already available at Opyn, and these will use the Chainlink oracle to get the ETH price. There are no liquidations needed as max loss is posted as collateral."

Compliance

• From this blog (25-6-2020):

"OPYN’s options currently are of the American type, in which users may exercise their right to the underlying assets before expiration at their own discretion. However, the Convexity Protocol does allow for either European or American style options to be minted."

Their Other Projects

Convexity

• Went live (2-2020)
• From EthHub #88 (19-11-2019)

"Convexity is a protocol for fungible ERC20 options in DeFi. These options (or oTokens) serve as effective insurance and hedging instruments, and oracles of risk & volatility. oTokens will be the first instruments that provide significant yield on ETH holdings in DeFi"

From DeFi Weekly #58 (13-1-2020):

"A protocol for options trading with the first use case optimised around insurance for DeFi. An example that's commonly cited by the team is someone can purchase oDAI from an insurer at a premium of $1.02 which will give them the right to redeem the oDAI for USDC should DAI fail. In order to mint oDAI, the insurer will have to lock up 1 USDC (or a bit more to over collateralise but depends)."

• Opyn uses this for it's first project where people can take an option to protect their Compound funds.

Opeth

• A collaboration with DeFiDollar. From the announcement (27-4-2021):

"Capital efficient Stablecoin loans with Opeth! Opeth is a synthetic asset - fusing a put option with the underlying collateral. Opeth thus has a lower bound and can be used as collateral to issue stablecoins."

Roadmap

• Can be found [Insert link here].

• The team is working on reducing margin requirements, expanding options, and developing an AMM (4-2-2021).

Usage

• From Our Network #13 (19-3-2020):

"Opyn launched one month ago and has 1851 ETH ($234k at time of writing) collateral backing $130k of insurance. This is across three insurance markets: ocUSDC, protecting USDC deposits on Compound; ocDAI, protecting DAI deposits on Compound; oCRV, protecting y.curve.fi.

In the past month there have been 166 unique Ethereum addresses holding oTokens, protecting themselves against DeFi risks."

• Reached $2m TVL (23-4-2020). Went back down to 1.1M (22-7-2020).
• From this blog (25-6-2020): "According to Dune Analytics, the OPYN options products are picking up pretty fast."
• From Our Network #37 (12-3-2020):

"In the last month the number of unique Ethereum addresses interacting with oTokens has grown to 1135 having bought or sold oTokens. (Source)"

• From Our Network #46 (6-11-2020):

"In October, Opyn recorded its highest level of monthly users to date, reaching 539 users. This is an 18% increase from the previous high set in September. (Source)

On October 29th, Opyn recorded its highest TVL ever reaching USD $2.56mm. At the time of writing, Opyn had a TVL of USD $2.33mm. (Source)"

• From Our Network (23-1-2021):

"On December 29th, 2020, Opyn released v2 of its protocol. Since launch, v2 has recorded notional trading volumes of $10.9mm, TVL of $6.3mm, and 1,732 transactions from 619 unique addresses (Source). Total cumulative volume for Opyn surpassed $128mm since launch (March 2020), $117mm of which came from v1, and $10.9mm from v2."

Competition

• Nexus Mutual, Etherisc, Hegic and VouchForMe
• More info here (5-5-2020)

• From this blog (25-6-2020):

"The OPYN model differs from options models found in traditional finance, in which margins are locked in the trading account. A clear advantage of oTokens being fully collateralized at the strike price is that the vault will never go undercollateralized. Options sellers/writers avoid the case of liquidation, such as what recently happened with the MakerDAO vaults on Black Thursday. Even when the price of the underlying cryptoasset moves against the option seller, it is impossible to be liquidated because the collateral is already stored inside the oToken smart contract created for that particular option.

Unlike the OPYN model, the LPs in the Hegic options model do not directly mint option tokens themselves. They are options LPs, not options writers. Thus, they cannot control the exact options that the options buyers (who decide the options terms in this case) pay premiums for. Each option written is unique and is 1) based on the price of ETH at the time of the minting and 2) based on the option writer’s selection of one of 5 times to expiry, currently 1, 7, 14, 21, or 28 days."

• From this comparison of options protocols (1-12-2020):

"Opyn options are tokenized and can be easily combined with various strategies, both for buying and selling options. Different from the peer-to-pool model of Hegic and FinNexus, where options sellers only work passively in the liquidity pool, Opyn option sellers and writers can sell options on their own terms."

• From this Vietnamese blog (3-12-2020):

"While Hegic has a lot of competition, it offers unique features that other DeFi options products don't. Opyn is like an unauthorized Deribit, its only advantage is that there is no KYC. If KYC is not a problem for a particular trader, then the logical choice is to trade on Deribit instead of Opyn since the pricing structure is exactly the same. Trading on Deribit is cheaper and the exchange is also much more liquid."

• From Bankless (3-3-2021):

"There are seven things that make Opyn different from other DeFi options protocols:

1. Allows for more capital efficient options trading strategies such as spreads
2. Allows for flash mints (possible to mint options without collateral as long as they are burned before the end of the transaction)
3. Has competitive pricing, as bid / asks are set by market supply and demand
4. Allows users to sell options prior to expiry
5. Options can auto-exercise for in the money options
6. Permits anyone to create new options if the product has been whitelisted
7. Allows operators to act / trade on a user’s behalf

The key characteristics of Gamma Protocol that allow for capital efficiency improvements across DeFi options trading are: margin improvements, European, cash-settled options, and flash mints."

Pros and Cons

Pros

• No KYC
• From this comparison of options protocols (1-12-2020):

"Opyn options are tokenized and can be easily combined with various strategies, both for buying and selling options. Different from the peer-to-pool model of Hegic and FinNexus, where options sellers only work passively in the liquidity pool, Opyn option sellers and writers can sell options on their own terms."

Cons

• From DeFi Weekly #58 (13-1-2020):

"The product by the team using Convexity is actually Opyn, previously known for their leverage platform that utilised Uniswap and a few other protocol under the hood. After failing to find product market fit this is the team's second approach to the DeFi market. Overall it seems like a great move in the right direction to create a new DeFi primitive but the thing which makes me the most bearish about it is the peer-to-peer model of it rather than a contract-to-peer model (not sure how something like this). It's a minor difference but it really prevents protocols from achieving liquidity in the early phases especially. My prime example of this is Dharma v2 which relied on a similar peer-to-peer model for lenders and borrowers requiring the same preferences. Convexity has reduced this slightly by only splitting by asset and expiry time for their initial options but the point still stands that peer-to-peer models outside of DEXs struggle to establish meaningful two sided marketplaces. Their contracts have been audited and there's been a bit of liquidity added to the pool which signals they've probably raised a small bit of money to test the waters with this product.

Apart from the mechanics of the protocol, there's not much to the sustainability of the team's business model as there's been close to no token engineering to incentivise adoption of the protocol. It's probably deliberate to keep it as simple as possible and avoid regulatory concerns but still an opportunity missed on the table. Something like Convexity, from a product perspective, still seems too early for its time unless they can figure out a way to make the counter party for the options a pooled smart contract."

Team, Funding, Partners

• Zubin Koticha; co-founder & ex-CEO
• Alexis Gauba; co-founder
• Both of the above decided to 'leave crypto' after the regulatory action happened (15-11-2023). Another co-founder, Aparna had become a monk in India "a long time ago".
• Andrew Leone became the new CEO
• Reuben Bramanathan; advisor (28-9-2020)

 Funding

• Mechanism Capital lists them in their portfolio as of 15-5-2023.
• Koticha declined (12-2-2020) to name the project’s investors.
• They closed their $2.16m raise (23-6-2020) from investors such as Dragonfly, 1kx and Coinbase Cartel alum. 
• Raised (4-2-2021) $6.7 million in a funding round led by Paradigm, Kain Warwick and Stani Kulechov.

Partners 

• Member (21-5-2020) of the Chicago DeFi Alliance (CDA).
• Partnered (24-7-2020) with Aave to launch an insurance option for users to protect their USDC deposits in Aave with liquidity on Balancer.