On Monday, the DeFi derivatives platform Opyn offered a way to bet on a sideways market, and investors took the wager.
Opyn’s new “crab strategy” is designed to profit in a market where ETH price doesn’t move much one way or the other (a so-called sideways market). Opyn sold its maximum capacity at launch of 420.69 ETH in about 90 minutes, according to the Opyn team.
The team increased the cap Tuesday to 696.9 ETH (approximately $1.7M). The cap is likely to keep going up with market demand, Opyn staff said. If buyers continue to go in on the crab strategy, that’s a sign that there’s a belief out there that the market is going to stay roughly where it is. Currently, the crab strategy pays out if ETH doesn’t move more than 9.14% (either way) in a day.
The crab strategy is the first one built atop Opyn’s new product, SQUEETH, or squared-eth. It’s a perpetual instrument that is designed to follow a convex path relative to the spot market price of ETH. If ETH goes up, it goes up at an exponential rate relative to ETH’s increase. If it does down, it doesn’t go down as badly as a linear 2X perpetual. It’s able to do that because holders of Squeeth pay a funding premium, meaning that even if the market goes in your favor, the instrument is continuously sapping away some of your gains over time.
“Long squeeth is a levered position with unlimited ETH squared upside, protected downside and no liquidations,” Wade Prospere, from the marketing team at Opyn, told The Defiant.
Meanwhile, taking out a position in the crab strategy does require collateral, and it is in danger of liquidation if the collateralization rate falls below 150%.
The cap on the crab strategy was simply put in place to make sure the contract was working as expected. While the team does not have a target amount to get into the crab strategy, it is somewhat limited by activity in the larger market for Squeeth. Without Squeeth longs and shorts, the crab strategy itself doesn’t work.
This should be the first of many strategies to come out based on Squeeth. As the ecosystem around it becomes more complex, Prospere said, Squeeth should become something of a volatility oracle for ETH traders.