In this edition, we’re filling you in on the latest developments around Premia, a prominent options exchange on Arbitrum.
Premia’s latest V3, AKA Premia Blue, implements a hybrid orderbook and AMM model, among other changes. Keep reading to learn about the project’s new features and tokenomics upgrades.
Stay alert, stay informed ⬇
Background on Premia
Premia Finance is a decentralized Options market based on a pool-to-peer architecture for Options.
The exchange, initially launched in 2021, has seen multiple iterations, with Premia V3 (AKA Premia Blue) launching in Q3.
Premia Blue
Premia Blue is the latest upgrade of the Premia protocol, designed to simplify and democratize Options trading within the DeFi space.
This version of the protocol introduces significant advancements that enhance capital efficiency and composability. Most importantly, the protocol offers benefits for all types of users, regardless of their level of expertise (retail users, passive LPs, active market makers, protail (pro-retail, trading firms, arbitrageurs, etc.).
Here’s a look into how Premia has evolved:
Premia v1 (Peer-to-Peer) - 2021: Premia v1 predated L2s and operated as a peer-to-peer options trading platform, featuring an OTC market for on-demand and on-match trading.
Premia v2 (Peer-to-Pool) - 2022: Premia v2 transitioned to a peer-to-pool model, primarily targeting retail traders. However, this version lacked the flexibility to parametrize the options being sold, limiting customization and making it less appealing for more professional users.
Premia v3 (Hybrid orderbook and AMM model) - 2023: Premia Blue marks a groundbreaking shift with a hybrid approach. It combines an on-chain orderbook with the accessibility of trading APIs for systematic traders. This innovative blend caters to a wider audience, including experienced traders from platforms like Deribit, who prioritize low fees and precise options pricing. Some of the features include:
Concentrated liquidity and range order AMM.
Passive liquidity vault network with Premia v2 equivalent underwriting vaults (DOVs).
Real-time decentralized RFQ network.
On-chain orderbook with off-chain gasless API and gasless limit orders.
New Tokenomics
The token structure has undergone significant changes. Token holders can lock their $PREMIA tokens in order to access benefits such as revenue sharing, fee discounts, governance participation, and voting power in liquidity mining gauges.
By Staking $PREMIA into vxPREMIA and locking for a chosen period of time, token holders get access to a pro-rata share of the fees derived from the protocol.
The protocol has also implemented an OLM (Options Liquidity Mining) system to distribute $PREMIA call options as incentives emissions, instead of liquid tokens.
The goal is to align the incentives of both vxPREMIA holders and LPs. LPs receive these Options at a 45% discount to the current market price at no cost.
If exercised, ~90% of the proceeds are directed to vxPREMIA holders, with the remaining 10% going to the Premian Republic (the team).
If not exercised, 20% of the option’s intrinsic value will be locked for 1 year and then provided to the LP’s wallet.
Additionally, protocol fees will be collected upon exercise, and taker fees will be collected if this option is traded on the secondary market.
Oracles, Options, and On-chain Innovations in DeFi
The Premia team recognizes the challenge and discusses permissionless pools that allow for the creation of ERC-20s for virtually any product.
There is demand from market makers to manage inventory risks using ERC-20 options that can settle on-chain.
These market makers often enter agreements with other protocols that include vanilla options.
There may be a marketplace with natural buyers and sellers for long-tail assets.
The team hopes to bring together different players, each with unique use cases, including speculators hoping for significant returns on their options.
This desire for a diverse group of users is reflected in Premia Blue’s hybrid orderbook and AMM model.
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