Primitive Finance

A permissionless protocol for creating option derivatives on Ethereum. 

Basics

• Founded in:
• Mainnet release: 5-2020
• In October 2020, Primitive launched its new interface and options model on Ethereum’s Rinkeby testnet (1-12-2020).
• Based in:

History

• From this blog (25-6-2020):

"It is very early in its development cycle. The platform went live in early May 2020, the first trial being with a pool trading an ETH Short Put strategy with a short-term expiry. The official launch of the protocol is yet to come."

Audits & Exploits

• Bug bounty program can be found [insert here].

Bugs/Exploits

• On September 8, 2022 Primitive Finance was exploited with a math approximation bug to steal $34K.

Token

Token allocation

• Expects the supply after 4 years to be like this (18-2-2021):

1. Block rewards 30.2%
2. Community 26.8%
3. Core 17.6%
4. Backers 15.3%
5. 0(1) Labs Endowment 5.6%
6. Mina Foundation Endowment 4.5%

Token Details

• A Primitive option comes in the form of an ERC-20 token, called Prime.

Tech

• Whitepaper can be found [insert here].
• Code can be viewed [insert here].
• Built on: Ethereum
• Programming language used:

Transaction Details

• Capacity (TPS):
• Latency:

How it works

• From this blog (25-6-2020):

"Primitive has designed its options smart contracts to pool liquidity. That liquidity comes from options writers who mint Primes. Anyone who writes options (sells to open) can deposit in the pool. Redeem tokens are also generated and are used to withdraw the strike assets from exercised Primes (options). Therefore, both the options products and the pools are tokenized.

Primitive plans for the options to be traded on Primitive’s Automated Market Maker (PAMM), which is designed to pool liquidity and act as a medium of exchange. Think of it as a Uniswap liquidity pool, but specially tailored for options liquidity. For the liquidity pool (LP) participants, a Primitive Underlying Liquidity Provider (PULP) token is minted to LPs who provide underlying tokens to the PAMM. This is a token for LPs to track their ownership of the pool collateral. They burn them when they wish to withdraw their tokens and premiums that have been earned, which is proportional to their ownership of the pool.

The initial liquidity for these pools will have to be bootstrapped most likely through Primitive itself, while other users may be well incentivized to participate in the pool. The protocol is still very much in its formative stages, so it’s hard to tell."

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

"The updated testnet model of Primitive seems a bit similar to Opyn. It is testing the option instrument itself with two fungible tokens: a LONG option and SHORT option ERC20. Creating options requires the underlying assets to be deposited, which means each option is 100% collateralized. When an option is created, the party initiating the transaction will receive the Long and Short tokens. The party can then sell either of the tokens (or even both) to have only single exposure against the option (Long or Short).

Uniswap liquidity will be applied for the transaction of the option tokens. It is planned that in a later Phase, the Uniswap pool will be replaced by a ‘better pool mechanism’ for trading options. Maybe some innovative ways to tackle the time decay and Impermanent Loss problems. The Primitive model and documents are still under construction."

Upgrades

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

"Previously, Primitive had some quite unique ideas regarding the Utilization Ratio of a liquidity pool as a proxy for IV, as we introduced in the last article. That was Primitive’s first prototype model. Apparently, that innovative idea has been abandoned. IV is a tough nut to crack, but it is the key to unlocking an effective decentralized options marketplace."

• From EthHub (19-1-2021):

"The Primitive protocol’s first option market successfully concluded, signalling the first step over the starting line. The next option markets have already been deployed, and V2 development has started."

Roadmap

• Can be found [Insert link here].

Audits

• Bug bounty program can be found [insert here]. When a bug was found, "Dedaub was awarded a bounty of $25,000 USDC for responsible bug disclosure and Emiliano $10,000 USDC for whitehack assistance."
• At this stage (29-6-2020), the security audit has yet to be completed. As of 25-11-2020, the protocol seemed not to have an audit yet. Got audited by OpenZeppelin (28-2-2021). In the end, the contract which had a vulnerability was excluded from the audit.

Bugs

• From Secureum (28-2-2021):

"As outlined in Primitive’s post-mortem report, a critical vulnerability was discovered on 20 Feb, 2021 by the Dedaub team which was confirmed by the Immunefi team and then responsibly disclosed to Primitive Finance. Given that the vulnerable contracts were neither pausable nor upgradeable, the only options were to inform users to reset approved allowances and whitehat hack the remaining vulnerable funds to safety. Primitive Finance therefore engaged Emiliano from ReviewsDAO to set up a war room consisting of members from Primitive, Dedaub, ReviewsDAO, Immunefi and OpenZeppelin teams. The app’s frontend was updated to prevent more funds from becoming vulnerable. Three wallets were then whitehat attacked to rescue 98% of vulnerable funds."

Team, Funding, Partners

Team

• Full team can be found [here].