We are building the first On-Chain NFT options trading platform. Which means users can speculate on bluechip NFTs at much cheaper price in comparison to the floor of the NFT. Imagine paying 100 eth to speculate on bored ape which can now be achieved by purchasing the call option worth 1eth.
Jpex creates a derivative market where for speculation instead of selling your rare NFTs, you can trade call and put options.
By removing the entry cost barrier to bluechip NFTs, Jpex provides mass exposure to bluechip NFTs.
With the help of JPEX, NFT holders dont have to worry about the floor crash, they can hedge their NFTs by purchasing put options.
We are manually settling options for now but we will be employing chainlink price feeds for NFTs as soon as they are ready. Once price feed is live, we will employ an optimistic oracle for options settlement and thus making it as decentralised as possible.
I will try to explain the vaults which is the core part of the dapp. Consider a bored ape vault. A vault is a bridge which connects option seller to option buyers. The architecture of a vault consists of epoch, expiry, statistically selected strike prices. Every epoch will have a fixed expiry and strike prices. Every epoch has 5 states.
First is the INITIALIZATION state, where strike prices and expiry will be set.
Second will be the DEPOSIT state, where users will be depositing weth or NFT to buy or sell call option.
Third state is the RUNNING state which mean epoch has started and won’t be entertaining any deposits now.
Fourth state is where settlement of the epoch takes place.
Fifth and the final state, users will be able to either claim earnings or reclaim NFT based on the intrinsic value of options.
Users can choose from the statistically selected strike prices and buy/sell options for the same. Settlement of the options will be done in a European manner. In order to purchase option, user will deposit weth in the vault . The vault receives WETH from depositors(option buyers) and invests 100% of its WETH balance into options seller vault. Option sellers upon depositing NFT as a collateral will earn premium and NFT will be locked in the contract up till expiry.
Upon expiry, oracle will update the settlement price in the contract, based on the settlement price, option intrinsic value is decided i.e whether option is in the money or out of money...... If the option is ITM or OTM
ITM options which means settlement price is greater than strike price. In this case option buyers can exercise the option and claim the earnings/profits. In this case option sellers are in loss and have to deposit (settlement price - strike price) into the vault in order to make their NFTs claimable.
On the other hand if the option expires (OTM), option sellers can claim their NFTs without depositing any WETH.
This project required extensive reading about Options and its nitty-gritty details. Since option trading on NFTs was never done before, it was important to decide the scope of the project. For now, we have made our MVP for the hackathon with call options. We are working on put options architecture in parallel.
Once we make live our product, bluechip nfts trading volume will 10x easily since high cost entry barriers to NFTs will be removed.
Technicalities include giving the long tokens to option buyers upon premium deposits and short tokens to option sellers upon collateral (NFT) deposits.
Premium deposited by the buyers will be given out option sellers as the epoch state progresses.
We have integrated all the wallets( wallet connect, coinbase wallet). We have also integrated unstoppable domains.
The project is deployed on Polygon mumbai. Alongside we have integrated worldcoing in our dapp, which allow early users to claim early user NFT which will give them 20% off in trading fees.
The important tasks to complete post hackathon is to integrate with chainlink price feeds for NFT once they are ready. Also to figure out how UMA optimistic oracle can feed NFT price to dapp making the dapp more decentralized.