Crypto Options Trading on Solana Has Mostly Fizzled. A New DEX Has a Plan to Change That

SALT LAKE CITY — Even for traditional finance pros, talk of “portfolio margining” is the kind of thing that’ll make most eyes glaze over.

And yet it’s vital plumbing that helps make conventional markets work. A decentralized finance (DeFi) project building here at the MtnDAO hacker house in Salt Lake City is bringing the concept to cryptocurrency options, hoping that’ll make trading the derivatives on the Solana blockchain more appealing.

Options trading on OptiFi went live Monday, allowing investors to speculate on the future prices of BTC and ETH (SOL is on the way). It’s the first decentralized options exchange on Solana that’s powered by an automated market maker (AMM), something its backers say is only possible because of portfolio margining.

The appeal is that it can make trading less capital intensive. In derivatives, it’s typical to make traders post collateral to back transactions, given the greater risk. With portfolio margining, holdings throughout their portfolio are taken into consideration when calculating how much margin they have to post, often significantly cutting collateral requirements. Money that would’ve otherwise been locked up as collateral can instead be deployed elsewhere.

A handful of decentralized finance (DeFi) protocols built on Solana already offer on-chain options trading, including PsyOptions and Zeta Markets. But there’s not enough liquidity to keep options markets moving smoothly in Solana DeFi, according to some experts.

OptiFi’s pseudonymous founder Pentameal told CoinDesk during an interview in Salt Lake City that the sorry state of on-chain options liquidity prompted him to rethink how to structure his market.

Portfolio margin makes OptiFi more “capital efficient” and thus appealing to market makers, he said. Plus, it increases liquidity on the exchange’s order book and keeps spreads – the gap between prices to buy and sell, and the main way AMMs make money – tight.

“More traders are willing to trade on OptiFi” as a result, Pentameal said.

Only 14 accounts had executed trades by press time Monday, trading a notional amount of around $120,000. Eight accounts had lent their crypto to the protocol’s AMM pools, where they can earn yields.

Still, Pentameal said OptiFi is targeting $20 million in total value locked (TVL) by the fourth quarter, at which point he thinks traders will be moving $1 million to $2 million a day on OptiFi. TVL is a popular metric for activity on DeFi protocols.

For now, Pentameal said OptiFi only takes the USDC stablecoin as collateral. Future updates will see the rollout of a market maker incentive program, too.

“We're increasing AMM liquidity by talking to investors and high net worth individuals,” he said.