How Panoptic is Taking DeFi Options To The Next Level w/ Guillaume Lambert - Flywheel #68

Samuel McCulloch
Samuel McCulloch
Sept 6, 2023
How Panoptic is Taking DeFi Options To The Next Level w/ Guillaume Lambert - Flywheel #68

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In our most recent episode we welcomed Guillaume Lambert, founder of Panoptic—an Oracle-free Perpetual Options protocol. Our conversation unearthed some game-changing insights into the upcoming production release of Panoptic. Let’s dig into the episode and cover what we learned.

Panoptic was born out of Guillaume's own need for a better trading tool. After losing money in various DeFi rugs and protocols, he went back to the drawing board, quite literally, to work out the math behind Uniswap's model. Realizing it closely resembled the options model in traditional finance, he developed Panoptic as a layer that manages liquidity provisioning in Uniswap's pools, enabling Oracle-free pricing.

In this era of WallStreetBets, options have now evolved into tools for both conservative and aggressive trading strategies. Buying deep OTM calls to juice up your delta is THE choice for traders today. Panoptic can handle any type of option strategy, puts, calls, strangles, straddles, jade lizards… anything is possible. Even complex multi-leg option strategies. The protocol is a fluid machine for trading.

Panoptic joins a growing list of DeFi protocols that are eschewing oracles for permissionless trading, ala Infinity Pools and Gamma Swap. Unlike traditional options platforms reliant on external price oracles, Panoptic leverages Uniswap V3's innate price-discovery mechanism through its liquidity pool, making the system virtually impervious to manipulations—since altering the asset price would necessitate out-trading the entire liquidity pool

The idea behind Panoptic is simple, all Uniswap LP positions are forms of option selling. Uni v2 positions have a similar pnl to straddles and v3 to strangles. Knowing this allows the Panoptic team to break apart these positions and build them back together in different patterns for options traders.

Think of stacking black and white bricks in a vertical line, versus letting the market choose how to stack them. If both stacks have the same area, height and width, the underlying configurations can be infinite and always convert back to the individual LP positions.

Traditionally, the price of an option starts fixed and later decays. Panoptic flips this by starting the option price at zero and letting it work its way up. The idea is that Panoptic provides liquidity in Uniswap, allowing traders to constantly 'roll' their positions forward. Unlike traditional finance, where you have to pay to 're-roll', with Panoptic, the longer you wait, the more fees you collect.

Because prices start at zero, there should be big incentives for option buyers to come into the market. Panoptic doesn’t just want to build a protocol for option selling. It’s a two sided market. If there is just selling, then it suppresses implied volatility.

One of the big issues we brought up with Infinity Pools was that the LPs were locked in the position until it was closed. And the only way to incentivize traders to return liquidity was through raising and lowering interest rates. While this is a novel solution, this does create a lag which certain LPs might not prefer.  Panoptic adds forced exercise to help LPs, where the further away the price is from the strike price, the cheaper it is to exercise and close the trade.

What’s cool about Panoptic is that its markets will be open to any ERC 20 token with its factory contracts. Any trader can now come along and create a venue for options buyers and sellers to start to trade volatility. So you can trade PepeSonicInuObama3000 calls with 5x leverage if someone makes a market for it.

We like Panoptic, DeFiDave is an investor into the protocol. Its in a closed Beta right now, but should be launching fully in the next few months. Sign up for their beta and go check out their docs today to read about how Panoptic is solving onchain options.

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