Potion Insurance

Potion is a general purpose put option AMM with perfect pricing and priceless oracling.

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Potion is a decentralized protocol for the creation of put option contracts based on Black-Scholes pricing. The protocol allows users to buy put option contracts with an AMM-like experience, and it allows LPs to distribute their risk across many different contracts and assets. Key features POTION ALLOWS YOU TO ๐Ÿ“Œ Choose any asset for the option contract (ETH, BTC, MKR, Tesla, Gold, etc) ๐Ÿ“Œ Choose any strike price for the option contract ๐Ÿ“Œ Choose any expiration term for the option contract ๐Ÿ“Œ Exercise at any moment during the holding period of a contract ๐Ÿ“Œ Have guaranteed exercise via collateral in escrow on-chain POTION INNOVATIONS ๐Ÿ“Œ Perfect pricing based on Black Scholes logic and UMA priceless oracle. ๐Ÿ“Œ Single liquidity pool for all assets, strikes and expiries = better capital efficiency for LPs KEY DIFFERENCES VS EXISTING DeFi OPTION PLATFORMS ๐Ÿ“Œ Only platform to allow minting options on assets other than ETH ๐Ÿ“Œ Only platform to allow minting DeFi options on Fiat assets ๐Ÿ“Œ Only platform to have Black Scholes neutral pricing ๐Ÿ“Œ Only platform to have a single pool across asset types, strikes and expirations Read more at: https://docs.potion.finance/

How It's Made

POTION'S BLACK-SCHOLES PRICING SYSTEM Pricing the premium of an insurance product is tricky. Price it too high, and the buyer is over-paying for the insurance; price it too low, and the seller ends up losing all their collateral very quickly. Potion uses an innovative approach to pricing, that finds fairest premium pricing possible for both buyer and seller. Potion's system removes the need to "guess" what volatility will be when pricing an option - instead, it only fully settles the price at liquidation, on the basis of actual observed volatility (also referred to as realized volatility). This is a key innovation, not available in classical fiat system. POTION's ORACLING ๐Ÿ“ŒPotion uses UMA's priceless contract technology, and has access to its distrubuted human oracling solution (DVM). ๐Ÿ“ŒUMA uses clever game theory to minimize the number of times participants call the Oracle, saving both on-chain fees and time. This is how it works: ๐Ÿ“ŒUsers are able to either take automatic pricing, or to submit their own manually if they believe automatic pricing isn't working. ๐Ÿ“ŒUndisputed pricing: When users' submitted pricing matches pricing observed by contract seller, no Oracle will be required. ๐Ÿ“ŒDisputed pricing: If the sponsor disagrees with pricing used by users when buying potion puts, or exercising them, theyโ€™re able to dispute the operation and invoke UMAโ€™s DVM oracle. The DVM Oracle will to ask $UMA holders to vote on a neutral price, and the dispute will be settled. Both parties benefit from this approach: Users are incentivized to use correct pricing, or else they risk facing penalties, and losing money. In case of disagreement, a neutral third party distributed human oracle will produce a price and settle the dispute. In most cases, the right price will be used, saving on-chain transaction costs, oracle calls and delays. TECH ๐Ÿ“ŒPotion put contracts are built using UMA technology. We took UMA's standard synth factory, and modified it to deploy put-contract minters, as opposed to UMA's standard overcollateralized synthetic minters. ๐Ÿ“ŒWe customized the UMA contracts substantially to allow disputing not only during liquidation, but also during minting, to accommodate our financial Black-Scholes logic. ๐Ÿ“ŒFor the front end, we used: Vue.js, Node.js, Ethers.js ๐Ÿ“ŒWe did significant econometric analysis on Black-Scholes and historical volatility, to determine how to size-up the necessary premium_deposit. Read more about it at https://docs.potion.finance/


Jordi Munoz Guillem Mosquera Christian Cerullo Kirsten Imler
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