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Pods, an on-chain options protocol, is launched on Ethreum Mainnet on October 12th 2021. With the mission of creating the easiest way to hedge the cryptocurrency, Pods Finance will expand on delivering various strategies to get exposure to the derivatives.
Let’s understand the role of Pods briefly. Pods aim to bootstrap the options markets for ERC20 using a specific AMM model. Pods, a non-custodial options protocol, helps users create European puts and calls that can be traded via a novel Options AMM. So, Pods protocol provide various risk exposures to the DeFi users via smart contracts.
With the protocol, people can have access to hedging, yield generation and exposure strategies. Let’s briefly understand each of the terms here.
If you want to hedge your crypto asset against the price volatility, then pods finance might prove to be an excellent option. Note that hedging means the use of risk management strategies to offset the losses in the crypto investments.
With Pods protocols, users can buy protective put options and then hedge their cryptos in an absolute decentralized manner. Note that call and put options represent the actions taken upon meeting a particular condition in future. In other words, put options guarantee the buyer that the underlying asset will be sold at the strike price, and the call options ensure that the underlying asset can be bought at the strike price.
With the put options, users will get exposure to the underlying asset at a specific price and will be able to get a premium for that asset. Also, users can generate more yield by locking the interest-bearing assets as collateral.
It has two components, namely the Options AMM and the Options Instrument. The Options AMM facilitates the bootstrapping, which is initially illiquid due to an AMM approach. Also, the Options AMM will programmatically upgrade the implied volatility depending upon the demand and supply, along with maintaining the liquidity provider’s exposure with time.
Note that the implementation of the Options Instrument requires 100% collateralization.
No matter how fascinating the DeFi space is, it’s pretty risky. So, it becomes essential o understand the risks associated with the protocols because one cannot underestimate them. We almost every day hear the news of hacking in any of the Defi systems.
Talking about the risks in Pods protocol, there can be smart contracts risks, economic exploits, risks associated with AMM performance and oracle.
To mitigate the risks of the smart contract, the Pods team had taken many safety measures. These include Code audit in August 2020 and February 2021, 99% test coverage on contracts, more than three months of bug fixing and beta testing, bug bounty and using the testing tools such as Echidna and Slither.
Supplying liquidity to the Pods Options might involve risks. So, the users must interact carefully with Pods Options and AMM.