PsyFinance $SRM Grant Proposal

Hey Everyone!

Ata from PsyFinance here to discuss collaborating on a liquidity mining program for PsyFinance V2 Option Vaults, which are run completely on Serum’s order books.

As many of you know, over the last few months there has been an explosion of Decentralized Option Vaults (DOVs) in the Solana ecosystem. These products are great for consumers seeking to enjoy sustainable yields through automated options strategies. They lower the barrier of entry for options and automate many of the tedious tasks like strike selection, price discovery and auto-compounding. Interestingly, it is estimated that equity option volumes in US markets eclipses even spot trading [1]. If the explosion of options products continue on Solana, they represent a large growth opportunity for Serum which is largely untapped.

Over the course of the last 3 months the teams at PsyFinance and PsyOptions have been busy rolling out two improvements that take advantage of Serum’s CLOBs to increase options TVL on Serum and transparency in the DOV options sale process. The first is the introduction of a European Options Protocol, and the second is PsyFinance’s V2 Vault architecture. More detail can be found on the links above, but the TL;DR on why it’s important for Serum and our users is:

  • Open Access: Democratizes access to the options sales, anyone with a Solana wallet can participate in the option auctions, thus increasing exposure to Serum’s order books to end users.
  • Boosts Option Flow: Increases flow of long tail options volume through Serum order books
  • Transparency: Increase transparency of the bidding process so all PsyFi users can observe in real time how their yields are being generated.

We’re writing to request a 2,000,000 SRM LM grant for a 3 month period specifically for these V2 vaults that operate on Serum. These funds will be beneficial in helping migrate users from our V1 vaults, which settle options OTC, to V2 which operate on Serum. Our target is to boost TVL to 100M of weekly option flow through Serum with the LM program.

In addition to bootstrapping liquidity of option volumes on Serum, the program will aid in diversifying the Serum holder base to a new segment of DeFi users that may not be exposed to spot trading (i.e. derivative fans).

With the 2M SRM tokens, we’ll plan on distributing them over the following V2 vaults.

  • SOL Covered Call
  • BTC Covered Call
  • ETH Covered Call
  • SRM Covered Call
  • FTT Covered Call
  • stSOL Covered Call
  • scnSOL Covered Call
  • USDC Secured BTC Put

There may be additional vaults launched as requested by users as well, which we will be happy to update the community with prior to starting LM emissions.

If the community is supportive of the grant, we have a number of collateral/events planned to support the LM program. To name a few:

  • Teaser video for the new LM program
  • Medium post on why the partnership with Serum is important both for PsyFi and Serum.
  • Twitter spaces with Market Makers using the V2 vaults on Serum
  • Weekly updates on notional amounts sold during Vault Auctions through Serum order books
  • Teaser videos, and announcements of subsequent V2 Vaults launched, all of which will be settled through Serum order books

Excited at the opportunity to collaborate more closely with the Serum community and happy to answer any questions that you may have!

Ata

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Alright I finally made it fam. For Serum people, I have been recently active in Psyoptions Forums, and previously around here with some things I was trying to push out. One day i’ll be back to push again…

I am biased towards a positive outcome for PSY here because there is a lot of potential. But I want to be fairly critical of this proposal. I do love the PSY vaults and the products being built in Psyoptions. The transition to open order books for vault auctions is a good step in DOVs operations. For the users they get a more transparent process in how their yield is being generated, can watch as orders stack in, and can even participate when they want to. For the yields and pricing this is a huge step also. From what I have seen the OTC buyers of vaults come in fairly lower compared to the broad market, and the Serum order books have the capacity to change this. Making a more competitive bidding process giving users a better price and can help better price VOL for the auction timing.

With that being said, what are the actual volumes of trades to hit Serum order books and what volumes actually register there. I think that the $100M a week sounds wonderful but is that notional value correct?
If it is then what passes through Serum and actually drives value into Serum volumes and Serum fees? If we guess 20% yield average , which is the 20% being bid and then settled in Serum markets and paid to vaults, then approximately $20m a year is actually being driven by Psyoption vaults into Serum Volumes.
This would be paying (with SRM at $2), $4,000,000 USD worth of incentives to drive a target volume of $4.6m in trading volume over 3 months, with incoming fees of $1,840 going to Serum.
In contrast with the ATRIX grant, they are seeking 6m SRM as incentives for their platform that generates $400M in trading volume per day+ but no Taker volume and no fees to Serum. Still this $400M actually registers in the total volume traded for comparisons to Uniswap and other DEXs that Serum wants to surpass and maintain ahead of for on chain volume. (took the $400m from a serum tweet but could just be Order Amount and not settled trades)

I do not see how the proposal really benefits Serum in terms of key metrics like volume and fee generation. If all the incentives just get dropped on vaults so that vaults can do auction of premiums in Serum, then the total volume created is very minimal. Would need $1B in Vaults to have half of the volume in a year what Atrix does in a day, to prioritize the Serum community for a minute.

I am trying to see some sort of alternatives here where a Grant can go to Psyoptions, but that generates a greater value for Serum volumes or for the Serum DAO.

-One possibility is changing the incentives to not just vaults in Psyoptions, but the traded volume on Psyoptions Options markets. Psyoptions markets for different strikes are serum markets, the amounts traded there in premiums are total volume traded on Serum. One big hassle has been locking up SOL to create new strikes and markets, and then getting people to trade there. SRM grant could go towards proliferating the availability of Options markets… new Strikes and new Tokens (BNB, AVAX, DOGE, etc). Then also incentivizing market making or being in the order books. Using the grant to convert to SOL and then spin up markets, very easy. Using the grant to calculate rewards for being in the options order books is a bit harder, but could use a Mango Markets like model of being in the books and closeness to a calculated Vol for an asset to make sure books are close enough and drop rewards for that. With a greater amount of markets and greater amount of liquidity in the books and for alternative assets, then more trading volumes come through Psyoptions and by default Serum Volumes. Just some quick look at Options volumes in Deribit in their top 100 markets is $12M per day. If Serum incentives can lead Psyoptions to doing 5% of that a day along with Vault auction volumes, we start to see greater amount of flows through Serum and for the Serum Markets. Generating a higher Total Volume Traded for Serum.

-Second thing is me being excessively annoying about options incentives with Psyoptions. The options are limitless! If a grant comes from Serum then part should be issued as call options in Serum where if they are executed then the Serum DAO can diversify their treasury and hold other assets. Something like $1.50 SRM Call options as the incentives for Vaults. This limits the amount of farm and dumping, generates USDC for the Serum DAO treasury, and SHOWS OFF PSYOPTIONS possibilities! Psyoptions wants more users, and more volume, Serum wants more volume, get the grants to people to start using more aspects of Psyoptions and seeing all the other Option Markets and structured products. I am a huge fan of more and more protocols offering options incentives instead of straight dropped tokens that can be dumped for the total value received. This may be the perfect harmony to join SRM grant with Psyoptions use cases.

Beyond that I do love the idea of the other value added topics. More twitter spaces, more documentation and media to show Serum and Psyoptions working together.

I just fudded my own bags fuck…… But the grant is pretty big compared to what volume will come from it, as far as paying for the growth of Serum this is not the best use of proceeds. To justify it, it should use more of Psyoptions uniqueness, and grow total Serum trading volumes more than just Serum Vault auctions.

Hey Life - Appreciate the thoughtful reply and suggestions!

To tackle your first concern about the actual fee generating volume driven on Serum, you are correct that only the premium is trading through Serum in the vault auctions. However, this grant accomplished more than just generating fees through options volume on Serum. The grant proposal will greatly aid in the driving of the foundational layer of option volume away from OTC where they currently are and onto Serum.

Why is that important for future volume on Serum? All our vaults have vault tokens that represent the notional being stored on them. Currently those tokens are illiquid and locked until the end of each option minting cycle. Once we bring sufficient volume onto Serum we will spin up Serum markets to make this notional liquid and allow users to trade in and out of their positions as they see fit. Making illiquid vault positions liquid will create greater flexibility for our users while simultaneously driving volume through serum (one of the key metrics you had mentioned).

Additionally, all PsyOptions order books trade on Serum. By incentivizing option flow through PsyFinance DOVs, more options markets are available for trading by Market Makers and users alike on said order books. This proposal would greatly benefit the movement of liquidity to those serum order books as well.

Just one more note about metrics before moving onto your suggestions. Traditionally option markets are tracked by notional volume, not the premiums traded. So maybe there is a small mismatch between what’s being tracked now and what an end state of metric tracking may look like given significant option volume on Serum.

Moving onto your suggestions. I like the idea of incentivizing more markets on Psyoptions itself, which I do believe this proposal will help accomplish as outlined above. In my opinion, liquidity mining programs must be developed programmatically to be transparent and open to everyone, so that would rule out converting the rewards to SOL and incentive spinning up more markets. Taking a Mango Markets approach may indeed work and is worth more exploration, though I believe it should be explored in a separate grant proposal as it’s fundamentally a new product and liquidity mining program.

In regards to your second suggestion of liquidity mining using options itself, I’d be in favor if the Serum community is also onboard!

In summary I hope the thoughts above have shown why this LM grant proposal is justified to kickstart a whole stream of options flow on Serum and is beneficial to both communities.

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Although I am not well versed in the intricacies DAO proposals, I wanted to take this opportunity as a retail user of both platforms to say I think further collaboration between both of these quality teams sounds like a natural fit and would be mutually beneficial. I feel the psyfi community would greatly benefit from the LM incentives made possible from the grant and it may drive larger deposits into the vaults to capitalize on increased yield/ exposure to another great project. From serum’s perspective their community will grow simultaneously, and the opportunity of options volume shifting from OTC auctions to the CLOB in the future is a beautiful example of composability that allows retail users access to institutional grade investment products and opportunities. Sounds like a win win and I look forward to the prospect of this grant moving forward and the impact it may have on both platforms.

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Great follow up and well put. I know options are usually based on notional but for Serum metrics and DEX volume comparisons they probably won’t distinguish in their numbers what is Spot volume and what was notional options volume. Or at least competitors wont count it. I do believe having the secondary markets after the Auctions would be great for those strikes sold, would allow for much better user experience. Grants and more TVL in the DOVs would definitely help accomplish that secondary offering of options from DOVs.

And I do hope some incentives can be options based and gets support from Serum people. That way even the farm and dumping mercenary capital dives into the Psyoptions interface and creates the awareness to use more of the Serum based options markets on the platform. Which hopefully leads to more trading in those Serum Markets.

Hopefully Serum community can step in here and follow up with more and build up for everyone! Fine tune the proposal and send it to vote.

and please Life is my fathers name you can just call me LC. :laughing:

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just wanted to say of all the vault/options projects, psyoptions/psyfinance are easily the most impressive and aligned with Serum. Lets hope we continue to work close together

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