Zeta Architecture
The high level composition and interaction of the various mechanisms of Zeta.
A high level overview of Zeta's architecture.

Zeta Markets' Mechanisms

Zeta is the first DeFi options protocol that pairs (1) fast, under-collateralized options trading with (2) deep liquidity, driven by a hybrid orderbook and unique options AMM. The protocol will enable the trading of options on a liquid, non-custodial market β€” with all the latency benefits of a centralized exchange. Zeta achieves this through the following core innovations:
  1. 1.
    🏦 Fundamental Options Framework Zeta auto-generates strikes and expiries for each option, with a seamless settlement framework to recognise profit, manage positions, and analyse risks β€” all on-chain.
  2. 2.
    πŸ›οΈ Hybrid orderbook and Options Market Maker (OMM) An hybrid orderbook and Options Market Maker system facilitates deeper liquidity for all market participants. The OMM will show two-way quotes on every strike and expiry, and any participant is able to also post limit orders, both of which are aggregated onto a central orderbook. To liquidity takers, there will be no difference between trading against the OMM, and trading against another market participant.
  3. 3.
    βš–οΈ Better pricing and risk management Zeta's OMM uses the Black-Scholes Merton (BSM) pricing model to derive prices for options across all strikes. In order to quote market-driven prices and minimise any risk imbalances, Zeta uses a global volatility surface as its key input in pricing every option, which will adjust for the supply and demand of volatility. Zeta allows everyone to participate in the process of market making by depositing liquidity into the OMM pool.
  4. 4.
    πŸ›‘οΈ Leveraged Trading and Undercollateralization To facilitate undercollateralized trading and prevent platform overbankruptcy, we introduce a liquidation engine to automatically flatten risky positions when market conditions demand it. With Solana's real-time block updates, Zeta is able to effectively manage platform risk in real-time, allowing for leveraged trading.

Trade Process

1. Account Opening Place your stablecoin collateral into one of two accounts: a. User Vault - holds the collateral for an individual user trading options b. OMM Vault - holds the communal liquidity pool supplying Zeta's OMM
2. Trading Market participants can send options orders to the orderbook, and trading is just as it is on any CeFi exchange with sub-second latency, multiple order types, and real-time risk management.
Alternatively, the OMM can take care of all of this, and it will send out market-making orders on behalf of the OMM pool.
3. Liquidation Zeta marks positions in real-time, recognising unrealised PnL as the market moves. In the event that a participant falls under their maintenance margin, their at-risk position is liquidated at the current market price. This losing position can then be taken over by any other participants (including the OMM, which acts as a backstop).
4. Settlement At the time of expiry, Zeta collects all outstanding instances of a given option, as well as querying the price of the underlying asset from an oracle. It calculates the net profit and loss to each trader and credits or debits their account as appropriate.
5. Withdrawal Users can withdraw their funds however they wish at any time.