Note- article from same author on similiar topic https://app.flipsidecrypto.com/velocity/dashboard/total-value-locked-_bHP4H

Introduction

Introduction to opyn

Opyn is the first options platform in the DeFi space. It uses Convexity protocol. Opyn allows you you to trade the options contract after creating it from a decentralised liquidity pool.

In general, you pay a premium as a buyer and you can either execute them on expiry or before expiry. These tokens represent options, so, for example, if I'm buying a put or call option for ETH my underlying is ETH. Then it will create an oToken or the option version of this ETH with the strike price and the expiry that I'm looking for. After this I can either create them and hold on to them or I can buy them in the secondary market, which is one of the biggest differences between all the other protocols and Opyn.

You can buy these options (ETH or the oETH) either in Uniswap version 1 or the recently upgraded version 2 using 0x protocol. This is good because it allows for price discovery, which is one of the ways that options can be very powerful in the space. You have continuous price discovery as the option reaches maturity before it expires, and can see where value lies. Furthermore, you can trade this asset and make money out of it by trading these options contracts directly instead of holding the underlying. Reference

Sqeeth

What is Squeeth?

Squeeth (squared ETH) is a new financial derivative invented by the Research Team at Opyn (Zubin Koticha, Andrew Leone, Alexis Gauba, Aparna Krishnan), Dave White, and Dan Robinson. Squeeth is the first Power Perpetual and gives traders perpetual exposure to ETH². Mechanism-wise, Squeeth functions similar to a perpetual swap, tracking the index of ETH² rather than ETH. It provides global options-like exposure (pure convexity, pure gamma) without the need for either strikes or expiries, effectively consolidating much of the options market liquidity into a single ERC20 token. In short, Squeeth makes options perpetual and is a very effective hedge for Uniswap LPs, all ETH/USD options, and anything that has a curved payoff.

if you want to...

• Go Long oSQTH

  • Buy on squeeth.com (trade -> long -> open -> buy)
  • Buy on the Uniswap v3 oSQTH/ETH pool

• Go Short oSQTH

  • Short on squeeth.com (trade -> short -> open -> deposit and sell)

Compared to options, Squeeth has several key advantages:

• No strikes
• no expiries
• No liquidity fragmentation
• No need to “roll” positions, avoiding risks and costs such as gas and spreads paid to market makers
• Constant gamma (curvature of payoff)

Reference

Objective

How many long vs short option contracts have been bought on opyn? What’s their value? Has there been any liquidations?

Methodology

• Identifying long options - Swaps on Uniswap with token out being oSQTH
• Identifying short options - Identifying transactions that open a new vault ( new erc 721 token minted) and depositing funds.
• Identifying liquidations - Transactions with origin_function_signature ('0x20dc2088','0xd296d1f1'). These corresponds to liquidation call.

Analysis

I start with calculating the number of short positions and long position taken.

A majority of the positions taken are short. while 209 short positions were taken, only 6 long positions were taken.

I will now visualize the amount of USD invested in positions

According to the graph, there is a clear reduction in the amount placed in long and short options since jan 2022. The amount invested in shorts is considerably higher than that invested in longs.

We now check which contract had been liquidated. We identify such transactions by looking at the origin_function_signatures. If origin_function_signature is in ('0x20dc2088','0xd296d1f1'), then the call for liquidation has been made.

There are three liquidations that have occurred. One in May 24, it may have been because of the terra crash and another on June 24, this might have been because of the feds change in policy.

Conclusion

1. Short positions have been taken more than long position
2. The amount invested in short positions has considerable reduced over time.
3. There are 3 contracts that have been used for liquidation. 2 of them appear to have been because of the bear market.