The Definitive Guide to Dopex ($DPX)
The future of on-chain decentralised options
What follows is a long-form analysis of Dopex that is meant to serve as the final word on introductions to the protocol as of mid-April 2022. Many fragmentary overviews, most outdated, already exist: this review synthesises them into a definitive whole. The reader is warned: this is a lengthy review, particularly since it assumes virtually no prior knowledge and incorporates a historical recap of the relevant markets. Upon completion, however, you will understand why Tetranode considers Dopex to have the best risk/return out of all the DeFi projects he advises. The future beckons, anon.
A brief introduction to me, since this is my first Substack post: I’ve been involved in crypto for nearly half a decade and have been performing written analysis to inform personal and professional investments in the space for nearly as long. With the advent of Substack, it makes sense for me to share some of these with a wider audience, and give back to a space I have received so much from. I’ll also be posting this on my Mirror page, linked at the end of the review. If you enjoy the article, subscribe to my Substack for biweekly content and follow me on Twitter (@semajeth).
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Introduction
Global stock markets have a market cap of ~$90 trillion, while the global derivatives market cap is by some estimates over $1 quadrillion - a ratio greater than 1:10. While the global cryptocurrency market cap is ~$1.75 trillion, the relative immaturity of crypto derivatives makes finding a global market cap figure for them difficult. However, as the market matures, we can expect a similar ratio to emerge, which places their current market cap at $17.5 trillion. As crypto markets mature, the most successful protocols in capturing derivatives demand will be worth hundreds of billions at the very least. The following analysis argues that Dopex is uniquely placed to capture retail-specific demand in this market.
On-chain options are a sector of DeFi primed to explode in the coming years, and Dopex is a protocol that is extremely well placed to take advantage of this trend through its specifically retail-focused platform, UX, and product design choices. I do not believe that this claim can be verified without significant reference to contextual market trends in the last five years: however, as this report does not assume prior familiarity with the subject matter beyond a basic introductory knowledge of crypto and derivatives, I will provide an overview of trends in the markets necessary for my analysis (crypto derivatives broadly, retail entry into traditional finance options, DeFi, and DeFi options protocols). I will then present an overview of Dopex: its product, tokenomics, and design choices. Afterwards, I will analyse Dopex’s competitive advantages, which range from a retail-friendly orientation to composability to its decentralised structure, before discussing future products, competitors and potential risks.
Background
Crypto Derivatives
The inception of Bitcoin, the world’s first decentralised peer-to-peer cryptocurrency, created an entirely new asset class which, owing to its novelty, lacked the maturity of its more traditional counterparts, such as equities and commodities. In particular, early cryptocurrency markets were characterised by the overwhelming dominance of spot trading (directly buying or selling the asset, in this case BTC, in exchange for fiat money such as USD or, later, stablecoins such as USDT) against derivatives trading (contractual agreements, such as futures and options, whose payoff is dependent upon an underlying asset’s price). Early adopters of Bitcoin were also more interested in holding it as an asset (i.e. spot trading) than in using crypto derivatives, which have historically been used by institutional investors and traders for purposes such as hedging. The historical dominance of spot trading in crypto markets also owed to the ambiguity of what kind of asset Bitcoin was, and whether it would fall under the jurisdiction of commodity regulations: this ambiguity stifled both the supply of crypto derivatives, for fear that providers would fall foul of future regulations, and the demand for them, since that regulatory ambiguity made BTC far too risky for institutions (who historically constitute the majority of derivatives demand) to consider trading them in volume. To avoid regulations, many of the earliest crypto derivatives exchanges, such as ICBIT, did not act as clearing houses, thus exposing the trader to full counterparty risk. Of the institutions willing to act as clearing houses when enabling futures trading of BTC, such as the unregulated exchange Coinflip, many eventually fell foul of the CFTC, the governing body of commodities in the US, who had previously warned them that unregistered derivatives exchanges would not be tolerated. It was not until September 2015 that legal clarity emerged, when the CFTC officially ruled that Bitcoin was to be treated as a commodity, over five years after the first usage of it in an economic transaction.
As crypto markets matured, institutional money gradually began to enter, but faced illiquidity issues. Since liquidity was fragmented across several different exchanges, no single exchange had liquidity deep enough to allow for derivatives, and regulatory issues continued to scare off market makers from traditional finance. Without a derivatives market, institutions were forced to directly hold BTC, which left them vulnerable to its notorious volatility. Given the illiquidity of Bitcoin markets vis-a-vis more established asset classes, perpetual futures, or perps, became the primary vehicle by which crypto derivatives were traded. The perp, which resembles a futures contract, does not have an expiry or settle date, but uses the concept of funding rates to bring the perp price in line with the spot price. Introduced by BitMEX in 2016, perps solved the liquidity fragmentation issues which were present in crypto derivatives markets at the time by essentially concentrating all of the liquidity in disparate markets into a single market. This liquidity allowed for large amounts of leverage and margin trading, making perps more attractive for institutional traders than segmented crypto futures markets. Perps also allowed the automated rolling over of the contract, allowing for traders to hold long-term positions without continuous bleeding through settlement fees and rollover costs. Better still, since the perp can be settled in BTC, many regulatory hurdles involving the dollar could be sidestepped entirely, while on-chain peer-to-peer settlement of perps is significantly quicker and cheaper than interbank transfers.
Access to real-life crypto derivatives were heavily gated, as exemplified by the December 2017 Bitcoin futures launch by the CME: the margin requirement was 40%, and while crypto markets trade 24/7, the CME’s BTC futures contract only traded during certain hours, and not on Saturdays. These limitations made the rise of native derivatives exchanges inevitable. By May 2021 the XBTUSD perpetual swap had become the most traded cryptocurrency derivatives product of all time, with over $3 trillion in total volume on BitMEX alone: after BitMEX’s reputation cratered following regulatory charges, Binance usurped its position as the perp kingpin. As of 12 March 2022, Binance comprises 25% of the total perp market volume between its BTC/USDT and BTC/USD pairs, and over 30% of the total futures volume.
However, while perp volumes increased year-on-year, more sophisticated tools such as options languished. The co-founder and CEO of Three Arrows Capital, Su Zhu, predicted in 2020 that options markets volume would constitute over 50% of the volume of all crypto derivatives markets, but this prediction proved premature at best. Since institutions had been wary of holding spot BTC or ETH as an asset until very recently due to historical volatility, the need for the complex hedging mechanisms that options allow was filled by the perp markets, since there was not sufficient institutional spot exposure to merit involvement with crypto options. While crypto derivatives market volumes reached an all-time high market share of 61.2% (against spot market volumes) in January 2022, the vast majority of that volume remains concentrated in perps, which are traded by institutions on centralised exchanges such as Binance. In February 2022, the total volume of Bitcoin options on centralised exchanges was $17.13 billion; the total volume of Bitcoin futures on CEXs in that time period was $1.42 trillion, nearly 85 times higher. As of January 2022, over 92% of BTC options volume takes place on Deribit, which has become a veritable monopoly. Deribit’s overwhelming success stems in large part from their first-mover advantage: they were the first BTC futures exchange to also offer European-style BTC options, followed a year after by the CME, and they constituted virtually the entirety of the ETH options volume until OkEX’s entrance in June 2020.
What has sustained their lead in open interest volume, though, is the professional-level experience they provide to seasoned traditional finance options traders who have migrated to crypto, both UX-wise and in terms of cross-margin capacity. Without the ability to cross-margin, institutions hedged in multiple highly capital-intensive positions must individually collateralise all of those positions, creating huge levels of inefficiency. Deribit’s best-in-class cross-margin capabilities allows for the most capital-efficient provision of collateral. The full-stack experience that Deribit provides allows them to retain the services of those traders and the institutions who employ them. That professional orientation comes with certain regulatory costs: although Deribit moved to Panama from the Netherlands to escape the onerous AMLD5 regulations imposed by the EU, which would have required them to share all their customer information with the government, they nevertheless impose lesser KYC regulations on their users to prevent money laundering etc by malicious actors.
While KYC regulations are par for the course for professional traders, they are very much against the spirit of Satoshi Nakamoto that still animates the crypto world - a spirit of decentralisation, a mistrust of centralised authority, and an advocacy of verifying instead of trusting. For centralised exchanges, KYC regulations have historically begotten further KYC regulations, as was the case with Binance’s mid-2021 decision to remove trading functionality for any non-verified user: Deribit’s escape to Panama will likely prove a short-lived reprieve from regulatory bodies. Nor is Deribit’s UX at all friendly to the retail user: the price to be paid for providing professionals full immersion is a retail user experience that borders on incomprehensibility. While it is certainly possible to learn to use unintuitive UXs such as Deribit’s (and crypto natives have done so in the past, most notably with Curve), it requires time and patience - both of which are typically in short supply for the retail investor in crypto.
Deribit UX
In short, the vast majority of BTC options volume on Deribit is likely institutional trading, and since Deribit accounts for over 90% of total BTC options volume, it follows that the overwhelming majority of crypto options volume as a whole has thus far also been institutional. This conclusion tracks with on-chain data, which suggests that the growth of new addresses, a proxy for retail entry to BTC, has stalled since April 2021, and that the majority of entrants since then were large wallets with >$10 million in capital - in other words, institutions.
To summarise: of the $200 billion in options volume that has taken place on Deribit from April 2021 to March 2022, virtually none of it has been retail. The degree to which retail crypto users have been onboarded to options in crypto remains incredibly low.
Retail and TradFi options
One of the largest trends since the outbreak of Covid, however, has been the entry of retail investors into stock options in US equity markets, previously considered the bastion of highly quant traders and hedge fund analysts. Single stock options volume rose over 68% in 2020 from 2019, and rose another 35% in 2021 from 2020. In contrast to the institution-dominated crypto options market, over 25% of the total stock options volume stems from retail. This shift was facilitated by brokers who provide a clean and intuitive UX alongside a commission-free structure - none more so than Robinhood, who revolutionised retail option trading. By removing any minimum account balance requirements and lowering commission fees from $10-$15 to zero, as well as a slick referral program and enabling fractional share ownership, which allows even the lowliest of traders to enter the market, Robinhood onboarded retail users to options on an unprecedented scale. Robinhood’s monthly active users almost tripled in 2020, from 4.3m to 11.7m, and in Q3 2021 Robinhood reported options revenue of $164 million - 45% of total Q3 revenue - from options order flow: more than triple what it made from stock order flow in the same time period. Since they take no commission, their profit primarily stems from sending stock and options order flow to brokers, who pay them for doing so.
Apart from the retail options revolution, Robinhood is most widely known for the role it played in the January 2021 GameStop short squeeze. After a notably coordinated short squeeze from retail users against certain hedge funds, led primarily by the subreddit /r/wallstreetbets, Robinhood and other brokerages halted any further purchases of $GME and similar stocks, citing an inability to post sufficient collateral at clearing houses to execute orders. Due in part to these restrictions, the price of $GME collapsed in the following days. Accusations of conflicts of interest and lawsuits followed, claiming that the market makers who provide Robinhood revenue in exchange for order flow, in particular Citadel, had ordered them to halt purchases. While both Citadel and Robinhood denied this, lawsuits allege that internal messages show communication between Citadel and Robinhood executives did occur on the day before Robinhood halted purchases. Widespread disillusionment with the purportedly rigged system followed: despite Robinhood’s populist tendencies, the thinking went, it nevertheless capitulated to the system when pressure was applied. Ultimately, despite their no-fee model and incredibly intuitive UX, Robinhood is a centralised application with direct ties to large financial institutions: whether its decision was due to arm-twisting from Citadel or legitimate collateral issues, the power clearly lies with the application rather than its users. Lacking any better alternative, retail investors continued using Robinhood despite their contempt for its capitulation to power. After all, producing an application that would not be subject to this imbalance of power would require such a paradigm shift in terms of design that it would be hard to imagine how it could even work: an app would be required that integrated the simplicity of buying no-commission options without needing to derive Black-Scholes on the fly with a censorship-resistant core that would not simply revoke access to certain products upon the arbitrary command of an authority figure such as Citadel. But the investors were wrong: over the prior year decentralised finance (DeFi) protocols just like this had began to emerge on the Ethereum blockchain, though public awareness of them was slim to non-existent. With sufficient recognition, it is likely that in the coming years these protocols will onboard many users who disdain Robinhood’s collusive actions, but can currently find no alternative to its services.
DeFi and decentralised option protocols
As the crypto markets matured throughout the 2010s and Ethereum cemented itself as the second largest asset in the space, an alternative to the Bitcoin hard-money free-banking paradigm emerged that sought to recreate many aspects of the traditional finance world on the blockchain in a permissionless, anonymous fashion. Where traditional markets require third parties such as banks to manage services and guarantee their reliability, the public nature of the blockchain allows for a disintermediation of these institutions, theoretically making the transactions more efficient. The key characteristics of decentralised finance, or DeFi, are self-custody of assets, transparent and decentralised transactions and protocols, and no barriers, KYC or otherwise, to access. The composability that the Turing-complete EVM allows for inevitably led to the emergence of key primitives in the world of decentralised finance (DeFi), endearingly termed money legos, that already existed in the world of traditional finance, ranging from borrowing and lending protocols like MakerDAO and Compound to insurance protocols such as Nexus Mutual. The rise of Uniswap, an automated market maker (AMM) whose volume now rivals that of the largest centralised exchanges, was a watershed moment in DeFi: a native dApp, with a non-CLOB model, that directly outperformed its centralised counterparts in numerous respects, such as anonymity and the ability to create pools for new tokens by providing liquidity. These zero-to-one moments in DeFi are what give it such disruptive power; the many yield farm strategies and mercenary liquidity strategies, which constitute 90% of the day-to-day activities in the sector, amount to window dressing for true innovation like DAI and UNI, whose emergence is relatively infrequent in comparison to more extractive strategies and developments like vampire attacks.
As the DeFi ecosystem developed and derivatives on centralised exchanges began to grow in volume, crypto options emerged as an obvious candidate for the next of these zero-to-one moments. However, a series of problems immediately presented themselves to the would-be decentralised options protocol: gas fees and low-speed transactions made options transactions prohibitively expensive, while the oracles required for a reliable price feed for payoffs were still in their infancy. Worse yet, even pricing the options proved difficult: the relative immaturity of crypto markets brought into question certain critical assumptions required for the Black-Scholes equation (used to price options in traditional markets) such as volatility remaining constant and the lognormality of the price distribution.
These issues meant that it was not until early 2020 before the first protocol to offer decentralised options was launched. This protocol, Opyn v1, used an oToken model to sell fully collateralised American-style ETH puts. LPs deposited collateral, wrote an option, minted it using an oToken, and found a market for it on Uniswap. Since v1 users had to use Uniswap to sell their oTokens to receive premiums, option holders suffered from a relatively illiquid market: virtually all liquidity providers suffered impermanent loss in the oToken Uniswap pools due to theta decay of their puts vis-a-vis ETH. For these reasons, Hegic, the next on-chain options protocol, settled upon a dual liquidity pool design for their product, separating liquidity for calls and puts. Hegic also separated LPs and writers: the former could deposit collateral, but did not have a say in what the latter selected. Despite fixing the IL and theta decay issues, Hegic suffered from gas fees during congestion due to being an L1-native protocol on Ethereum. In December 2020, Opyn v2 was launched. Integrating Chainlink oracles and other improvements from its v1 iteration such as cash-settled European options, v2 was at the time the most capital-efficient DeFi options protocol available. However, six months later, a competitor publicly announced that it planned to usurp Opyn’s place as the leading DeFi options protocol through a series of improved design and product features. That competitor was Dopex.
Overview
Dopex describes itself as “a decentralised options protocol which aims to maximise liquidity, minimise losses for option writers and maximise gains for option buyers - all in a passive manner for liquidity contributing participants”. Dopex’s team, although active on social media, are fully anonymous, as are most of its high-profile seed investors, such as Tetranode and DeFiGod. Its market cap is ~$110 million, with a fully diluted valuation of ~$500 million.
Dopex is an Arbitrum-native protocol that allows traders to purchase on-chain European-style options without requiring a financial intermediary, or any KYC information, through its flagship Single Staking Options Vaults product (SSOVs). Users deposit their money in the vault for a predetermined time basis, or ‘epoch’, and choose from a series of previously-determined strike prices to provide liquidity at. Epochs range from daily to weekly to as long as annually. Excluding pool2 and staking, Dopex’s TVL is ~$110 million, though this fluctuates dramatically since funds are released and must be re-locked after the end of every (typically monthly) epoch. Users buy options at those strike prices, which are underwritten by the vault’s funds: the premiums paid by these buyers constitute most of the SSOV’s yield to its depositors. The rest of the yield stems from deposited funds being combined into a single staking pool for farming rewards. The staking rewards are proportional to how close the selected strike price is to being at the money, to incentivise providing liquidity at the strike price where you think the underlying asset will end up closest to. All options are fully collateralised. Dopex’s fee structure charges a fraction of a percentage of the underlying amount and distributes it to stakers and liquidity providers.
Dopex SSOV fee structure
Either calls and puts, though not yet always both, are available on a wide range of assets: DPX, rDPX, BTC, ETH, BNB, LUNA, AVAX, CRV, gOHM and GMX. The premium paid for the options is calculated using the Black-Scholes equation, with implied volatility coming from oracles, but also adjusted using a function that calculates volatility smiles and a number of delegates who quote on multipliers that influence the steepness/of curves of the pricing formula. These delegates are five of the largest crypto derivatives trading firms (Ledger Prime, Orca Traders, Orthogonal Trading, Pattern Research and SCC Investments), and are incentivised to provide accurate multiplier quotes by receiving increased pool and platform fees for precise quotes, and penalties for careless or malicious behaviour. The delegates are required to stake a minimum of 2500 DPX, and this can be slashed in cases of deliberate malfeasance. The oracles used for DPX and rDPX are open-source and use a time-weighted average price (TWAP) to avoid prices being influenced by flashloan attacks, which can briefly change the price significantly: all other oracles use Chainlink, broadly considered the gold standard for oracles.
Tokenomics
Dopex has a somewhat unusual two-token model. The first, DPX, is a governance token with a relatively standard series of benefits such as fee accrual: the second, rDPX, initially functioned as a rebate token to incentivise liquidity providers to migrate to Dopex, somewhat analogous to a vampire attack. However, in light of the increased ambition of the project, the latter has since undergone a significant alteration in its use case.
DPX
DPX’s supply is capped at 500,000 with a fixed emission schedule. Its distribution and use case is most effectively analysed by treating it alongside the distribution of a competitor, dYdX. The token is analysed as it is now i.e. without discussing here the possibility of vote-escrowed DPX (veDPX) which has emerged recently.
DPX emissions
DPX distribution
dYdX distribution
Upon examination, Dopex’s distribution is the more favourable of the two. While 27.73% of the dYdX supply went to investors, the overwhelming majority of these being traditional VC funds with non-transparent vesting schedules, Dopex only allocated 11% of its supply to seed investors, and provided transparent vesting schedules for this allocation. As of today, Dopex’s seed investors have been unvested for almost two months, with no indications of dumping once the vesting period ended. This is unsurprising: while VC investors often have no personal stake in companies they provide seed funding for, Dopex’s seed investors were primarily DeFi whales, such as Tetranode, who have a direct interest in seeing the space as a whole succeed, given their large stakes in many other DeFi protocols. While 22.27% of dYdX has gone to current and future members of the team, Dopex only allocated 12% of its supply to its team, with 20% of that going to liquidity pools and the other 80% vested across a two-year timeframe. This extended vesting period has allowed for Dopex to bootstrap liquidity and TVL without excessive sell pressure coming from early entrants. While dYdX’s airdrop in the middle of September 2021 was extremely popular for rewarding early users, it was also exploited by DeFi farmers, which prompted a colossal sell-off at the end of the month that dYdX still has not recovered from, down 80% from its September 2021 ATHs as of March 2022, even as other tokens such as ETH hit ATHs later that year. Dopex did not suffer a similar fate, since they did not airdrop tokens: however, due primarily to treacherous macro conditions, Dopex is also down almost 75% from its January 2022 ATHs.
Certain crypto tokens, in particular Uniswap, underperform the protocol they represent in terms of market cap vs volume. Uniswap’s UNI token, which was initially launched as an airdrop to recover funds from the SushiSwap vampire attack, has since then served almost no other function than ‘governance’, and even that use case is questionable, given Uniswap’s blacklisting of tokens without any governance vote (discussed later). The DPX team were aware of the pitfalls of this model, where a successful protocol’s token is essentially unneeded, and set out to avoid it by providing substantial utility to DPX beyond empty promises of decentralised governance at some point in the future. DPX’s governance is thus consequential: aside from standard staking and fee accrual mechanics, it enables voting on SSOV strike prices, on the legitimacy of delegate-supplied multipliers, and the weights of DPX rewards for each pool, Curve-style. It consequently possesses significantly more utility than any DEX token like UNI and SUSHI, and can be expected to outperform them ceteris paribus because of this. As we will see, with the future products that the team is planning to roll out, access to Dopex governance will prove as important in the future as access to Curve’s CVX is today.
rDPX
rDPX was initially designed to function as a rebate token for losses incurred during epochs, which would incentivise liquidity providers to move from centralised exchanges such as Deribit to Dopex, since potential losses would be mitigated when providing liquidity to the latter. To provide a use case for it and prevent against immediate sell pressure, the token would have been used to mint synthetic assets. However, it has since been substantially redesigned, in accordance with the team’s increased ambition. The redesigned tokenomics are rather complex, so will only be covered briefly here, since the analysis is already quite long. In short: rDPX will be used to mint synthetic assets. Holders will be encouraged to bond rDPX with a stable coin at a 1:3 ratio to receive $DPXUSD, a proposed stable coin native to Dopex, at a discount of roughly 5%. Bonding to receive dpxUSD burns rDPX, making the supply deflationary: DPXUSD can be deposited for yield in the DPXUSD/3pool crv pool. Due to the bonding, rDPX is backed at least 75% by stablecoins and will have its price floor defended by Atlantic puts (more on this below). The consequences of this are enormous: unfortunately, $rDPX is complicated enough that a summary cannot do it justice - it merits its own separate analysis, which was recently carried out by Degen Sensei and Average Joe.
Advantages
Retail-Friendly
The Dopex team understands their target audience and have made product and design decisions with this critical demographic in mind. As liquidity deepens and the project matures alongside the DeFi options sector more broadly, there will be room for catering to institutional investors through measures such as alternative UXs (as is the case on Binance), but for now the product is primarily focused towards retail users and other DeFi protocols.
Product
SSOVs were chosen for their retail-friendly nature. Depositing funds in an SSOV does not require any Black-Scholes derivations or knowledge of the options Greek, nor an extensive Deribit-style selection of strike prices while checking for liquidity. From start to finish, depositing funds takes five clicks. Essentially, the depositor is selling European-style covered calls and covered puts. This retail-friendly strategy was chosen because the depositor’s risk is essentially capped: he is guaranteed the premium regardless of the movement of the underlying asset, and the only way he can lose is if the covered call finishes in the money (which means that his asset has also appreciated, even though he has lost a portion of its upside through the covered call) or, in a similar fashion, if the covered put finishes in-the-money. By refusing to initially offer riskier option strategies, such as short straddles, Dopex essentially caps the potential losses of its users, thus catering to an audience whose understanding of the complexities of options is initially limited, but who nonetheless want exposure to them. As will be explained later, there is room for enabling more creative options strategies with future product releases such as Atlantic puts, but in the meantime retail users are essentially protected from their own over-enthusiasm. While there is a level of paternalism to this design choice, it is generally received wisdom that retail investors should be incredibly wary of engaging in complex options trades. The stated aim of the Dopex team is that investors educate themselves on the options Greek during initial epochs, and can then make informed directional bets once their enthusiasm has been supplemented by experience.
Dopex’s focus on retail extends to the many quasi-institutional entities that have emerged in the last few years in crypto. These groups, who range from DAOs with treasuries to other DeFi protocols who find spare collateral lying unused, desire access to options yields but lack the years of experience that allow professional traders to navigate Deribit and its peers. The intuitive user experience and clear APY that Dopex sets out allows those treasuries to return a sustainable and reliable yield on their capital without hiring expensive professionals to manage it for them, enabling budgeting precision and future growth. Dopex’s seed investors, such as Tetranode and DeFiGod, are deeply immersed in DeFi ecosystems such as Fuse, Rari and Redacted: given their influence, it is likely that treasuries of crypto-native organisations such as these may be found earning yield in Dopex SSOVs once the protocol matures.
SSOVs are an effective way of bootstrapping liquidity since they provide greater rewards than either liquidity provision on Deribit etc or LP’ing on Uniswap etc. SSOVs are much more intuitive for the retail user than providing liquidity to Uniswap, since the latter possesses many accompanying possibilities of impermanent loss. By depositing liquidity to sell covered calls, the concept of ‘impermanent loss’ is much more apparent to the investor (if the call ends in the money, there is a loss of a portion of the upside vis-a-vis just holding the asset without selling covered calls, which is the SSOV equivalent of IL: the deeper it ends in the money, the greater the impermanent loss). In contrast, Uniswap’s impermanent loss, due to assets in the pool appreciating at different rates, is frequently invisible to the retail investor until removal of LP tokens from the pool: while this mistake is not one that institutional investors will make, many retail investors have lost huge amounts of money to the opacity of IL.
As an aside, SSOVs are also not vulnerable to advanced MEV (Maximum Extractable Value) attacks, such as Just-In-Time liquidity attacks. Providing liquidity on Uniswap is largely motivated by receiving a percentage of the trading fees for a given pool. Uniswap v3 differs markedly from v2 by allowing liquidity providers to select specific ranges that they wanted to provide liquidity within, whereas before they had to provide liquidity across the entire curve, thus creating inefficiency by providing liquidity at extreme price points that would never require it. This allowed for a greater capture of transaction fees, since the liquidity provided would be concentrated around the price point where most of the volume occurred. Unfortunately, this change encouraged the creation of MEV bots to search the mempool for large pending transactions on Uniswap, pay large gas fees to provide a large amount of liquidity at the price point of the pending transaction, consequently reap a large proportion of the transaction fees for that trade, then immediately remove their liquidity from the pool and repeat the process elsewhere. While JIT attacks benefit the trader through deepening the liquidity of pools large trades are about to be made in, thus lowering slippage, they punish liquidity providers by stealing large proportions of the transaction fees of large trades that would otherwise have gone to the more consistent providers. MEV analytics tools are relatively immature, but with the release of products such as MEV-Explore v1, the day where Uniswap liquidity providers can coldly and rationally assess the expected value of providing liquidity in those pools using MEV analytics is rapidly approaching. It is already the case, per numerous empirical studies, that the majority of liquidity providers on Uniswap do not make a profit from doing so: if JIT attacks increase in frequency, DEX liquidity providers will migrate to sources where their yield is less vulnerable to dilution, such as SSOVs, deepening liquidity for Dopex option buyers.
Design
The value proposition for Dopex is the onboarding of retail users and DeFi institutions to SSOV-style weekly or monthly European options, in the same way that Robinhood onboarded retail to short-term options and Uniswap onboarded retail to AMM-style decentralised trading: an extremely clean, intuitive UX and an almost zero-fee model. Through this onboarding, a level of liquidity can be found that could in time rival centralised exchanges like Deribit, in the same way that Uniswap bootstrapped its own liquidity to the point that it processed more ETH/stablecoin volume than any centralised exchange in January 2022.
The Dopex UX is best-in-class for its target market. It is extremely clean and intuitive: any needless complexity has been dispensed with. In a word, it provides a frictionless experience, which was Robinhood’s great innovation. If users have to sign complicated forms or wait around before getting their money to work for even a few minutes extra, a large dropoff occurs compared to an experience where they can immediately engage: both Dopex and Robinhood avoid this pitfall. The type of vault, required lockup period and APY are placed front and centre, making the purpose of each vault immediately apparent. While Robinhood does possess features that Dopex currently lacks - interactive animations, P/L graphs, and so forth - it nevertheless remains the cleanest design of any DeFi options protocol in the space, and is infinitely more accessible than centralised peers. As will be mentioned later, it is nevertheless the case that a L2 app is less accessible than the App Store-located Robinhood by multiple orders of magnitude, but that is more a byproduct of crypto’s immaturity than any design flaw of Dopex.
Dopex UX
Deribit UX
Composability
As mentioned earlier, a key feature of DeFi is the composability it allows for: products can be packaged and interfaced together in a manner which is much harder for centralised entities to enact. The composable nature of decentralised protocols allows for extreme capital efficiency: collateral provided for a given trade does not lie inert in CEX limbo, but earns yield elsewhere through staking and liquidity provision. An investor stakes DAI on Compound, receives cDAI and stakes that on Uniswap alongside ETH in a liquidity pool to receive both transaction fees and UNI token emissions, which itself can be staked for further yields. In this way, the DAI’s yield goes much further than it does on a CEX. This efficiency can be effectively aggregated and automated, allowing for complex yield-maximising strategies to be carried out nearly autonomously, and billion-dollar protocols like yearn.finance have sprung up to address this need. In keeping with the retail-focused orientation of Dopex, protocols built on the DPX ecosystem have already began to emerge which offer additional services to the demographics Dopex markets itself for. The most notable of these, Jones DAO, is a protocol built for users who want their deposits automated: users select a risk level and asset type, and from there their funds are managed by the experienced Jones team, whose return comes from the classic 2/20 model. Jones uses a model similar to Opyn v1, where the depositor receives a jAsset that can be used to earn yield elsewhere. Since jAssets can be sold, which amounts to exercising the option mid-epoch, the option is changed from European to quasi-American, which enables depositors who desire mid-epoch liquidity to feel comfortable depositing and adds liquidity to mid-epoch secondary markets. With the recent launch of v3 SSOVs, the era of lengthy waiting periods before being able to remove your deposit are over. The creation of secondary markets for the ERC721 NFTs that represent given deposits means that there is always a way to trade your position intra-epoch depending on your personal needs. This level of composability is thus far unique to Dopex.
As argued here and revisited here, the Fat Protocol Thesis states that, against classical Internet protocols such as HTTP and ICP, which accrued minimal value compared to the applications built on them, on the blockchain the protocol layer (ETH and its competitors) accrues more value than the application layer (apps and protocols such as Aave). Without engaging with the argument, a brief empirical observation is that when Ribbon launched atop Opyn (discussed below), both of their TVLs scaled in a roughly linear fashion. If this trend holds, then the FPT is at least partially true: any growth in TVL of projects such as Jones DAO would accrue back to Dopex in a roughly 1:1 fashion. The same can be said to some extent of rDPX: any success it finds will reflect positively on $DPX to some extent.
L2 Native
Dopex is an Arbitrum-native protocol. Arbitrum is an L2 optimistic rollup with $2 billion TVL which provides faster transactions and, crucially, dramatically lower gas fees than the base layer ETH blockchain, while inheriting virtually all of the security that Ethereum guarantees. Until the emergence of L2 rollups, decentralised options were simply not possible: while CEXs can take option trades off-chain, thus minimising gas fees, any decentralised protocol would have incurred colossal gas fees and latency issues on the L1 layer, drastically lowering the profitability of any given options trade. Arbitrum-native options protocols have significant moats over their L1 competitors in terms of price and speed, separating Dopex from its L1 peers. As the 7th largest protocol on Arbitrum by TVL, the inevitable migration to L2s once gas returns to its typically excessive levels should increase Dopex’s user base.
Decentralisation
In July 2021 Uniswap unilaterally removed 129 tokens from their frontend, primarily synthetic products, without any governance vote or consultation. While the tokens could still be accessed through direct contact with the contracts, the move highlighted the pressures that the real-world could bring to bear on purportedly decentralised protocols. As a decentralised protocol, Dopex is not subject to that kind of pressure, and its team and seed investors have repeatedly stated that they do not favour those kinds of actions. Amidst a general rise in populism across the world, that spirit is not only in keeping with the Nakamoto-oriented ethos of DeFi, but particularly appeals to the populist tendencies of retail users (as evidenced in the despondent response of subreddits like /r/wallstreetbets in the wake of Robinhood’s role in the GME debacle). Decentralisation is always an abstract need until it very suddenly becomes a highly concrete necessity, which to some extent is the spectral understanding that motivates most of the developments in crypto. If the world grows more multipolar and gated, financial professionals will turn to decentralised protocols to fulfil their needs.
However, decentralisation also brings its own inherently financial rewards: globally accessible markets with no barriers to entry allow for a vastly greater customer base than centralised exchanges like Binance, which frequently require risky VPN workarounds. Announcements of Chinese regulatory bans in Q3 2021 led to a 100% spike in dYdX’s market cap, as Chinese investors converged upon decentralised protocols for their needs. With the United States levying sanctions on regional superpowers such as Russia and Iran, hundreds of millions of investors will likely be locked out of centralised exchanges under SWIFT-style regulations, leading to an exodus of users towards decentralised alternatives. For both of these reasons - an ethos of populism in Western retail investors, and an increased potential market size given regulatory issues in non-Western countries - Dopex’s fully decentralised product can potentially appeal to a much wider audience than its more gated counterparts.
On-chain decentralised crypto options have another advantage over their fintech counterparts like Robinhood and TD Ameritrade, as well as CEXs like Binance: the transparency of the blockchain. When Robinhood sends order flow to market makers, these market makers theoretically compete to provide the lowest price possible for the investor. In reality, these market makers are incentivised to re-route particularly profitable orders (profitable for the market maker in terms of bid-ask spreads, that is) to exchanges where they themselves are the most likely to execute it. That level of opacity is not possible on the blockchain, where arbitrary re-routing of transactions is immediately transparent and available to the public. Since users will happily migrate to protocols without exploitative market makers, decentralised protocols are heavily incentivised to prevent market makers from exploiting their customers. The opacity of traditional finance allows for rent-seeking behaviour like this to go unpunished. In Dopex’s case, market makers do not fulfil the orders, but they do provide multiplier quotes for pricing purposes: if the Dopex team becomes aware that options are being systematically mispriced due to market maker malfeasance in search of profit, due to on-chain evidence that other protocols are providing cheaper or more accurate quotes, the market maker will be penalised through a slashing of their staked DPX and their reputation in DeFi will plummet.
Future Products
Dopex continues to release DeFi-native products that set them apart not only from their centralised counterparts, but also their decentralised competitors. In particular, their products diverge somewhat sharply from Opyn, whose products are more oriented towards the very skilled retail investors (discussed later). Dopex’s founder, TzTokChad, has stated his ambition to “innovate and differentiate the product suite from vanilla TradFi options, and have them cater more to a DeFi native audience.” The variety of products that Dopex plans to offer is remarkably wide, but their team has thus far met every release date on time, so there is every reason to believe that all of the below will come to fruition in the short-medium term.
Atlantic Options
Dopex plans to introduce the so-called ‘Atlantic Option’ in the near future. Atlantics are a genuinely novel and unique DeFi primitive whose ramifications remain unexplored outside of the depths of degen Twitter. These options have fixed expirations like European options, but collateral can be moved out of the contract by the buyer. This key innovation allows for huge quantities of previously inert capital to be put to work. When a put is sold, the writer must provide collateral to prove he can purchase the underlying if the put is exercised in-the-money. Previously, that money would lie inert in a vault for the duration of the put, which is highly inefficient and against the spirit of DeFi. For a fee paid in the same denomination as the collateral (both usually stablecoins), Atlantic options allow the buyer of the put to access the collateral provided by the writer and find yield on it through staking, use the collateral for arbitrage purposes, etc. Critically, the writer suffers no counterparty risk: if the collateral is lost by the buyer, he will be fully compensated. The ability to withdraw collateral opens up worlds of possibilities for the buyer of the option, allowing him to set up complicated options strategies such as bear put spreads. There is no obvious traditional finance analogue because Atlantics would require huge amounts of legal supervision to mimic what a smart contract can seamlessly achieve, but perhaps Atlantic options are akin to reverse rehypothecation of a sort. With sufficient risk management (given the historic volatility of crypto), the level of capital efficiency Atlantics achieve will make them indispensable, and in time native DeFi strategies will likely be built around them.
Atlantic Put possibilities
Interest Rate Option Vaults
Another product that Dopex is releasing in the upcoming months is interest rate options vaults for the Curve Wars, where bribes are used to allocate extra Curve emissions to certain pools, via governance voting, which deepens their liquidity. Particularly important for stable coins, which require extremely deep pools of liquidity, the ability to buy calls and puts on the APR for a given Curve pool adds an extra level of depth to the Curve Wars. Given the importance of liquidity to many stablecoins such as FRAX, the market for interest rate calls and puts is obvious, since it allows for hedging on successful outcomes, lowering the volatility of losing a given bribe war. It also provides Curve War juggernauts such as Convex leverage on their control of the Gauge: control of emissions becomes more valuable if your monopoly power can be leveraged to produce payouts from Dopex vaults.
With the redesign of rDPX, the possibility of vote-escrowed DPX (veDPX) has arisen, which could be used for strike price governance for CRV interest rate vaults. If successful, this could potentially lead to protocol-led demand for DPX in a similar fashion to CRV and CVX. More speculatively, the team have fanned the flames of rumours that they will offer vote-escrowed vaults, such as a cvxFXS SSOV. The team’s seed investors, such as Tetranode, are heavily involved with other DeFi participants in the Curve Wars, which creates a natural synergy. All of this combined affords for the possibility of some of the $18 billion locked on CRV, as well as the many nine and ten figure protocols that have spun up around it, like Convex, finding its way into the Dopex ecosystem.
Interest Rate Vault Preview
However, this possibility is contingent upon Curve retaining its moat for stablecoin swaps. Uniswap’s decision to cut fees to one basis point for certain stablecoin pools has allowed it to significantly gain on Curve and its four basis point fee in terms of stablecoin volume (though the extent to which this has occurred has been hotly debated by Curve itself).. If Curve cannot hold its moat, the Curve wars become drastically less consequential, and interest rate vaults for them will consequently decline in importance as well. Trends often rise and fall in crypto, and the Curve Wars is a relatively new phenomenon that has not yet proven its longevity, so the success of interest rate vaults may depend on the Curve Wars sustaining themselves during current bearish sentiment.
Secondary Markets
As mentioned before, the money legos being built upon Dopex such as Jones DAO allow for American-style exercising of options mid-epoch. With enough TVL, this implies the existence of secondary markets for Dopex options. This speculative plan, which requires large amounts of liquidity, would most likely have to be initially bootstrapped by Dopex itself, and is thus speculative enough that if it occurs, it will be in the long-term, rather than something the investor can expect to see in the short term. Every Dopex deposit generates a unique ERC721 deposit token, which can be traded on secondary markets: entering and exiting positions becomes drastically more liquid as a result.
Institutions
While Dopex is a primarily retail-focused platform, its ambition has always been to usurp Deribit and onboard institutional traders. Uniswap has gone from strength to strength in this area, and the Dopex team’s ultimate ambition is to do the same. The advantages Deribit has over Dopex - incredibly deep liquidity and a professional-grade full stack experience for the seasoned trader - are not intractable moats, though they will remain so for the next year or two at minimum. Over time, the Dopex team hopes that if its liquidity can match centralised giants, its other advantages - non-traditional financial products, composability, etc - will allow it to annex a significant portion of Deribit’s market share. This is the most ambitious of Dopex’s goals, and will at very minimum require 3-5 years to accomplish.
Competitors
As with any rapidly growing DeFi sector, every month brings new entrants and competitors, with speculative claims as to the capacity of their product, which typically remains in alpha. In particular, Solana-based protocols such as Zeta and Katana claim that Solana’s idiosyncratic features, such as its lower latency compared to Ethereum, make their product superior to ETH-based DeFi options. However, examining that argument would require an in-depth comparison of Ethereum and Solana, which is outside the scope of this analysis. Even covering all potential competitors on various alternatives to Ethereum would be not only impossible, but also tedious: I have thus selected the most established competitors to Dopex, whether decentralised, centralised, or hybrid, for brief comparison. The most notable Ethereum-based omission is Premia, an American-style DeFi options protocol, who are doubtless a legitimate competitor in their own right.
Decentralised
Opyn
Opyn v2 is Dopex’s most serious decentralised competitor. With a TVL of $225m, they offer many of the same products alongside a well-designed reverse Dutch auction system that allows for partial collateralisation - something Dopex currently does not provide, though may in the future with Atlantic Options. However, Opyn has numerous downsides when compared to Dopex: since they remain a L1 protocol, their latency and gas fees cannot compete with the Arbitrum-based Dopex during times of congestion, which grow ever more frequent. Nor is their UX as intuitive: Opyn’s UX strikes a balance between the pleasing simplicity of Dopex and the staggering complexity of Deribit, but this design choice risks onboarding neither retail nor investors, who respectively prefer the former and the latter to the middle ground of Opyn. Virtually all of Opyn’s options are Ethereum-based; in contrast, Dopex’s SSOVs offer options on virtually all the major alt-L1s, as well as other offerings such as gOHM.
Opyn UI
Nevertheless, Opyn’s team continues to innovate, most recently releasing novel Squeeth and Sqrth products. The former is an ERC-20 long gamma power perpetual which performs better than 2x leveraged ETH in exchange for funding, while the latter allows for almost-perfect delta-neutral hedging for liquidity providers. They also have composable layers, with the well-known structured products protocol Ribbon Finance being built on Opyn. Opyn’s product launches match their UX - a middle ground between Dopex and Deribit. It is likely, given Opyn’s longevity thus far and substantial TVL advantage over Dopex, that the two protocols will remain the primary competitors in the decentralised options space.
Lyra
Lyra, native to the L2 Optimism layer, is perhaps the most similar of all competitors to Dopex itself. The protocol trades options in a similar fashion to Dopex, though the assets vary - Lyra allows for LINK/USD and SOL/USD options, while Dopex allows for AVAX, LUNA, etc. Lyra’s UX, while rather distinct from Dopex’s, is also pleasingly user-friendly. Lyra’s L2-native status also allows it to compete with Dopex on a level that is more difficult for protocols such as Opyn. While Lyra remains a formidable competitor to Dopex, I believe that the reason Dopex’s TVL is double that of Lyra’s is that the former’s tokenomics and planned releases outpace that of the latter. The introduction of Atlantics, a new DeFi primitive, is indicative of the level of ingenuity of the Dopex team: Lyra’s team have not indicated that they can sustain a similar level of creativity.
Hegic
Hegic is mentioned primarily because of its historical role in DeFi options. Despite a first mover advantage in the liquidity pool model of DeFi options, Hegic is no longer a serious competitor to either Opyn or Dopex. Sentiment in Hegic collapsed precipitously after two major smart contract bugs occurred during Q2 2020: a typo froze $30,000 of ETH in a smart contract permanently, while a bug allowed risk-free arbitrage. Unable to regain the trust of users, Hegic is down 95% from its ATH, has no traction in the market, only offers ATM options, and remains a L1-native protocol with all the latency and gas issues that accompany the base Ethereum layer.
Ribbon
Ribbon is only mentioned here because of the common misconception that it is a direct competitor of Dopex, due to its $200m+ TVL. Ribbon is a structured product protocol, while Dopex is not. Dopex’s SSOVs require the user to select a strike price, while Ribbon allows its users to set-and-forget in the true sense. Ribbon uses its deposits to underwrite options on another protocol (Opyn), but Dopex writes options on their own protocol. If Ribbon has a competitor in the Dopex ecosystem, it is the aforementioned JonesDAO, which approximates a structured product more closely than Dopex does.
Hybrid
dYdX
dYdX is a hybrid decentralised exchange built primarily on the L1 Ethereum layer, with a recent expansion to the L2 StarkEx ZKrollup, that allows for margin trading and perp trading. dYdX is currently a hybrid exchange, with most of its operations happening on-chain but some also occurring off chain on servers - specifically its order book and matching engine. The dYdX Foundation has promised that by the end of Q4 2022, dYdX will be a fully decentralised exchange. If this vision is realised, dYdX will be able to offer fully decentralised options, turning them into a real competitor. However, as we have seen with Ethereum’s continuous sharding and timeline delays, full decentralisation is more difficult to achieve than is typically suggested on a project’s timeline. In particular, dYdX have yet to show that they can successfully decentralise their order book, which is a critical feature of any exchange. dYdX’s design is proprietary, which has allowed it to remain non-custodial while offering CEX-tier fees and speed, but that design feature requires the ZK-specific language Cairo (rather than Solidity), which means that it is not EVM-compatible. Composability, a critical DeFi feature, is thus very difficult to achieve on dYdX vis-a-vis other options protocols such as Dopex and Opyn. dYdX are primarily known for their presence in the perp markets, so an expansion to the options market would require time and effort, while Dopex and Opyn continue to roll out new products and innovations. Due to the perp market’s relative maturity versus DeFi options, dYdX’s fully diluted market cap is currently 9x higher than DPX’s. For all these reasons, dYdX may be a profitable holding for other reasons, but for DeFi options in particular, it is outclassed by its currently-decentralised competitors in terms of risk vs return.
Centralised
Deribit
As explained previously, Dopex is not directly competing with Deribit in the short-medium term, as Deribit’s primary user base are institutions in the strict sense who employ professionals with decades of experience to trade for them. Those professionals appreciate Deribit’s extremely detailed UX, extensive customer service, and cross-margin capacity, which allows for extreme capital efficiency. The benefits of Dopex - anonymity, permissionless access, retail-friendly UX, etc - are not features that professionals seek in derivatives platforms. Dopex’s primary user base are retail users, and institutions in the looser sense - certainly not Goldman Sachs, but DAOs looking for a yield on their treasury assets. However, members of the Dopex team have described Deribit as the endboss of the DeFi options world for good reason: their monopoly control over the market is currently untouchable. Any headway that Dopex can make against Deribit will be dependent on matching the latter’s incredibly deep liquidity and leveraging DeFi-native advantages such as composability and censorship-proof access and trading.
Risks
Smart Contract Failure
To the extent that smart contract failure is a risk of any DeFi protocol, the Dopex team has thus far displayed extreme care in their product rollouts, and there is no reason to consider them more likely to succumb to sloppiness than others. However, as with virtually any DeFi protocol, the risk nevertheless lurks in the background: every year brings another high-profile DeFi exploit where millions of dollars are lost, most recently in the February 2022 $322 million exploit of Wormhole and the December 2021 $120.3 million exploit of BadgerDAO. In some protocols, these risks are mitigated because of prior formal verification such as audits and/or extreme simplicity of the smart contract: Uniswap contracts, for example, are generally considered as good as gold in the DeFi world. Unfortunately, this is not the case with Dopex: not only are option smart contracts relatively new and extremely complex, but translating math into Solidity and the EVM, let alone Black-Scholes and the Greeks, is highly complicated. The remarkable speed at which Dopex rolls out new products, from the recent covered put vaults to the future option pools and interest rate vaults, despite the extensive testing that these products undergo before they are released to the public, creates a higher risk of smart contract failure or exploitation in comparison to the more measured approach of established dApps such as Uniswap. That said, as long as the Dopex team continues to subject their new products to intensive scrutiny prior to full release, it seems likely that the integrity of their already-released smart contracts will be replicated in future offerings.
Accountability
The promise of decentralised protocols - the removal of middlemen and censorious capacity - is also perhaps their largest downside: a lack of accountability. Since decentralised protocols are not subject to regulations, potentially malicious behaviour is much harder to monitor and punish than in more traditional fields. While Deribit did move to Panama to escape particularly onerous EU-imposed KYC regulations, they nevertheless imposed lesser KYC requirements on their customers from that point forward. Moreover, the Deribit team is fully doxxed, so any behaviour that is less than fully transparent would incur huge quantities of negative attention. In contrast, the Dopex team is fully anonymous. While that anonymity functions as a badge of honour in the DeFi world, since it prevents the brandishing of identity or real-world credentials as a weapon and forces an individual to justify themselves on their own merits, it also allows for potentially malicious behaviour behind the veil. Until now, the Dopex team has not only behaved impeccably in terms of safeguarding user funds, but have consistently rolled out new products in line with their roadmap, so there is no obvious reason to suspect them of malice over any of the many fully anon teams running large DeFi projects. Moreover, as the ecosystem matures, the Dopex team can easily take steps towards increased transparency and accountability through measures such as audits, Gnosis multisig wallets, etc. While anonymity is always a risk in these affairs, as protocols like SushiSwap have discovered to devastating effect, it is also par for the stakes DeFi investors choose to play at.
Capital Inefficiency
As mentioned before, Deribit’s dominance in the crypto options world is partially due to their very well-built cross-margin system, which allows large traders to maximise the efficiency of their capital through partially collateralising multiple traders with the same collateral. With sufficient security measures such as backstops, partial liquidation, and insurance funds, the risk partial collateralisation entails is substantially mitigated, while the efficiency benefits remain. In contrast, options sold by Dopex through SSOVs are fully collateralised, and it is likely that this will remain the case. In the short term, no decentralised protocol will be able to reach the same level of risk mitigation of partial collateralisation that a centralised exchange can bring to bear, given the latter’s proximity to market makers, large financial institutions, and the intensive capital that those relationships provide. Since the entire liquidity pool of Dopex is the counterparty to all the written options, varying in type and strike price, hedging the entire risk is difficult enough that the pool may need to remain close to fully collateralised, which only allows for minimal option trading on margin - a critical feature for institutional investors, but one also favoured by retail. However, the Dopex team are fully aware of this shortcoming, and have already begun to address it through Atlantic Options, which allow for partial collateralisation of a sort. Further, developments elsewhere in the sector, most notably with the Solana-based Zeta, suggest that undercollateralised decentralised options are in fact possible, meaning that margin trading on crypto options is only exclusive to CEXs in the short term, and so that capital efficiency will not prove a durable moat.
Crypto UX Problems and Adoption
While Dopex’s UX is designed to be clean, intuitive and simple - the Robinhood formula for onboarding retail, as discussed before - the teething problems that exist in crypto UX as a whole make it difficult for retail users to access the dApp to begin with. In order to buy either DPX or rDPX, the user must purchase or already own ETH on the base L1 layer (typically using MetaMask), before then using a bridge to send it to Arbitrum, and then use SushiSwap to swap wETH for DPX/rDPX. Purchasing and taking into self-custody assets such as ETH requires depositing fiat on a CEX, which typically involves undergoing KYC measures, familiarity with hot wallets such as MetaMask, whose UX was historically built for developers rather than for users, and an understanding of bridging protocols such as Synapse, a relatively recent phenomenon in crypto. In contrast, Robinhood is an app that can be downloaded with the touch of a button. For the crypto native, there might not be much difference, but for the average investor, the learning curve for the former is infinitely steeper. Even amongst crypto natives, bridging assets is still a relative rarity: the entirety of Arbitrum’s TVL stands at a meagre $2.02 billion, out of a DeFi TVL total of $200.8 billion. To the extent that crypto’s unintuitive UX currently stands in the way of widespread adoption, and L2s like Arbitrum remain criminally under-utilised given the congestion of the L1 layer of Ethereum due to retail unfamiliarity with bridges etc, Dopex’s adoption will require an influx of product managers and designers to the crypto space at large, who can design the frontend of wallets, bridges and exchanges to be significantly more accessible/intuitive to the average investor than they currently are.
Conclusion
DeFi is perhaps the most exciting sector in all of crypto due to its incredibly disruptive capacities, and potential for creating genuinely new financial primitives such as Uniswap’s AMM design and Dopex’s Atlantic options. Despite this, the TVL of DeFi options remains a meagre $840m, reflecting an over-hesitancy on the part of institutional investors to acquaint themselves with the sector. The historical trends described in the beginning of the paper suggest that crypto options are undervalued relative to instruments like perpetual swaps, that options remain heavily underutilised by current retail crypto investors, and that there is a huge market of retail options enthusiasts who will be onboarded to crypto options protocols in the coming years as adoption grows. As venture capital continues to invest heavily in DeFi-related infrastructure, a protocol which can carve out its niche in the next frontier of DeFi will reward early investors handsomely. Dopex is a slick protocol with a team who consistently ships innovative, high-calibre projects on time, well-connected seed investors, a best-in-class UX, and a clear, achievable vision for the future. Moreover, despite the review’s otherwise valiant attempt to focus on facts rather than hype, the fact that Tetranode considers it his most bullish project should be a neon green flag. For all these reasons, I believe that on a risk-reward basis Dopex is the best-placed decentralised options protocol to claim its share of this burgeoning market.
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