A Decentralized Approach

Implementation of an On-Chain Platform of Options

Since the big explosion of decentralized finance, more and more financial applications are provided via smart contracts on the Ethereum blockchain. Options, as crucial financial instruments, are necessary in the DeFi world.

Traditionally, the seller of call options is required to guarantee the delivery of underlying assets. On the blockchain, it would require the collateralization of assets or overcollateralized margin, which would cause inefficiency of assets.

iGain provides a distinct solution for the above issues. We use a "prediction-market-like" mechanism plus several system properties to create a reasonable on-chain options market. Basically, iGain allows users to trade Call/Put options with an automated market-making system.

To improve user experience, we tokenize the Call/Put options of underlying assets into Long/Short tokens. Because of the adoption of the AMM mechanism, liquidity providers are indispensable in the system. 1 Long and 1Short tokens will be minted once 1 DAI is deposited into the system. These Long/Short tokens can be served as liquidity on the built-in secondary market and allow investors to buy or sell them. Investors could earn a profit or hedge against certain potential risks by holding Long/Short tokens, as traditional financial institutions do nowadays.

By the delivery date, real-time price data will be pulled from oracle to settle the value of Long/Short tokens. Then, Long/Short token holders may redeem the corresponding DAI back to complete the process of the options.

Generally, TrumpStay/TrumpGo tokens on FTX exchange is an example of the mechanism behind Long and Short tokens. However, TrumpStay/TrumpGo tokens do not perfectly define what iGain is because they are binary options, which the settled prices of the tokens are only $1 or $0. iGain, on the other hand, can provide a broader range of underlying assets or targets, serving both binary options and vanilla options.

iGain protocol itself is a "Cash Delivery" options platform. No actual underlying assets are involved in the entire system.