RFC - Abracadabra to seed invest into Catpull Options Trading Protocol

INTRODUCTION

This is the proposal for Abracadabra to be the only seed investor into the new options trading protocol Catpull that will launch on Avalanche in early January 2022.

Catpull is the first decentralised on-chain options trading protocol on the Avalanche Network. It is based on a peer-to-pool AMM model, and in contrast to other options markets where a buyer and seller are involved, in Catpull, the seller takes the position through a liquidity pool.

Economic and technical design of Catpull has been made to complement the Abracadabra ecosystem from the start. $MIM will be the only currency option for buying options, while if this proposal is successful we will seek to open options markets for $SPELL and $ICE in Q1 2022.Besides this there are many more synergies between Catpull and the whole Abracadabra ecosystem that are covered in more detail below.

Catpull has been made by two friends, Parad0xPrince and 0xNekoDev. It’s important to say we are both big fans and early users of the Abracadabra ecosystem - we have been working on Catpull for a few months now, and carefully listened to all Abracadabra AMA’s where Daniele was calling for someone to launch an options protocol. We are both currently working in DeFi - Parad0xPrice is Research department of a decentralized cross chain wallet, while 0xNekoDev is working as a blockchain developer for a respectable market maker.

We have a demo version of the protocol running on Avalanche Fuji testnet, and the community can see how it works (and play with it) on https://catpull.finance/. It does not work with mobile yet, and depends on metamask.

Please have in mind it’s a MVP testnet release (for gauging interest and testing the idea) not a finished one. We intend to invest heavily in branding/design and improving frontend of the dapp.

To use the testnet version make sure to add Fuji Testnet in your metamask if you don’t have it already (https://chainlist.org/). If you need testnet AVAX you can get it on https://faucet.avax-test.network/

We also added a few special buttons below on the main protocol page to mint wBTC or MIM to your testnet wallet so you can check out the whole flow.

This whole proposal (with more details on how protocol works, basics of options trading, and example of strategies for $SPELL and $ICE) can also be found in the form of a gitbook page here: Gitbook proposal

WHAT IS CATPULL?

Point of Catpull is to provide users an option (pun intended) to access this type of derivatives trading in a decentralised and most profitable way:

  • Completely decentralised trading on-chain, without KYC, email or registration required
  • DAO-governed model that will make Frog nation a option trading whale
  • Built on Avalanche, which means fast and cheap execution of trades
  • First (and currently only) protocol that offers options for AVAX, and hopefully first and only protocol that will offer $SPELL and $ICE options
  • Options are minted as NFTs, resalable on secondary market
  • Our prices are formed using modified Black-Scholes formula, that captures fairest price on options, for both buyers and liquidity providers
  • Low settlement fee, that results in paradox of cheaper options but more premium share to liquidity providers
  • Utilisation of $MIM, as a sole payment option

CATPULL AND ABRACADABRA SYNERGIES

There are several synergies between Catpull and the Abracadabra ecosystem:

  • Utilisation of $MIM in buying and writing options (as a sole stablecoin option)
  • Opening $SPELL and $ICE option markets will protect them from selling pressure and decrease in price
  • Derivative pools are an amazing way to create supplemental value for the protocol, it is driven by market participation rather than token appreciation.
  • Users can create PUT options as a way to insure part of their collateral during liquidation cascades. A direct integration in abracadabra could even allow users to buy a form of liquidation insurance, so the protocol itself could exercise a put option allow users can claim their own liquidation fee
  • Abracadabra can open $MIM cauldrons for in-the-money options and/or a secondary market
  • DOVs comparison
  • Frog nation to govern Catpull DAO to run strategies and increase the treasury

Utilization of $MIM in buying and writing options (as a sole stablecoin option)

Currently $MIM doesn’t have a derivatives market where it’s being used as a payment method - which is surely an additional step further for increasing $MIM adoption. $MIM would be used as a sole method of buying both call and put option, and a liquidity provision for Put Pools - basically only part of the protocol that wouldn’t use MIM would be Call Pools (it wouldn’t make sense from economical pov for an options protocol).

Opening $SPELL and $ICE option markets will protect them from selling pressure and decrease in price

Current options protocols in 95% of cases only offer BTC and ETH options - our AVAX market will be the first one in the world. We believe they are running away from providing options on “smaller” cap tokens because their options formulas have issues with volatility calculations. Our modified Black Scholes price calculation will be able to provide a realistic price calculation even for high volatility tokens. The formula is made by Parad0xPrice, as prior to he crypto worked in options trading of rare commodities and minor metals. We plan to start with AVAX and BTC, but would add SPELL and ICE in Q1 of 2022 if this proposal is successful.

On the gitbook link you can find already a few main strategies that would be perfect for SPELL and ICE holders, that unlike futures market wouldn’t result in price decrease, loss of funds due to high leverage, and would only help to mature the market for both tokens. We are intentionally leaving out TIME from this conversation (for now at least) because of its rebase mechanism - we admit even for our formulas it would be a big challenge.

Integrating put options in Abracadabra lending so users can claim their own liquidation fee

This could be an interesting option (pun intended) to have, and Abracadabra would be the first lending protocol to deploy this (we are not aware of anyone else having anything like this).

Best way to look at it by example: Let’s say Abracadabra has a 10% liquidation fee on $SPELL cauldrons, and investors CDP is on 25% health, meaning If price falls for 25% he will get liquidated. Abracadabra can offer investors a possibility (when his CDP is on 25% health) to buy a put option with a strike price 15% below current price, and with the same size as collateral - it would also be a cheap option since it is out-of-the-money. As price drops, your put will be in the money, and on liquidation you can effectively exercise the option and get the liquidation fee back.

But essentially the investor could insure his loan any sorts of ways, but this could for example be a automated offer through a smart contract.

Abracadabra can open $MIM cauldrons for in-the-money options and/or a secondary market

Options on Catpull are minted as NFTs. For the start we will offer a 30 day max expiry (as we believe it’s not easy to convince people to lock their liquidity for 90 days in a newly released protocol). When we gain enough liquidity, we would offer 60 to 90 days expiry.

That can allow Abracadabra to offer cauldrons on in-the-money options, or even a secondary market for ITM options as its NFT design is perfect for that.

DOVs comparison

There has been a lot of talk lately about DOV’s (DeFi Option Vaults) like Ribbon Finance and Dopex, and the APY they are offering for covered calls. What’s important to say here is that these DOV’s are nothing more than our Call and Put Pools - people invest into writing options, that Ribbon then sells on the market to market makers and other funds that buy these options to hedge their positions. In comparison Catpull is a much more complete protocol, as it offers both sides of the option market - not just writing options (like DOVs) but buying them as well. The trades are executed on Catpull which also generates fees for the treasury, unlike in DOVs protocols, where the trade is happening on another venue (like Opyn).

Catpull team is also quite aware who are biggest buyers of these options, and we will surely be competitive to take a part of that market as well. And let’s not forget these MM would buying these options with $MIM.

Frog nation to govern Catpull DAO to run strategies and increase the treasury

Below you can see our DAO diagram (idea is covered more in depth on gitbook page) - in case this proposal is successful, it will make Abracadabra the single seed investor and biggest token holder, while the IDO would be exclusive to Frog Nation - we would like to design it so that you are only allow to participate if you hold X amount of either $SPELL, $ICE or $TIME in your wallet.

This will in no time make Frog nation the biggest option whale in the DeFi options market.

DAO DIAGRAM

ABRACADABRA PROPOSAL

So what do we ask Abracadabra in this proposal and how do we envision this going further?

  • Abracadabra to provide initial liquidity
  • Abracadabra to seed invest into Catpull

Abracadabra to provide initial liquidity

Hardest part for new protocols is to acquire liquidity and get their name out there. If you understand how Catpull will work, it’s obvious that for the users to be able to start buying call and put options from Day 1, we need to have liquidity in those Call and Put pools.

Liquidity for the PUT pools is provided in $MIM, while liquidity for Call Pools is provided in AVAX and BTC.

We believe providing 500K USD worth of funds into Call and Put pools for AVAX and BTC would be a great start. But important to say:

  • By providing liquidity in the pools Abracadabra is NOT giving funds to Catpull, and Catpull doesn’t have access to those funds
  • Abracadabra is writing options for all calls and puts and earning premiums, while sharing the risk of winning options
  • By providing to all pools, there is a huge chance of making a significant APY on the provided liquidity
  • By providing liquidity its entitled to our token through liquidity mining

Abracadabra to seed invest into Catpull

We share the no VC vision, and are not looking to sell our work, ideas and vision to someone for pennies and to be just one in a portfolio of 200 projects they have invested in.

In the case of Abracadabra it’s different. We share the #occupyDeFi vision, and our idea to do the protocol came out of a wish to implement $MIM more, and to complement the ecosystem. Based on how interconnected Catpull would be with Abracadabra’s ecosystem, we also hope the community would welcome Abracadabra as the sole seed investor here.

As the only seed investor, Catpull would sell Abracadabra 25% of the total supply of tokens as a seed investment.

Rest of the tokens would be distributed in the following way:

10% for the Catpull team

65% for IDO and liquidity mining incentives

All IDO collected funds would go to the treasury of Catpull, team tokens would be vested for 2 years.

We are also not looking for unrealistic valuations here (at least we think so - we tried to look at the market value of other projects and compare), but community can be the judge of that - we would put our FDV at 10 million USD for this seed investment proposal, so 25% of that would be 2.5 million USD.

For the sake of the argument, Ribbon finance FDV is 1.4 Billion USD, Hegic FDV is 213 million USD and Dopex FDV is 670 million USD.

In case this would be a successful proposal, we would if Abracadabra and community agree do a special IDO that would be exclusive to Frog nation - where only holders of either $SPELL, $ICE or $TIME (or staked/wrapped versions of the tokens) would be eligible to buy.

Looking forward to hear your opinion frogs #OccupyDeFi

4 Likes

This is quite a lot to take in, but its great looking proposal.
My only experience with options is few calls bought on Deribit when it opened, i never considered these put tactics to protect the price loss on your token.

I also like the design (if this is the final design) and the idea to use treasury money to make options (i guess counting the same APY from Ribbon) to generate increase of treasury and make more fees in the same time is great (as far as i understood it). All in all I would love to have this in abracadabra.

2 Likes

I’ve been catching up on all topics today, and I can say this is by far the best proposal I’ve seen on the forum. I’m not talking about the proposal itself - I’m not a trader, and can’t say I understand options. What I mean is how it’s constructed. This should be a template for future proposals to the community.

It has:

  • a well defined explanation what it is
  • demo/beta of the “product”
  • clear overview of value points for our community
  • transparency over what they want or how much it costs us

Guy even made a gitbook page for the proposal with graphs and strategies.

A+ for the effort.

Coming from the topic about Kujira, I find this

quite interesting to say the least. I do need to wrap my head around it a bit more.

4 Likes

I was reading up on Discord an came across this proposal, and was very impressed with the structure. Few things:

  1. If Catpull becomes a success it will have a very positive feedback loop on the adoption and usage of MIM, which in turn will be good for SPELL. I think as a community we should encourage all projects that increase the adoption of MIM

  2. The idea that you can hedge out your SPELL rewards with put options sounds compelling

  3. In the current market the valuation of Catpull is very reasonable (esp compared to competitors and other DeFi projects) - the only question that I have is how will it get paid? I would oppose the usage of $SPELL to pay the investment as it enhances sell pressure.

3 Likes

hi all. and thank you for the proposal however i oppose backing options plays (unless it can be accomplished at a ludicrously attractive valuations, which wont happen).

rationale: options don’t attract meaningful action in DeFi yet, and I dont expect that to change for at minimum 3-5 more years because 1) there is absolutely zero solid ground to be found anywhere in crypto. far too much around the entire space is utterly unknown and even more information is subject to flux. Example: the number 2 token, Ethereum, is about to revolutionize itself by switching from PoW to PoS, as we all know. When 10%+ of the entire industry marketcap is undergoing a recalibration of that magnitutde, it means there is literally no solid ground upon which an options premium can be derived.

Everyone is guessing, based on nothing solid, and the result of such a scenario is that premiums offered/asked will continue to be implausibly set. Proof that this is the state of the options market can be checked by anyone. Go look at the spread between asks/offers for ETH or BTC (the most liquid tokens) on the options platforms that are even viable (there are a couple https://v2.opyn.co; hegic (shit) auctus; uma (best, i think, long term). Even for short-term options the spreads are breathtaking they’re so wide.

The other reasons the market doesn’t work are 2) Volatility; 3) legal factors; 4) security factors; 5) lack of barriers to entry; 6) magnitude of first mover advantage; 7) lack of earnings in the vast majority of shitcoins; 8) and perhaps most important of all is a basic lack of transparency.

All of these make it, i think, premature to expect for an options market to attain more than the ‘curiosity protocol’ status attained by a couple of the more useful options platforms, of which there are really none. Believe it or not, crypto doesn’t have the liquidity (this is an important consequence of crypto markets being atomized between cefi/defi.

Conclusion: ptions markets, for now, are a bridge too far for defi, and many have tried already. all have flopped utterly. at least on ethereum. i hear better things happening on solana.

ultimaty its all a very bad bet. There aren’t nearly enough soophisticated retail users, and institutionals aren’t interested in options premiums that aren’t based on anything quantificable.

Ultimately, a dani or cronje will have to get big enough to truly NEED an options market before one is going to get built out where the backers will be underwriting 90% of the initial trading volume until the crypto space matures. Until then, spreads are way too huge for it
to work.

2 Likes

Merry Christmas everyone, and also thankful to everyone who has so far read and commented on proposal!

Just to make a few replies on the questions/comments…

@Deluge design is not final, that’s where we will improve the most until launch. As for Ribbon APY - I just want to make it clear the APY that Ribbon is offering is not guaranteed. It’s projected since no one can really know what will happen on the market, and some of the even crazy OTM calls/puts can end up ITM. But I see no reason not to have a similar APY.

@federico thank you very much ser for wonderful comments!

@Rbn13 thanks a lot for going through the proposal. We do not demand or object usage of $SPELL for seed investment - that is up to further agreement, but just to be clear we are part of the abracadabra community from the start so using any from the ecosystem tokens ($spell, $ice, $time, $mim) or combination of them would be fine for us. With a vesting period as well.

@0xCalibur thanks for the comment, let me just try to further explain a few things you mentioned (from my humble experience)

In all honesty I have to agree - option protocol volumes/TVLs/profits are not even close to DEX/futures markets. the reasons you mentioned are valid as well. But they are getting traction as more and more people are asking for them because of bigger and bigger wicks on futures that are making any leverage trade without deep collateral a liquidation waiting to happen. Also I do quite well remember Uniswap when it had 100K TVL - and I remember that I thought market wasn’t ready for neither a full dex approach to trading, for 0.3% fee on top of ETH gas fee (for something you could have done on CEX for fraction of that), or AMM orderbook model - but here we are 2 years later seeing Uni surpassing Nasdaq daily volumes. We also want to be early with Catpull.

This is again something I fully agree - but I am not sure did you read our proposal in detail. If we agree that option markets in DeFi don’t yet attract meaningful action, then orderbook peer-to-peer ones are not even on the map. Our response to this is peer-to-pool.
On a highly positive note it would take care the issue of a wide spread - there wouldn’t be one.
On a negative note options writers (LPs) in Catpull are basically pre commit to the truth of (modified) Black Scholes. I personally think there is much much worse stuff to commit to, since BS is staple of premium calculation for quite a while (in many of its versions). But on a positive note of that negative note, our LPs are sharing the risk between each other, which again makes then less vulnerable to a black swan event.

And to close this one, I would like to touch upon your first premise - that you oppose the backing unless it can be done with a attractive valuation.

Both of us that are involved in Catpull work in DeFi and it wasn’t hard for me to check with a couple of people what they feel would be a realistic valuation. We got some numbers and we cut them in half.

One thing I don’t want to do is over-promise and under deliver. When we were making the proposal from financial standpoint, It needed to be eligible for us to take it if we were on the side of abracadabra as well (again it’s our subjective opinion, but it the only one we have).

To put it into example - one of the protocols you named (and i dont know why you said its shit as we like it :slight_smile: ) Hegic, has made 500 mil volume during 12 months. Hegic’s avg settlement fee during those 12 months was around 15%.

If Catpull makes one fifth of that volume in 12 months (100 mil USD) with a 30% lower fee (10%), it would make Catpull treasury 10 mil USD - which is valuation we are giving (only) to Abracadabra. I hope that can fit into attractive valuation.

Thanks a lot to everyone, hope more people take a look and we push this further to RFC topic and take more questions :slight_smile:

2 Likes

Wunderbar proposal.

+1 to what @federico said, best structured proposal on the forum. This should be pushed to RFC and voting, not the Kujira one.

I personally would love options for $spell. It would have saved me a bunch in money few weeks ago. When we went down to 0.016 I thought it bottomed out, and because of record fees we had that week I knew we will be right back above 0.02 soon. Plus Dani was posting pictures of him fucking bears.

I went 10x long (yes i know its risky/gamble but I dont have 6 figures to invest on spot and im greedy) on FTX and lost everything because spell dipped to 0.007 iirc. If i bought a 30 day option i would be in some serious + on PnL now, and i believe leverage/cost would make it around 7x. Crypto is so volatile and it’s not rare occassion that evertime btc takes a dump, a lot of people call it “flushing of the longs”.

I checked out the testnet, the pricing of avax and btc is not real but the cost of premium is (i think?) and i think the premiums are reasonable (i would buy avax now if it was live) I like the quirky design and UI is simple and straight forward.

DAO draft is what we call here wunderbar and it makes a lot of sense. I like everything what I saw in proposal.

Now where I would change/discuss is the actual money they are asking. I do not think they are asking for a lot, i kind of agree with catpull dev that its a low ask.

But why to make yet another token and yet another dapp if you guys want to be a part or frog nation and abracadabra? We should bake this project in, and i propose:

  • removing their token, directing fees and governance to sSpell
  • as we would be taking the complete project in its begging cut their valuation down from 10m to 5m
  • to make sure they keep the protocol developing further and serving the frog nation we connect the payments with a few KPIs
  • half of the payment in MiM vested over 24m
  • other half in sSpell vested for 36m and only eligibile if they go multichain, add more pairs etc something like that

Lot of things that can be done here. No one has a flagship option dex, i think risk/reward ration here is quite good.

WAGMI

2 Likes

Just to be transparent, we are up for this kind of merge as well, and if the community wants to discuss/propose any type of similar ideas we are here to answer,

The initial proposal from economic standpoint is up for discussion on how/in what way/in what form type of questions absolutely. This is why we posted it here to hear what frog nation thinks of the idea and the way it should be done.

As said in proposal we want to be part of Abracadabra ecosystem and focused on supporting Abracadabra projects only and in a way the community would direct it. If we take this topic to RFC/or further, we are opened to any form of discussion on how to perform seed investment/merge or any similar forms of collaboration/integration.

2 Likes

Hello, and thank you for this exquisite proposal.

As someone with an extensive financial background, I for one applaud this move and would fully support it. I’m new to the Abracadabra ecosystem, but I’m a quick study. It looks like it’s a fantastic match for what you are trying to accomplish. For a while now, I have been wondering when derivatives would gain more traction in crypto. Being an early mover bears some risks, but with enough backing we should have the smarts to address them responsibly. I think the bold statement is this: There won’t be any meaningful action in DeFi derivatives until the ecosystem provides for it. “If you build it, they will come.” - so-to-say. The bold move really is to anticipate that and build it beforehand.

There is another aspect that is almost natural to the Abracadabra concept: Many uses of MIM borrowing/reinvesting in other coins are already synthetic options plays. Some users may not realize that, but it is de facto already baked in and happening.

Again, I fully support this very well made proposal and join the LP pool if one day it becomes reality.

BTW: Catpull - I see what you’ve done here with the name. Love it! :wink:

3 Likes

Best of luck in New Year to everyone!

This opens up pandora box of bad experiences on futures. The games that market makers (or exchanges?) play with regular people are getting more obnoxious each day. I longed one of our “friendly” tokens a few weeks ago, where in 1 (one!) day the price went 25% down, and then almost 80% up. Doesn’t matter did you shorted or longed, no one could survive those plays on any “normal” leverage.

Understanding basics of options (now), this alone would be a reason to switch from futures to options.

I like this type of ideas. I also do not think the valuation they are asking is out of this world - Spell market cap can earn two and a half million with 0.001 price increase.

But I am wondering what would be the best way to construct our “counter” proposal, and how Spell owners can benefit most of this investment.

I would fully support something like this:

  • we ask for discounted price for the complete protocol, not just 25%
  • we vote to whether to pay it out from the merlin candle fees, or from vast amount of weekly new emissions of tokens we are doing for liquidity mining - not in one go, but like from fees/emissions made in next 10 weeks or similar, in weekly installments
  • before hand catpull needs to oblige and make a clear roadmap when they will go multichain or similar demands
  • I really really really like their DAO idea. I believe not all Spell owners have interest in participating in it, so I would leave their token and their DAO idea
  • Airdrop their complete token supply to sSPELL stakers proportional to sSPELL amounts in stake

We just diversified Spell risk and created a new revenue stream with a relatively small investment for all Spell holders that will probably be paid off by Spell price increase due to the news of new protocol and airdrop.

Something like this sounds tempting not just for this project, but for possible future investments of Abracadabra.

2 Likes

In short this is exactly the type of stuff we need to evaluate and support to grow bigger.

I’m curious on what the team could do in future with this - it’s about time options get more focus in DeFi. I like that they are going after the Hegic model and not Ribbon or Dopex - I’m still in the dark over those as they seem to be one sided options, with a sketchy APY teasers. Plus, no reason that the same covered call game can not be done on Catpul , but unlike Ribbon the average joe has access to buy those calls here.

It’s quite impressive if you look at the smart contract here, they implemented a full on Black Scholes, and if I read it correctly, they are playing with dividend yield as some form of market sentiment adjustment. I would propose Abracadabra takes on the full protocol (way better investment than spending millions every week on liquidity mining imho), then we as a community(dao?) can draft even a non-regular option offers - if Avax, BTC and Spell (why no eth?) are regular markets, why not in terms of huge market volatility (like last few days) vote on offering wMEMO/ICE/FTM or similar markets as a one off ? It would make the whole collective of protocols more flexible in terms of price protection, and we wouldn’t need to rely on ugly/scammy CEXs and their manipulative futures markets. I dont trust any of them.

Full support here, they have my Spell on vote.

+1. I would not touch Merlin candles (especially after the new Squirrel twitter post) but we burn/deprecate enough Spell in a week to cover the investment.

Payment should be made in Spell rather then MiM. If they want to be part of the familigia, then they might as well bear exposure to the wasteful son :stuck_out_tongue_winking_eye: