At the beginning of Antimatter, we tried to build models for perpetual options from various perspectives. We made major changes in modeling and product design along the way — and we want to share the behind-the-scenes stories about these changes. To make it simpler to understand, we will use the Philosophy of Forces to explain evolution.
The very first version of Antimatter requires two layers of forces. Firstly you have call and put, which basically means bullish and bearish. Call and put are against each other, and the market exists to bring two forces to a natural point.
Then, within each call and put force, there is demand and supply. Demand and supply are simple “economics 101” knowledge, it is the foundation for price equilibrium. In this case, the price of call is formed by long and short.
Here we have the second layer of forces, which is long and short. In each call and put realm, you have long call and short call, long put and short put. You can regard long side as demand side and short side as supply side. In finance, short and long play different philosophical roles: for group of people from long side, they simply demand this as a service, which means they join long call or long put to either expose more to price changes or hedge.
When they hold long call or long short, they have the right to execute and enjoy the “service”. In contrast, the group of people from short side are not taking it as a service, they are service providers or market makers. These people are here to provide services to the other group in return for fees. So the short side has the responsibility for market provision. Fees come into place because the long side does not have equal role or rights in contrast with short side. So “long” people need to pay funding fees to “short” people.
It seems that it follows law of Economics. But in the DeFi space, we have an imperfect market and long and short simply won’t work as expected. Firstly, long side always need to pay fees to the short side for such service. It sounds fine because we all subscribe to something in daily life. However, this is crypto and this is leveraged crypto. People are already exposed to risks — do you still want to pay fees for a risky service? Also, fees on-chain have settlement costs –who will be responsible for the transaction fees on top of service fees?
Secondly, for the “short” group of people, they need to be responsible for service provision. Although they can accumulate fees that seem to be passive income, they need to get other instruments to hedge themselves, as they expose themselves to risks when they provide the market. Short call means you are bearish and it is simply against the market trend if we are in a super bull market. So it ends up being that no one will be on the service provision side. Models such as Everlasting did not take into account these factors and the requirement for provision of short side is concerning.
We realized these issues when we design our model at the beginning and there arises a question: is it possible to compress the two layers to forces into one and is it possible to make two groups have equal responsibility and equal rights instead of one supply to the other. So we evolve our model to the current version. In the Antimatter new model, we eliminate the long and short logic and explore call and put. Essentially, call and put have equal rights and they are competing with each other at fair ground.
Now, the situation is more or less like that in gambling. Two groups of people are acting on each other with the aim of getting self-interest. There are no service providers or service enjoyers. There are two advantages of this compression: first, we no longer need funding fees because the two groups of people have equal rights and responsibilities. Second, we do not need to worry about the lack of short side to supply to the market. The market exists as long as there are people who want to call or put.
To summarize, The traditional option is a bet between the buyer (long) and the seller (short).
The seller (short) needs to collateralize assets, issue options, and the buyer (long) needs to pay the seller (short) premium in exchange for options, that is the right to exercise. So the buyer has the power, the seller has the responsibility, the responsibilities and powers are not equal. So there arises the question of funding fees.
AntiMatter changed the bet towards the equality of the call and the short. The responsibilities and powers of the two are equal, and they have equal responsibility and power, so there is no funding fee. For Power Perpetual, the issue is who will be the seller (short). Power Perpetual contracts are maintained through regular (such as daily) payment of funds.