In recent weeks, we’ve been seeing a lot of interest regarding Opyn – a permissionless insurance protocol allowing users to purchase options on the price of different cryptocurrencies like cTokens on Compound and more importantly on ETH.

The TLDR of Opyn is that users can buy (and sell) protective put options at different strike prices.

In the case of ETH, coverage is supported for a price of $100 and $150. This means users who purchase options have the right to sell 1 ETH for the strike price ($100 or $150) at any time before the expiry date.

What’s more interesting is that we’ve seen a secondary market emerge on DEXs like Uniswap, specifically around the arbitrage of options as they get closer to being in the money.

In this article, we’ll be walking through the Opyn ecosystem with the project’s cofounder Aparna Krishnan – addressing everything from key actors to secondary markets and larger goals for the project.

If you’re interested in participating in any of these flows, we highly recommend checking out this tutorial on how to leverage Opyn to its full potential.

With that, let’s dive right in!

Can you walk through how the Opyn ecosystem works?

The cool thing about the protection options is there’s a set of buyers and sellers with different responsibilities.

As a seller of the option, say a $150 strike option expiring on 04/24, I am selling someone the right to sell me ETH at $150 anytime before April 24th. This is different from someone selling me ETH at $150 today. Instead, the ability to sell me ETH at a predetermined price in the future (say if ETH were to drop to $135) is what gives the option it’s value.

As the seller, I have an obligation to the person who bought that option. I lock USDC ahead of time just to ensure there is always USDC to pay out someone who wants to buy that option in the future.

As someone who’s selling this option I can think of it in a few ways:

  • I’m basically charging someone upfront today for the right to exercise their option in the future
  • If the price of ETH never goes below $150 and I hold until maturity I will make a profit due to my willingness to collateralized.
  • Options that are unlikely to be redeemed provide a steady stream of revenue.
  • Options with a highly likely outcome (like ETH price going below $150) means less people will be willing to sell those options, meaning they receive a higher return on their willingness to collateralize.

With this, we can almost think of selling options as a way of saying “I’m willing to buy ETH at $150”.

As a buyer, puts are a hedge against ETH price volatility.

  • Buyers can protect themselves from ETH crashing from one price to another just using this $150 strike option.
  • They have the right to sell their ETH for $150 USDC at any point before 04/24.

But what if ETH doesn’t fall all the way to $150? In this case, buyers can sell their option to someone else and hedge themselves. The option is likely to be more expensive the closer it gets to the strike price.

This is where the third market comes into play. We’re seeing players price options relative to what its trading at on Deribit. An arbitrage opportunity exists on cross-Derabit options for those willing to take advantage of them.

This is what’s spurred secondary market activity as people are buying and selling the puts as they get closer (or further) from being in the money. Perhaps the biggest point to keep in mind is that premiums are dynamic relative to whether or not a put is in or out of the money.

How are premiums priced on Opyn?

Premiums are market priced. They were set by Opyn at launch and arbitragers make sure the price is accurate using the methods we just discussed above. Some of the factors taken into account include:

  • What is the volatility of ETH?
  • How much time is there for ETH to expire?

Everything is completely market priced. If you’re selling options, it’s like creating Dai on Maker. You’re essentially market selling on Uniswap and can always redeem early by buying back that option.

Why do you think there’s been so much interest in the secondary nature of Opyn options?

Opyn was built for a lot of different people – traders, DeFi enthusiasts managing risk, etc. Overall, we’re focused on people in DeFi trying to manage risk. This doesn’t mean it eliminates other players, it actually invites the community to build out tools for advanced users. Seeing as Opyn is open-sourced, we’re quite excited to support other use cases built on top of us!

Someone who wants to hedge their risk can not do that in an illiquid market and tools like Uniswap are great for providing liquidity in a distributed fashion. We expect similar tools to emerge which support a variety of different user groups in the near future.

Why Compound?

At launch, we wanted to give people a way to buy protection on different rates on Compound. We found that there were a lot of people who wanted protection but there weren’t so many people willing to sell protection at the current rates.

This is when we saw that the ETH market had much more demand. Now, we’re focused on building a very liquid ETH market. We’re thinking of adding support for Bitcoin – maybe through tBTC when it comes – and are ultimately geared at supporting the community in any market we see demand in.

What do those ETH markets look like for someone who is not familiar?

Right now, we support two different strike prices on ETH – $100 and $150. For someone who’s looking to hedge this should be a great starting point. As the price of ETH changes, we’ll add more strike prices but for now this largely covers what we intended.

And what is the larger goal of Opyn?

Opyn is focused on bringing risk management into DeFi.

Think about it – as part of creating Dai, someone can leverage their ETH but Maker’s goal is not to promote ETH leverage – it’s to provide a decentralized, trustless stablecoin.

This is the fascinating thing about this industry. People in crypto are amazing because they actually want to learn things. They don’t want to just use an app and have it be abstracted, they want to know how it’s working and participate in that system.

Maker is extremely complicated yet everyone in DeFi understands it to some degree.

This culture is propagated by people learning how things work. Everyone wants to feel like a part of building DeFi.


In closing thoughts, being able to fully digest the vast potential of Opyn is quite excited.

While many are quick to mention Opyn alongside projects like Nexus Mutual, we hope this interview can shine a spotlight on where the approaches differ – largely by emphasizing the secondary nature of Opyn option pricing and how you can take advantage of them.

As we shared in our intro, we highly recommend checking out this tutorial on how to get started.

In the meantime, be sure to stay up on all things Opyn through their official Twitter or by joining the conversation on Discord.