CALL OPTIONS using UMA

UMA recently launched call options primitives

OPEN DAO plans to utilize them to launch CALL options for OPEN tokens. But instead of doing it via treasury we want to do it in a manner that incentivizes the community.

Consider you have a stack of OPEN tokens. You can lock them in UMA EMP contracts and mint a synthetic that works like a CALL option (redeemable only on expiry).

You can set a target price of $3 by June 30, 2021. If the target price is hit the option holders can redeem their options to claim the OPEN tokens.

If the price is not reached the option is worth nothing. But if it does reach the price then you would have bought the tokens at a low price (option price).

Why would current holders write the options? They write the option and provide LP against it, which means they make fees from the trading of the option which can be quite healthy.

The option writer does have a risk that he loses his collateral if the strike price is reached. But a holder would probably not lock all of his tokens in the option contract (unless he does not believe the price is likely to be reached at all). If the price is reached then the appreciation in the token price for the rest of his holdings would more than cover any losses.

In addition we will be proposing that these synths be whitelisted for UMA liquidity mining. If that is signed off on then the rewards from minting would be very attractive to option writers.

This process takes OPEN tokens out of circulation, putting an upward price pressure. It also adds up as TVL which in turn would be an bull signal for OPEN token price as well as UMA token price (given that it uses UMA contracts underneath).

Assuming this experiment works, this mechanism can be used for other assets such as tokenized gold, silver, and other commodities. Where people can write options and be incentivized for doing so.

The option model works quite well for tokens that do not necessarily have significant (or even any) onchain liquidity as well. The options are covered and there is no need to run liquidation bots etc making them a very simple mechanism.