Hidden Crypto Gem Review: A Comprehensive Look at OCTION (OCTI), a CeDeFi Options Trading Platform
Introduction to Series
Decentralized Finance, or DeFi for short, is all the rage now.
As people are starting to see the potential of non-custodial forms of value-transfer, many are diving headfirst into the space in one way or another.
The DeFi ecosystem is one that moves at an incredibly fast pace, and is ever-changing and evolving too. In 2020 — the year that DeFi started to gain real traction — prices for nearly all DeFi assets peaked at the end of August. While the SUSHI drama surely stopped the price momentum of the industry, it certainly did not dampen the development momentum of DeFi projects.
If anything — coming into 2021, we’ve seen bigger, bolder announcements of far more ambitious projects than the old DeFi Summer food tokens, which were honestly never much more than single-asset rewards token contracts that emitted emoji-backed cryptocurrencies.
Of course, with such an extensive influx of DeFi projects, the need to separate the figurative gems from the figurative trash has never been more pertinent. That is exactly what this Hidden DeFi Gems series seeks to do, and in the most objective and fair manner possible.
For this series, you will never see us paint a fully rosy picture of any of the projects that we are covering — that will simply be dishonest on our part.
Instead, we will candidly and rigorously (whilst also keeping it sharp and concise for brevity’s sake) go through the pros and cons of all the projects that we have identified, in the hopes of better informing you on all the lesser-known but potential-filled DeFi gems out there.
Before we proceed, however, a caveat: we are, by no means, financial advisors in any shape or form, and our articles should never be construed to be financial advice. Ultimately, the final decision — along with all the risks that you may undertake — with regard to whether you should invest in these projects, is all yours.
Also, I have not, and will never — take up sponsorships to ‘shill’ any project for the sake of my own personal gain. This goes against my own principles, and is not an activity that I will partake in.
Therefore, all of these reviews will be my honest and fair (as can be) assessment of potential gems.
Yardsticks and Metrics
In order to holistically review the legitimacy and potential of any DeFi project, I will largely cynosure my main focus around 5 key metrics:
- The founding team
- The project’s value proposition(s)
- The potential limitations with regard to their solutions model
- How the project compares to its competitors in the space
For our very first hidden gem review, we will be covering OCTION, a decentralized options trading platform — not the first of its kind by any stretch, but definitely an innovative one (the first CeDeFi options platform) and if executed properly, potentially game-changing.
Introduction to OCTION
In recent times, the pace and growth of development in the DeFi options industry has moved to the forefront of the DeFi ecosystem.
Now, this shouldn’t be surprising at all, considering how derivatives markets are known to dwarf their capital counterparts by gargantuan proportions, even for the traditional and centralized systems.
As a result, new DeFi options models and projects pop up with increasing regularity, and every now and then, a particular one will catch your eye.
OCTION is definitely one that did, mine.
To start off, here is a brief overview of OCTION, in its founding team’s own words:
OCTION is a fully integrated next generation decentralised options trading platform that incorporates both American and European options. It is built on the Binance Smart Chain.
OCTION aims to provide its users with a seamless user-friendly options trading platform along with lower transaction fees and a broader spectrum of cryptocurrencies that can be traded on.
In the future, OCTION will also integrate derivative assets from traditional finance such as Gold/AU, Copper, Zinc and Oil.
To sum this up for the everyday layman, OCTION is essentially a non-custodial options trading platform that allows for lower fees to trade, and allows for anyone and everyone (even non-traders) to participate in the options contract ecosystem in one way or another.
The OCTION Founding Team
OCTION’s founding members — Nicholas Soong, Japhet Lim and Ian Chew — mainly operate out of Singapore, and all have roots in the finance and FinTech sectors.
All 3 of them also currently hold C-suite positions in Jigsaw Capital, a consultancy firm that specializes in providing data-driven advice on digital solutions and developing strategies for enhanced market penetration and brand building via blockchain-based solutions.
On top of his role in Jigsaw Capital, Nicholas Soong also holds a finance degree from the University of Melbourne, and has a wealth of experience within the consultancy and finance industries under his belt. These include stints with PwC Malaysia (Assurance, Valuation and Strategic Value divisions), Khazanah Nasional (Investments) and KPMG Singapore (Economics and Regulations).
Similarly, Ian Chew has an Economics and Finance degree from Monash University, and has also been active in the Finance sector with regard to prior employment. He was an investment head at WorldAir International, an Aviation spare parts company incorporated and based in Singapore, and the head of trading at Macron Tech Trading Pte Ltd, an oil and commodities trading firm.
Finally, Japhet Lim is a Political Science degree holder from the National University of Singapore, and had work experiences in Forex100 Pte Ltd as an academy director, and Smart Up Tech as a director of sales and business development. He is listed as a strategic advisor to two FinTech firms: METASEER, the world’s 1st CeDeFi Hybrid Options Market that encompasses innovative insurance features & a PaaS ecosystem, and Daruma Wallet, a community-driven initiative focused on generating original cryptocurrency-inspired Daruma dolls and finding new ways to create interesting economies around tradable NFTs on the Ethereum network.
After digging around a bit more on Linkedin, I found that he is also a co-founder of Reubiks Capital, an investment holdings firm focused on investments into technology firms, and that has a mobile app which matches learners to course trainers, tutors and tuition centers.
In general, and from the online sources of information that were available to me, it appears that all 3 of OCTION’s founders do have what it takes — expertise and experience-wise — to hold down the fort and execute well at OCTION.
The fact that the whole team is willing to publicly display all their information on the OCTION whitepaper should also be a pretty good sign that — although still possible — this project is highly unlikely to be a rug pull because of the reputations at stake here.
Therefore, Metric 1: The founding team ✅
OCTION’s native token, OCTI, is a BEP-20 utility token built on the Binance Smart Chain.
Unlike many other projects, OCTI actually serves some substantive purposes, and provides some legitimate benefits to holders beyond the typical access to governance and voting rights within the protocol.
There are 3 main benefits to holding OCTI (from OCTION’s whitepaper):
- Cheaper premiums when buying option contracts
- Priority in unlocking liquidity
- Voting governance through the OCTION Enhancement Programme
Cheaper premiums when buying option contracts
To enjoy discounted premiums, an options contract buyer must hold OCTION tokens on their BNB-address used to activate this particular options contract. The market value of OCTION tokens on the buyer’s BNB-address should be equal or higher than the strike price of the options contract to enjoy a 30% discount on the premium rate (excluding settlement fee).
For example: For a 1 week put option of 10 BNB, the holder chooses a strike price of USD10,000 (at-the-money; BNB market price is USD1,000). The price of this put option contract is USD500, whereby USD400 is a 4% at-the-money rate of the 1-week BNB put option and USD100 is the settlement fee for the put option.
If the buyer also holds USD10,000 or more worth of OCTION tokens (higher than the strike price of the options contract), this provides the buyer with a 30% discount on the initial 4% at-the-money rate.
The buyer would now only be required to pay USD280 (instead of USD400) as the rate for buying an at-the-money 1-week BNB put option plus a settlement fee of USD100.
Priority in unlocking liquidity
To enjoy priority in unlocking liquidity, writers (aka liquidity providers) must hold OCTION tokens on their BNB-address that they are using to provide the liquidity to the liquidity pool. The market value of OCTION tokens on the writer’s BNBaddress should be equal or higher than the liquidity provided to the liquidity pool to enjoy priority unlocking with no delays.
For example: At times when unlocked BUSD in the liquidity pool is insufficient for writers to swap their oBUSD to BUSD, requests for these swaps will be aggregated in queues. However, if a writer holds OCTION tokens where the market value of the OCTION tokens is equal or higher than the liquidity provided to the liquidity pool, they can instantly swap their bDAI for their contributed DAI.
Voting governance through the OCTION Enhancement Programme
OCTION token holders can vote to change aspects of the OCTION platform such as the options contract rates, settlement fee, strike price multipliers, assets supported by the options contracts and more.
This governance mechanism will only be implemented when the OCTION protocol has a traction of at least 100 monthly active holders (buyers) and writers (sellers).
I will be referencing some of these benefits in later sections, so do try to get a handle on them here first!
A point to note, however, is that OCTI tokens are (currently) not deflationary. In other words, there are no token burns planned as of yet. To understand why this might be a little dent in the tokenomics metric, here’s a very brief lowdown on utility token burns.
The practice of token burning is very common in the crypto-verse and is quite simple to implement.
Many projects use coin burning to preserve their assets’ supply and demand ratio. Reducing the total volume of coins, theoretically, leads to a natural increase in their value, provided that extant demand indicators are maintained.
Most projects thus utilize it to make sure the value of their assets stays stable or accrues in value and therefore to create additional incentives for traders and holders.
However, it must also be noted that burning does not often lead to an immediate asset’s value appreciation, as it often destroys coins that have not been in circulation for a long time — it only really comes into play when the demand for said burned coins increases over time.
Therefore, it would be really unfair to say that OCTI tokens won’t go up in value just because there are no burn plans currently in place; if demand for OCTI tokens are high, its value will naturally go up anyway.
Therefore, all things considered, and in looking at the OCTI tokens’ planned roles and overall utility in the OCTION ecosystem, I would definitely still have to say that Metric 2: Tokenomics ✅
OCTION’s Self-Purported Value Proposition(s)
Before I take a deeper dive into my own opinions with regard to OCTION’s value proposition(s) in the real world, first — said value propositions from the horse’s mouth:
- Being decentralized, OCTION prevents unnecessary disruptions and interventions by a centralized platform
- Lower commissions compared to full-service brokers
- Zero-time decay as all orders are instantly taken up by writers (liquidity pool)
- Maximum efficiency of liquidity as all un-utilized liquidity is immediately available to underwrite new options contracts
- No market maker is required to provide liquidity via sitting limit orders as all orders will be taken up against the liquidity pool
- OCTION token holders will benefit from the development of the OCTION ecosystem with advantages when being a writer (earn transaction premiums and guaranteed liquidity for liquidity providers), holder (discount on transaction premiums) or just a token holder (earn settlement fee)
In other words, and in its most summarized form, OCTION purports that its platform will allow for end-users to enjoy the benefits of a non-custodial options trading platform, where risks like trade interruptions by brokerage firms and price manipulation (that traders will be exposed to if they were to use a fully centralized platform) are eliminated.
This non-custodial infrastructure also ostensibly allows for lower commission fees, zero-decay time and maximum efficiency of liquidity — all of which will benefit the end-users (both options buyers and sellers) in every way.
Additionally — being decentralized, OCTION allegedly prevents agendic disruptions and interventions by centralized platforms that may greatly harm the end-users’ interests at the expense of a protection of the former.
A good case in point that was raised by OCTION in its whitepaper with regard to such an occurrence would be the recent halt in trading by Robinhood for GameStop shares on the 28th of January, 2021.
In theory, all these definitely constitute beneficial upgrades to the extant options trading infrastructure and ecosystem. However, whether they can be executed to perfection in reality, is a whole other matter altogether.
Therefore, and in order to give a more fair evaluation of OCTION’s value propositions, I shall — as a neutral and (more) objective third party — appraise these value propositions through my own personal lens as a blockchain/cryptocurrencies enthusiast, potential OCTION end-user, and aspiring options trader.
Personal Take on OCTION’s Value Proposition(s)
To do so, I shall be switching between the perspectives of two main stakeholders that will likely play a big part in the OCTION ecosystem when thinking about OCTION’s value propositions:
- Options Writers (Liquidity Pool)
- Options Buyers
OCTION’s Value Propositions to Options Writers (Liquidity Pool)
Options writing often gets a bad reputation for being a risky endeavor, due to the theoretical possibility of unlimited losses. In reality, options writing, when done in a disciplined manner with proper risk management, can be very much like being the house in a casino.
The casino enjoys a slight edge in every game, and while the casino may lose money in a single spin of the roulette wheel, over a large number of spins, its earnings will tend towards a predictable percentage in the casino’s favour. This is known as the law of large numbers in probability theory.
In the same way, while most options tend to expire worthless, an options writer can still make a significant loss when writing an option contract due to the theoretical unlimited downside. It is not uncommon for inexperienced option writers to blow up their trading accounts off a single bad option trade.
In my opinion, therein lies the true value of OCTION’s liquidity pool, which seeks to spread the risk of significant losses across a pool of option writers, allowing contributors to the pool to make consistent profits over time with lower liquidation risk.
(Further) Liquidation Risk Mitigation Strategies
While the liquidation risk is significantly reduced through risk pooling, the chances of an extreme situation resulting in catastrophic losses for the liquidity pool is technically still not zero.
OCTION seeks to further reduce this liquidation risk by limiting the option size of any option buyer’s wallet to a maximum of 1% of the pool, and restricting contracts to shorter expiration dates (1–5 days for now). OCTION also maintains a liquidity buffer and caps the put/call ratio to ensure that the liquidity pool is not exposed to excessive risk from unexpected swings in the market.
This centralised aspect of OCTION, the ability to control the UI/UX to manage risks, is integral to maintaining stability within the OCTION ecosystem.
Key Liquidity Partnerships
OCTION has also formed strategic partnerships with companies to supply liquidity of up to $1 million in the unlikely event that the liquidity pool is depleted by significant payouts.
On a centralized options exchange, market makers charge a spread on the buy and sell price, allowing them to profit from the arbitrage opportunity between option buyers and sellers.
OCTION removes the market makers from the equation, allowing option buyers to open contracts directly against the liquidity pool. Option prices are taken directly from a centralized exchange (Deribit), and profits that are typically earned by the market maker are channelled towards the liquidity pool instead.
OCTION’s Value Propositions to Options Buyers
Remember I told you that I was going to route back on OCTION’s tokenomics? Well, here it is.
Options buyers can enjoy a discount on their premiums just by holding onto OCTI tokens.
If the market value of OCTI on the buyer’s BNB-address is equal or higher than the strike price of the options contract, the buyer will be eligible for a 30% discount on the premium rate (excluding settlement fee).
As buyers are incentivized to hold OCTI to enjoy the attractive discount on premiums, this also increases the likelihood of an appreciation in the token’s price as more buyers enter the ecosystem.
Wider Spectrum of Underlying Assets
Options buyers on OCTION will also have a wider range of underlying assets to choose from compared to existing competitors in the Options DeFi space.
Further, and as a very exciting development that we should all look out for — OCTION will likely offer options on traditional assets such as XAU/USD and XAG/USD (Gold and Silver) in the future, with plans to expand into stocks and forex options too.
Insurance to Options Buyers
Finally, the OCTION Positional Shield is a unique feature which provides a form of insurance to options buyers.
Buyers who hold OCTI tokens can choose to activate this mechanism to get back a portion of their premiums if they wish to exercise their options early.
This is definitely not something that we commonly see in other DeFi options projects, so execution and bugs notwithstanding, the OCTION Positional Shield is a very interesting prospect indeed.
As such, and from all the above — Metric 3: The project’s value proposition(s) ✅
OCTION’s Potential Limitations
However, and as with all projects and things — OCTION does have its limitations too.
For the Options Writers (Liquidity Pool):
By taking up all contracts purchased by options buyers, the liquidity pool will inevitably be forced to take on some contracts where the odds are not in the favour of the option writers.
Seasoned options writers may be better off writing options on their own, where they can have more control over the type of contracts that fit their preferred conditions for options writing.
For the Options Buyers:
Options buyers will only be able to open contracts with expiration dates of up to 5 days, which is honestly rather limited.
There are plans to gradually expand the availability of longer duration contracts over time, but for now the team is definitely taking on a more cautious approach to maintain the stability of the ecosystem.
Moreover, whilst the OCTION Positional Shield does admittedly provide some degree of insurance protection for buyers compared to other DeFi platforms, the premiums that are returned to the options buyer is still likely to be less than if the buyer was to sell the contract in the open market on a centralized exchange.
These limitations do really give us a rough idea that unfortunately, OCTION is unlikely to (for now) incentivize the more seasoned options traders to shift onto their platform.
In many cases, both options buyers and sellers are much better off utilizing centralized platforms instead.
However, in putting in a word for OCTION (and honestly, most DeFi projects currently in the space), I am sure that many people said the same thing about Bitcoin or Ethereum a few years ago — look where these 2 projects are now.
Of course, I would be foolish to think that my argument is a strong one when I’m cherry-picking the two most successful projects over a whole graveyard of unsuccessful ones, but — a fact remains: the value of decentralization and democratization, in many people’s eyes, may be more powerful, and more pertinent than we think.
There are many of those who will gladly forsake some profits and benefits, in order to prevent themselves from being beholden to the large, centralized, and powerful financial institutions that dominate our very realities in today’s world.
We cannot discount the power, and potential, of these people.
Further, the OCTION team is also pretty self-aware of its own limitations. They seem to acknowledge all the above limitations by being extremely transparent with regard to the population-segment that they are targeting.
In other words, they do know that seasoned options traders will probably not be a mainstay in their ecosystem, but inexperienced and/or lazy investors will likely be.
Therefore, in considering all these factors, I can safely conclude that OCTION’s potential limitations are very unlikely to be fatally or chronically crippling in any way.
Metric 4: The potential limitations with regard to their solutions model ✅
How OCTION compares to other DeFi Options Projects
With all the aforementioned value propositions and limitations said and done, perhaps the perfect way to end off this review would be to take a high-level glance at OCTION’s standing in the space, with regard to other similar projects.
On this, I will be comparing OCTION with other Binance Smart Chain Options Trading Platforms, as well as Ethereum options trading D’Apps
OCTION VS other Binance Smart Chain Options Trading Platforms
A caveat: as of the time of writing, Hedget seems to be the closest competitor to OCTION. Therefore, I will be directly comparing between these two projects for this section.
Here are the ways that I feel, OCTION has a comparative advantage over Hedget:
- OCTION will offer options on traditional assets such as XAU/USD and XAG/USD (Gold and Silver), whilst Hedget does not.
- As abovementioned, OCTION will offer an insurance function called the “OCTION Positional Shield” that can offer holders the ability to expire their option early and get back a certain amount of the premium they paid to buy the options contract. This is something that Hedget does not have.
- As of the time of this writing, Hedget is only offering BTC/USD. On the other hand, OCTION will offer BNB/USD, allowing holders and traders who like to speculate on BNB an alternative
- OCTION also has a bigger team as compared to Hedget with more years in their portfolio and a bigger pool of advisors. This may not matter at face-value, but can come into play in the long term.
- OCTION will offer both American and European options. Hedget only offers European options.
OCTION vs Ethereum Options Trading Dapps
As such, the point of comparison(s) will be done betwixt these 3 projects. In my opinion, OCTION stands out in these ways:
- In comparison to Hegic, and as afore-utilised in the comparison against Hedget (but which is now used again because of its pertinence), OCTION will offer options on traditional assets such as XAU/USD and XAG/USD (Gold and Silver), whilst Hegic will not.
- OCTION will offer an insurance function called the “OCTION Positional Shield” that can offer holders the ability to expire their option early and get back a certain amount of the premium they paid to buy the options contract. Hegic will not.
- As of the time of writing of this document, Hegic is only offering WBTC/USD and ETH/USD, whilst OCTION will offer BNB/USD, allowing holders and traders who like to speculate on BNB a very lucrative alternative indeed.
- OCTION will offer both American and European options. Hegic only offers American options.
- Due to the fact that Hegic is built on the Ethereum chain, it suffers from Ethereum chain’s current weaknesses — high gas fees and slow transaction time. The situation is so ridiculous that the amount of gas you pay to purchase the options contract can be higher than the price you pay to purchase the contract itself. This is a problem that OCTION does not face.
- Now, with regard to Oddz Finance: due to the fact that they are completely new, and their platform is not ready as well, there is actually really nothing to compare. However, if we were to attempt one — it appears that Oddz Finance are only offering options on Crypto and not Commodities or Precious Metals. This is very limited in comparison to what OCTION has up its sleeves.
- Finally, Oddz Finance does not — once again — have the Insurance Function that OCTION has.
In looking at these points, it becomes pretty apparent that Metric 4: How the project compares to its competitors in the space ✅
At this juncture, I think it is pretty clear what my thoughts, opinions and feelings with regard to OCTION are.
With a score of ✅✅✅✅, OCTION clearly ticks all the metrics and yardsticks that I find essential to unearthing the true potential or value of a new project.
One thing we must always remember is that the DeFi ecosystem is very much still in its infancy, and the DeFi options one more so.
There is so much room for radical change, growth and even revolution, that we need projects like OCTION who dare to be different, and who dare to push the very boundaries of this space that they very much want to be established in.
Solid projects are done in step-wise iterations, and I truly think OCTION is on the right step toward that end. They have a solid team, strong fundamentals, and a solutions structure that is able to scale exponentially due to its emphasis on the diffusion of governance to token holders.
Where these token holders take us, I cannot wait to see.
We are at the precipice of change in this epoch, and OCTION is definitely at the vanguard of it. If DeFi protocols are money legos, I cannot wait to see the castle that should be built with OCTION.
Here’s hoping it lives up to its full potential!