The Opium protocol is a robust and universal platform that allows users to create, settle, and trade decentralized derivatives on Ethereum. A token represents every option on Opium, and it can be traded, sent, or stored in cold wallets. The system provides robust and universal financial primitives on-chain. It also allows for more advanced features like order books, combined orders, and market-making features to happen off-chain by leveraging meta-transactions.
The Opium protocol currently supports two products; swap.rate and opium.exchange. In simple terms, swap.rate enables users to create derivatives. On the other hand, the Opium.exchange is an open trading exchange specifically designed for decentralized derivatives.
Arjan Van Der Kooij and Andrey Belyakov founded the Opium protocol. Before creating this, Arjan has been a serial entrepreneur and private investor with 20 years of experience in business management. On the other hand, Andrey has been a professional derivative trader with ten years of experience to his belt. He is also a member of the CFA Institute.
Currently, the financial derivative market is the largest in the market but has always been under the control of banks. Other centralized financial institutions also own a large chunk of the derivative market. These entities provide the clearing, settlement, and trading of derivatives. The goal of the Opium Protocol is to move these traditional functions of centralized entities to the blockchain. By moving these traditional functions to a trustless, distributed, and immutable system, Opium will lower the cost and increase security. It will also make it possible to accommodate unbanked individuals in the world’s financial system. As an Opium user, you can be an investor, a hedger, speculator, margin trader, or arbitrageurs.
In an interview with CoinDesk, Andrey Belyakov said that they created the protocol to solve three specific problems experienced in the traditional derivative market. These problems include:
There must be a very good reason(s) to make us abandon the traditional players in the derivatives market. What are the things that set the Opium ecosystem apart from the centralized financial entities in the market? The Opium system is built to be compatible with both the DeFi market and the professional market. Most of the derivative protocols we have on the DeFi space today bring theoretical risks with them. They do this by using on-chain liquidity pools or the use of automated market makers (AMMs). Opium provides a robust and simple on-chain infrastructure that users can leverage off-chain.
The implication of having an alternative to on-chain infrastructure is the presence of more complex features. Some of these features include advanced derivatives, market-making strategies, order books, arbitrage combined orders, etc. All the features mentioned above are implemented at the layer 2 level. As a user, you can create decentralized derivatives benefiting from a risk profile that is more similar to the traditional financial products. However, these products may appeal more to a broader range of users than the on-chain derivatives.
The Opium protocol is live on the Ethereum mainnet, and SamrtDec audits it. Thus, it gives users the peace of mind necessary to try out new things with DeFi. There are currently at least three working products that are built on the Opium Exchange. These products have been assisting about four independent establishments in bringing their derivatives to the market by leveraging the Opium Protocol.
The Opium.Exchange product is a non-custodial platform built for decentralized derivatives. You can trade, hedge, or invest without the need for intermediaries. It also allows you to benefit from high-speed orders on meta-transactions. You will also enjoy secure settlement on-chain.
Every position created using the Opium Protocol is represented by ERC-721o tokens. These tokens are specifically designed to help you trade financial instruments. The Opium team created the tokens by combining the ERC-20 and ERC-721 standards with more functionality. Users can combine these tokens into portfolios, and they are backward compatible with the ERC-721stanbdard. The implication is that these tokens can be used in existing ecosystems. The ERC-721o standard has primary portfolio functions which include the following:
A portfolio is composed of the entire portfolio that can be managed or traded as a single ERC-721o token, hence saving gas fees. The portfolio decomposes when the tokens used to compose the portfolio are minted again and stored on your balance. You can recompose a portfolio by removing or adding to/from an already existing portfolio. However, you must ensure that you do that in a gas-efficient way.
This is a platform designed to help users hedge against or take advantage of the interest rate fluctuations in the DeFi lending and borrowing space. It also allows users to create contracts for interest rate swaps. One stream of future interest payments is swapped for another based on the stipulated principal amount.
The Opium Protocol is undoubtedly revolutionizing the derivatives market. Without millions of dollars, you cannot make derivatives, but Opium is changing all that. Now, everyone can run his own derivates in the most efficient way possible. You can follow the Opium project on social to stay up to date with the happenings in the derivatives market.
You can also read about Compound Defi Protocol.