FloorDAO <> Putty Finance

[0xtamagoyaki]

Hey all, tamagoyaki from Putty Finance here!

Putty is an options platform specializing in put options for NFTs launching to mainnet on April 30th. NFT holders can purchase put options (insurance) for their NFTs, and sellers can earn yield in the form of premiums by filling put option orders with ETH. If the buyer exercises their option, the underlying NFT is sent to the seller and the ETH that the seller filled the order with is sent to the buyer. Multiple NFTs can be wrapped into a single contract.

FloorDAO is very bullish on Forgotten Runes Wizards Cult and has a large Wizards position. Therefore, FloorDAO can earn significant yield by providing sell side liquidity to open FRWC orders. If the put options are exercised, you get the NFT and can LP it like you have done in the past. If not, you collect a sizable premium.

The goal is to execute a trial run where FloorDAO provides sell side liquidity for a monthly put option containing Wizards NFTs. If successful, we could set this up to be a recurring transaction with larger size if requested.

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Goal: FloorDAO provides ETH as sell side liquidity for a put option to collect a premium

Trial Collection: Forgotten Runes Wizards Cult

Plan:

A strategic partner of Putty has a large Wizards holding → they have commited to providing buy side liquidity for Wizards

FloorDAO has ETH they can fill the order with → would provide sell side liquidity

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Trial Run Requirements:

Assuming 1 ETH == $3000, 1 FRWC == 2.5 ETH

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FloorDAO commits to selling a 1 month option at one of the aforementioned strikes. For 5 FRWC, the monthly yield can be up to 11.54% depending on the agreed strike price. FloorDAO can use this in future contracts, expand their liquidity, or choose to continue with the starting amount.

twitter: https://twitter.com/puttyfi
discord: putty.finance

[aeto]

I like the idea from the perspective of being a “liquidity as a service” provider — outside of market-making spot (ie. LP on sushi), we’ve also started providing lending and borrowing on rari fuse. If options are becoming popular, which I personally think they will, then this is another natural channel of yield for us. As an example, Olympus will start using Ribbon Finance for automatically selling weekly OTM calls

Being an LP is the equivalent of being short volatility — so selling puts and selling calls is an equivalent way to capture similar but “implied volatility” yield.

The primary downside I see here is that the yield we get from selling options is most likely less than the yield we get from LP’ing and staking in the NFTX vault, due to the additional vault fees from minting/redeeming/swapping.

[jorpounder.eth]

summarizing thoughts from the general channel in discord:

• makes more sense IMO to sell calls vs. puts, because the worst case for the DAO’s treasury is for a collection to head to 0
• we can do this by selling the puts (as proposed) AND selling spot
• how short to be? lets formulate in terms of % of our current holdings (factoring in IL from the LP position to), but i’d say 25% downside exposure would be nice once this strategy is scaled up

My only question: how is the premium being priced? For the dao’s sake, lets plug it into a black-scholes model or some reasonable equivalent, we should be able to measure the monthly vol of the collection given currently available data

[0xtamagoyaki]

the chart in the original post has the premium’s priced using BS with the rest of the parameters listed on the table (sp, stp, tte, vol, rfir).

[jorpounder.eth]

just sanity checked the vol calcs, looks to be reasonable range, i didn’t plug into model but agree with the order of magnitude figure in the forum proposal by OP.

If this scales up i recommend somebody working in operations for floodao sanity checks premiums on their end going forward as the market vol changes

[ZeusZman20]

Same thoughts - would like to be sure this is EV+ for the DAO before committing, but do think options platforms for NFTs are a huge market demand atm. From what I’ve seen of the Putty docs/contracts, I think a longer term partnership would be a great idea