Options for Beginners, a Premia Finance DeepDive

Introduction

Premia (website) is a DeFi-native options protocol. This protocol is taking a unique approach to AMM design and making DeFi options more accessible to retail users.

One of the critical innovations of Premia is its AMM design, which has been optimized for options trading. This allows users to trade options more efficiently and cost-effectively, leading to higher returns. Users can purchase options on Premia’s AMM, once the details have been entered, the user will receive a quote denoted in terms of the underlying asset for call options or the base asset for put options. If the user agrees with the price, they can execute the transaction to facilitate the trade and purchase the option for the quoted price. Premia is also user-friendly, making it accessible to a broader range of investors, including those without a deep understanding of options trading. Premia has itterated with its initial design a couple times.

Premia has released Premia v3 and that's what we will be covering in this article. We have previously covered Premia and how it works in another article, if you want to learn more you can read here. In this article we will be fully focusing on Premia V3 and how that works and the differences compared to the other iterations of Premia.

The Evolution of Premia

Premia V3 is the latest upgrade to the Premia Platform. Premia has always been designed with user-friendliness in mind. At its core, Premia v3 offers an enhanced options trading experience. Users can effortlessly buy or sell calls and puts, choosing their preferred strike price, expiration, and size. They're presented with multiple price quotes from various sources like liquidity pools, strategy vaults, and the RFQ network. Additionally, the platform allows users to set limit orders at prices they're comfortable with.

Drawing inspiration from Uniswap v3, the liquidity pools in Premia v3 stand out with their concentrated liquidity feature. This allows liquidity providers to select a specific price range for their liquidity. A unique aspect of this system is its ability to auto-adjust the liquidity range based on the movement of an option's price. This not only minimizes risks for providers but also boosts their potential trading fee yields.

Another notable introduction in Premia v3 is the automated strategy vaults. These vaults cater to liquidity providers who prefer a hands-off approach, promising more consistent yields. They can be tailored for various purposes, including Delta-hedging and lending margin capital. On the trading front, users can now leverage their positions by borrowing assets against collateral. This reduces the initial capital required to sell options, optimizing capital usage.

Any liquidity provider with enough resources can set up an option pool based on their parameters. While some of these pools might find a place on Premia's main app, all of them can be accessed directly through their smart contracts.

Looking back, Premia v1 was all about creating a public DeFi options market. Premia v2 realized this vision, offering a fully decentralized options exchange. However, it wasn't without its challenges, such as liquidity providers grappling with risks across different strikes and expiries and traders occasionally facing liquidity issues. Premia v3 aims to address these challenges, laying the groundwork for a resilient DeFi options platform for the future.

Tokenomics

Premia's tokenomics have been created with the protocol's long-term viability and growth in mind. At the heart of the Premia Ecosystem is the Premia token, which, when paired with the vxPremia system, plays a pivotal role. A new concept introduced is "Influence", a blend of locked Premia tokens (vxPremia) and a lock period termed "Boost". This Influence is central to the Premian economy, facilitating liquidity mining, protocol fee allocations, and governance participation.

Of the total PREMIA tokens, 30% is dedicated to the Cross-Chain Liquidity Mining Fund. The Development Fund receives 20%, while 10% is earmarked for various purposes including the Safety/Insurance Module, Initial Community Distribution, Founder Allocation, and Future Incentives Program. Additionally, both the Marketing and Education Fund and the Ecosystem Grants Fund are allocated 5% each.

Premia has also ventured venturing into omnichain capabilities. Premia introduced their Omnichain Hub Relay, which will guide the liquidity mining reservoir fund's chain weight to each respective chain. This initiative is just a glimpse into Premia's broader omnichain aspirations. The Premia Contributors Network is delving into omni-chain liquidity management, a strategy that allows the protocol's liquidity to reside on a singular chain. However, users can still engage with the pool's liquidity across different chains.

The voting token of the Premia Meta-Economy is vxPREMIA. It's a representation of a weighted balance of PREMIA tokens and incorporates a voting-escrow model. While the initial design, xPREMIA, enabled Premia deposits to partake in protocol fee distributions and avail reduced fees, the revamped design introduces the vxPremia Reward Manifold. This new approach offers a fresh take on the valve gauge weighting concept. With the Omnichain Gateway, users can seamlessly transfer vxPREMIA across chains using the LayerZero framework. Influence holders have the liberty to channel their votes to any pool on their vxPREMIA source chain, influencing liquidity mining incentives. Lastly, the Premia Universal Social Dividend ensures that about 50% of the accumulated fees each month are distributed to vxPREMIA holders, based on their Influence.

Premia Educating Others

Premia Finance recognizes the difficulty of options as a financial derivatives and is dedicated to ensuring its users are well-educated. Their blog consistently offers educational content.

One of their standout initiatives is a collaboration with an options "seller" called Marty, Premia also rolls out a monthly Market Data newsletter, offering users a deep dive into the current market trends and states. In essence, while the world of options can be daunting, Premia goes the extra mile, not just offering a trading platform but also ensuring its users are well-informed.

Final Thoughts

Premia Finance stands out not only as a DeFi options protocol but also as a school for the next generation of options traders. By blending options trading with educational content, Premia ensures that users are both informed and equipped to make the most of their platform. As the DeFi space continues to evolve, it's clear that Premia is setting a gold standard, not just in options trading, but in user engagement and education. Their forward-thinking approach, combined with a genuine desire to educate, positions them as a leader in the DeFi Options arena.