Dopex

Dopex (DPX) is a decentralized options protocol that uses option pools to enable buying or selling options in a capital-efficient manner for liquidity-contributing participants.^[1]^[2]

Dopex runs on the Arbitrum Network, an Ethereum layer-two scaling solution. The options protocol utilizes dual tokens - DPX and rDPX to coordinate the growth of a new ecosystem in a positive feedback mechanism.^[6]

On February 17, 2022, Dopex launched the Single Staking Option Vaults (SSOVs) that allow users to lock up tokens for a specified period of time and earn a yield on their staked assets.^[7] As of October 2022, the total value locked (TVL) in Dopex was estimated at $23.74 million.^[3]^[4]

Overview

Dopex is a decentralized and permissionless options exchange that aims to offer maximum liquidity, fair option pricing, high capital efficiency for sellers, cheaper options for buyers, and incentives for all protocol participants. Dopex was launched on Arbitrum, a layer-two scaling solution of Ethereum, which leverages Optimistic Rollup technology.^[8]^[9]

Dopex was founded in June 2021 and is run by an anonymous group of developers. Although the team's size and structure are still undisclosed, many members, including senior developer TzTok-Chad, Casio, Witherblock, and Halko, can be identified via their Twitter accounts. Speaking about Dopex's launch on Arbitrum, Halko said:

We launched on Layer 2 simply because Ethereum trading fees are too expensive. It’s really important for options trading to keep the costs really low to ensure profitability.^[10]

Halko, further speaking on Dopex's product said:

Single Staking Option Vaults allow us to bootstrap an options market very simply. We don’t want to overwhelm people, so we’re keeping it simple by offering only call options with a few strikes. Plus, building new vaults on new products is very easy, allowing us to expand the product line without introducing complexity. The vaults are also farming yield in the background. People love it; it helps us acquire more users and build a large community.^[10]

The project is backed by several anonymous well-known whales from Crypto Twitter, such as Tetranode, DefiGod, and DCV Capital, a proclaimed collective of angel investors.^[9]

Tokenomics

For the protocol to function synergistically, Dopex uses two tokens:[12]

DPX - vanilla governance and protocol fee accrual token.
rDPX - rebate token - also used for protocol usage.

DPX

DPX is the limited supply governance token for the Dopex protocol and is used to vote on proposals at the protocol and app levels. After each global epoch, DPX accrues fees and revenue from pools, vaults, and wrappers built over the Dopex protocol in addition to serving as a standard governance token.

The total supply of the DPX token is 500,000.

rDPX

rDPX is a token minted and distributed for any losses incurred by pool participants. Based on the net value of losses incurred at the conclusion of a pool's epoch, the number of tokens to be issued is calculated. After the period has ended, each pool participant receives a portion of the losses that are established by governance.

rDPX has safeguards in place to prevent valuelessness while also giving the token intrinsic value, even though there is no supply cap.^[14]

Products

Single Staking Option Vaults

Single Staking Option Vaults are the main Dopex product. Similar to single-sided staking vaults on other protocols, they allow users to lock up tokens for a predetermined time period and earn a passive yield on their staked assets.^[10]^[15]
There are two sides to the product: stakers and option buyers. At the start and for the duration of each monthly epoch, the stakers deposit and lock liquidity in base assets (ETH, gOHM, DPX, and rDPX) or quote assets (dollar-pegged stablecoins) into a vault. The vault contract then makes premiums by selling call options on the underlying assets and deposits the money in single-staking DeFi pools to increase yield.^[15]

Dopex additionally compensates liquidity providers by using DPX, one of its two native tokens, as payment. Dopex provides a user interface for customers to purchase call options. A user just selects options size, selects strike price, and purchases. Because the call options are European, the buyer can only exercise them before they expire. The buyer makes money at the expense of the staker if the options are "in the money" upon expiration. In contrast, if the options are "out of the money" at expiration, the staker or options seller keeps the money or premium received from the buyer.

Single Staking Option Vaults offer buyers a quick and reasonably priced solution to permissionlessly buy call options on various crypto assets.^[15]

Option Pools

Option pools allow users to earn passive yield by providing base asset and quote asset liquidity for users who are looking to buy call and put options. The asset underlying a call option is called the base asset, while the asset underlying a put option is called the quotation asset. anyone can use option pools to generate yield by passively selling options to buyers with minimal interaction with the protocol.^[16]

Users simply deposit base or quote assets into a pool to use as liquidity for those wanting to buy call and put options in order to use option pools. At the end of every week or month, pool participants would be able to collect their share of pool holdings including premiums paid for all options relative to the size of the pool as well as additional DPX token rewards at the initial stages as an incentive for providing liquidity.

Therefore, whenever someone purchases an option from the pool, the premium they pay is proportionally split among the option pool's depositors. Along with the premiums, users will also earn additional DPX token incentives. Participants in the pool will get rebate tokens, known as rDPX, which are minted equivalent to 30% of all losses suffered by the pool, in the event that losses are incurred by the pool, which occurs when buyers make a net profit on their option purchases.^[16]

Volume Pools

Dopex refers to volume pools as existing alongside option pools. By providing a 5% discount on all option purchases made using volume pool funds, volume pools are designed to increase the volume within the protocol. Users that deposit money into a volume pool before a weekly epoch, or predetermined time period, can use that money to buy options from any option pool at a 5% discount. For experienced options traders, volume pools present an arbitrage opportunity that allows them to buy options at a discount and quickly arbitrage them against other exchanges for a rapid profit.

To further encourage pool use, volume pool depositors receive DPX token awards in the early stages. Users can withdraw any extra money from the volume pool at the conclusion of each epoch, but they will be charged a 1% fee for not using the money. Holders of DPX governance tokens are eligible to recover all fines as protocol fees.^[16]

Dopex AMM

The Dopex AMM enables anyone to buy options with the strikes of their choice for upcoming expiries by using assets from the asset pools and the so-called Black-Scholes pricing methodology, which takes volatility smiles into account. The Dopex AMM enables anyone to buy options based on the strikes of their choice for upcoming expiries by using assets from the asset pools and the Black-Scholes pricing algorithm.^[16]

Atlantic Options

On May 6, 2022, Dopex announced the launch of a new option type - Atlantic Options with the aim of offering new options/DeFi primitive that improve collateral composability and efficiency with a simple working mechanism and practical use cases that include preventing liquidations, setting up “buy the dip” stats, providing bond insurance, setting protocol wide price floors via treasury, and much more.^[17]^[18]