FAQ
How is DoubleMarket different from other on-chain options protocols?
DoubleMarket’s key innovation is instant liquidity without a de-novo margin engine. This makes the protocol immediately useful and easy to understand (and trust). Options are complex instruments that require meticulous risk management, not only by users but also by venues responsible for liquidations. Many protocols have valiantly worked to bring options on-chain, but thus far user demand has been a small percentage of overall DeFi use, partially due to the complexity of hosting on-chain RFQs, liquidations, and anti-MEV systems.
Over the past several years, performant blockchains such as Solana and layer-2 solutions such as Starkware have allowed protocols to create venue replicas complete with order books and liquidation systems. Other protocols have attempted to simplify manners by combining on-chain RFQ systems.
DoubleMarket belongs to a new class of protocols, like Ethena and SyrupFi that prioritize user experience over complexity by delineating primary and secondary liquidity.
An insightful summary of existing options protocols can be found at Three Sigma’s blog:
In a nutshell, orderbook approaches are typically the best for illiquid and diverse assets such as options, but due to disparate liquidity, DeFi options order books typically morph into RFQ platforms, while AMM-based protocols struggle with illiquidity and try to centralize strikes and partner with structured product offerings to boost liquidity. To quote Three Sigma: “Low liquidity and fragmented pools make it difficult to execute large trades. Additionally, there are not enough traders to offer economic incentives to LPs and attract liquidity to the market. This creates a chicken-egg problem where the lack of liquidity is worsened by its fragmentation, as these fragmented pools cannot handle large orders.”
DoubleMarket embraces illiquidity, as its unique design means that any illiquidity driven by user demand can be instantly arbitraged by whitelisted wallets, instantly creating two-sided markets across hundreds of strikes and maturities.
Why not just trade on venues like Deribit directly?
The end goal of DoubleMarket is not just to port Deribit liquidity to DeFi; it is to use the power of decentralization to diversify the billions of crypto options notional from a small handful of current providers. By creating standards, governance mechanisms, incentives, and new access points, DoubleMarket will make the crypto options system more open and transparent.
More tangibly, DoubleMarket employs off-exchange solutions to keep collateral safe. Doing so in scale can yield a significant reduction to counterparty risk which would be unachievable by individual traders and smaller institutions.
What is the future of DoubleMarket?
DoubleMarket has a robust roadmap. Moreover, we believe that DoubleMarket’s decoupled infrastructure will eventually support a number of use cases beyond options.