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The Zeta DEX
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Build with Zeta
Introduction to Derivatives
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Liquid Options Markets
DeFi liquidity for options remains relatively poor due to either poor AMMs that are inefficient at pricing or orderbooks that are impractical due to transaction fees.
Overview
Liquidity is essential for the efficient operation of any market, as it ensures accurate pricing of the traded asset and depth in matching buys with sells. In order to provide the most efficient trading infrastructure Zeta will use a hybrid approach, leveraging the orderbook for deep liquidity and the OMM to underpin market participation. We seamlessly integrate the two into a platform where users can trade against one another, but can also fall back to orders placed by the OMM when an active counterparty to trade with isn't available.
Orderbook
The orderbook is a tried and trusted method for price discovery and has been successfully used across traditional finance. However, its success within DeFi has been relatively poor due to the complexities in building a performant on-chain matching engine, as well as the prohibitive transaction fees associated with them.
Thanks to Project Serum, an on-chain orderbook-based decentralised exchange (DEX) has now been launched and proven. Zeta will be leveraging Serum's orderbook infrastructure to provide the most efficient price discovery and trading infrastructure for all our options markets. This will allow all market participants to provide liquidity, and in doing so derive the best price for all participants.
Options Market Maker
A dynamic Options Market Maker (OMM) will also be used to establish markets for all options and strikes, bootstrapping liquidity across even the deepest of strikes and most illiquid of underlyings. This will guarantee liquidity, ensuring that trades will always have prices to execute against. The mechanics of this OMM will be explained in the 📈 Enhanced Options Pricing section.
The OMM can be thought of as a communal market maker which can provide liquidity in situations where the orderbook tends to be thin. Its liquidity is provided by a liquidity pool, into which any users can deposit funds and earn a passive yield from the strategy as well as trading fees on Zeta. The OMM will place orders directly onto the orderbook based on our options pricing model (not unlike Raydium).
The OMM will be dynamically rebalanced to remain as delta and vega neutral as possible, allowing it to provide liquidity without being highly susceptible to overall market movement.
Last modified 11mo ago
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