The demand for Polkadot-related (DOT) financial products is maturing as LedgerPrime and Hypersphere collaborate to write the first-ever option contract for DOT. The two funds will continue to collaborate to provide liquidity for the DOT market and create a vibrant Over-The-Counter (OTC) option ecosystem for Polkadot.
As a newer entrant to the crypto market, DOT financial instruments remain somewhat immature compared to more established cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH). While these assets have relatively liquid options markets on Deribit and the Chicago Mercantile Exchange (CME), most other crypto assets lack public options markets.
Making option markets is a highly complex financial operation, primarily due to the need to simultaneously quote prices in dozens of interconnected and highly volatile options series. By starting from OTC deals and gradually developing the expertise and overall options ecosystem, Hypersphere and LedgerPrime are paving the way for the eventual listing of liquid DOT options tradable on public exchanges. Relative to BTC and ETH, DOT has considerably higher volatility which makes trading options on this cryptocurrency much more compelling from both a speculative and hedging perspective.
Options are a powerful derivative tool that provide an asymmetric return to its buyers. By paying a relatively small premium, option holders can achieve exponential returns as the underlying price moves in the holder’s favor. Option writers take the other side of this trade, earning a significant yield from decaying premiums, though with a significant short exposure to volatility. For hedge funds and market makers with inventory, writing options is still a lucrative opportunity for flexible portfolio building and additional yield. In addition to specialized option trades, buying options can function as insurance for large spot holdings, significantly reducing downside risk without having to sell the assets.
“LedgerPrime is a big believer in helping emerging projects and markets bootstrap liquidity. When we were approached by Hypersphere to help grow the DOT derivatives market to further enable the scaling of the ecosystem, we immediately jumped at the opportunity.” — Shiliang Tang, LedgerPrime Chief Investment Officer
“We’ve enjoyed working with LedgerPrime to bootstrap demand for DOT-related products, including options. Since we wrote the DOT option, a small market has developed across multiple counterparties and hopefully, soon, on-screen exchanges.” — Jack Platts, Hypersphere Co-Founder
LedgerPrime is a multistrategy digital asset fund with a heavy focus on quantitative and systematic strategies across CeFi and DeFi markets. We leverage our technology stack and derivatives expertise to trade emerging markets and products, helping projects bootstrap liquidity and grow their user base.
Hypersphere is a $500M+ AUM investment firm leveraging on-chain treasuries, decentralized organizations, and governance to increase the utility of the blockchain networks in which we invest. We are not traditional venture capitalists. We dive deep into protocols and currencies, and participate heavily in community building and ecosystem growth. Hypersphere is an integral part of core development teams, and we aim to be a trusted partner to the projects building Web 3.0.