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Clear Overview

Welcome to the heart of Valorem’s innovation – Valorem Clear. This powerful clearing system empowers enthusiasts to navigate the world of covered calls, cash-secured puts, and various option types, be it American, European, or Exotic.

Dive Into the Blueprint

Version 1 of Valorem Clear is much more than just an engine — it’s a symphony of clearing and settling. Users can effortlessly write options, bring them to fruition, and assert claims on their assets. The elegance lies in the engine’s capability to fairly match exercises with written claims. Designed for optimal gas efficiency, this minimalistic powerhouse offers a foundation for building advanced derivatives structures.

Here’s the gist: Valorem Clear utilises the ERC-1155 multi-token capabilities. You can create options for any compliant ERC-20 duo, with a few exceptions*. Once written, these options manifest as semi-fungible option tokens — tradeable, transferrable, and tangible.

For those who write options, their stake in the underlying assets is depicted through a unique Claim token, representing the short positon. This token can be redeemed, reflecting the asset’s current status, be it exercised or not.

To provide a snapshot:

  • Underlying Asset & Amount: The ERC-20 asset you’ll receive when you exercise.
  • Exercise Asset & Amount: The requisite ERC-20 asset and amount for option exercise.
  • Exercise & Expiry Timestamp: The windows defining when the option can be exercised.

With these parameters, you can configure any type of option to suit your needs.

The elegance of Valorem Clear? It’s neutral. Whether it’s a call or a put, where you purchase it, its profitability upon exercise — Valorem doesn’t judge. With every option written, the settlement is swift and gas-friendly.

Venture Into Creating Options On-Chain

Valorem is pioneering a new era of flexible permissionless derivatives. Every Valorem option is crafted through a set of 6 parameters, providing the unparalleled flexibility to create options for any pair of ERC-20 assets. This can be a somewhat unfamiliar way of thinking about options, but we have designed it to be lightweight and intuitive for any options trader to transition into the world of on-chain options.

Here we will walk through how to create a vanilla call and put, directly with Valorem Clear.

You can create new option types with Clear using the newOptionType function, specifying the option parameters, and then write using the write funtion. See the Clear smart contract ABI for more detail.

Call Option

A call option gives the holder the right to buy an asset at a specified price (strike price) within the exercise window. The option writer (or whoever holds the short side token) is obligated to sell the asset at the strike price if the option is exercised. For Valorem options, the short side token is the Claim token minted upon writing options. This gives the holder claim to the corresponding assets, which may be redeemed after the option expires.

This is how one would write an American ETH call option, with a strike price of $4000, and expiry 2 days from now.

  • underlyingAsset: The contract address of WETH
  • underlyingAmount: 1 ETH in wei ($1 \times 10^{18}$)
  • exerciseAsset: The contract address of USDC
  • exerciseAmount: 4000 USDC in wei ($4000 \times 10^{6}$)
  • exerciseTimestamp: The timestamp of now
  • expiryTimestamp: The timestamp of 2 days from now

The option writer can then write their desired number of option contracts, specifying the option token id unique to these parameters.

Put Option

For a put option, the holder has the right to sell an asset at a specified price (strike price). Valorem allows put options to be created by swapping the underlying and exercise assets. This draws upon the concept of put-call parity.

This is how one would write an American ETH put option, with a strike price of $4000, and expiry 2 days from now.

  • underlyingAsset: The contract address of USDC
  • underlyingAmount: 4000 USDC in wei ($4000 \times 10^{6}$)
  • exerciseAsset: The contract address of WETH
  • exerciseAmount: 1 ETH in wei ($1 \times 10^{18}$)
  • exerciseTimestamp: The timestamp of now
  • expiryTimestamp: The timestamp of 2 days from now

Trust Landscape

The Protagonists:

  1. Protocol Admin: This entity oversees the operational side of the protocol. The Protocol Admin is the beneficiary of protocol fees. Their powers include:
    • Modifying the Protocol Admin address.
    • Tweaking the contract address of the TokenURIGenerator.
    • Switching the protocol fees on or off.
    • Collecting the accrued fees.
  2. Option Writers: The creators of new options. Their capabilities are:
    • Crafting new option types for valid ERC-20 asset pairs.
    • Writing new options and staking the required amount of the underlying asset.
    • Redeeming their Claim NFT after the option’s expiration to retrieve their proportionate share of the underlying and exercise assets.
  3. Option Holders: The stewards of the options once they are written. Their roles include:
    • Transferring the Option tokens to other addresses based on ERC-1155 norms.
    • Exercising the options they hold, ensuring they possess sufficient exercise assets and have provided the necessary approvals.

Asset Dynamics:

  • Option Creation: As an option springs into existence, Valorem Clear pulls in the designated amount of the underlying asset.

  • Option Exercise: When an option is exercised, Clear ushers in the necessary exercise asset and sends out the underlying one.

  • Claim Redemption: Post the expiration of an option, Clear disburses the claimant’s proportionate share of both the exercise asset and any remaining unexercised underlying asset.

Actions:

  • General (ERC-1155 Interactions):
    • Anyone can peek into token balances, ownership details, transfer approvals, supported interfaces (like ERC-165 and ERC-1155), and render the URI for any token.
  • Valorem’s Options Clearinghouse Dynamics:
    • Any participant can:
      • Dig deep into details of any Option fungible token ID or Claim non-fungible token ID.
      • Check the positions of underlying and exercise assets of any token.
      • Identify if a token ID represents an Option or a Claim.
      • Explore contract details of the TokenURIGenerator, verify fee balances of ERC-20 assets, and glean other protocol-specific details.
      • Craft a new Option Type or script a new Claim for an existing Option Type.
    • Claim NFT holders (Option Writers) can:
      • Write new options aligned to their Claim NFT before its expiry.
      • Post the expiry, redeem their Claim NFT to fetch their share of assets.
    • Option token holders (Option Holders) can:
      • Transfer Option tokens and exercise them within the stipulated window.
    • The Protocol Admin can:
      • Toggle protocol fees, appoint a new Protocol Admin, modify the contract address of the TokenURIGenerator, and gather the accrued fees.

Safety First

While Valorem Clear v1.0.0 has been diligently audited, it is essential to note a limitation in its current capabilities. The odds of an option bucket being chosen for an exercise isn’t strictly proportional to its size. This means smaller buckets might have a marginally higher chance of selection. Our tech wizards are hard at work, devising a remedy. Until then, for the curious minds, the nitty-gritty can be found at LibDDRV.

  • Deep Dives: Audit Chronicles
  • Connect with our Security Guardians: info@valorem.xyz

* Valorem Clear currently does not support fee-on-transfer or rebasing ERC-20 tokens. Any token that can change quantity over time must be wrapped in order to be compatible.