Potion Insurance

Potion is a decentralized protocol for the creation of put option contracts based on Black-Scholes pricing.

The protocol allows users to buy put option contracts with an AMM-like experience, and it allows LPs to distribute their risk across many different contracts and assets.

Key features

POTION ALLOWS YOU TO 📌 Choose any asset for the option contract (ETH, BTC, MKR, Tesla, Gold, etc) 📌 Choose any strike price for the option contract 📌 Choose any expiration term for the option contract 📌 Exercise at any moment during the holding period of a contract 📌 Have guaranteed exercise via collateral in escrow on-chain

POTION INNOVATIONS 📌 Perfect pricing based on Black Scholes logic and UMA priceless oracle. 📌 Single liquidity pool for all assets, strikes and expiries = better capital efficiency for LPs

KEY DIFFERENCES VS EXISTING DeFi OPTION PLATFORMS 📌 Only platform to allow minting options on assets other than ETH 📌 Only platform to allow minting DeFi options on Fiat assets 📌 Only platform to have Black Scholes neutral pricing 📌 Only platform to have a single pool across asset types, strikes and expirations

Read more at: https://docs.potion.finance/

POTION'S BLACK-SCHOLES PRICING SYSTEM

Pricing the premium of an insurance product is tricky. Price it too high, and the buyer is over-paying for the insurance; price it too low, and the seller ends up losing all their collateral very quickly.

Potion uses an innovative approach to pricing, that finds fairest premium pricing possible for both buyer and seller.

Potion's system removes the need to "guess" what volatility will be when pricing an option - instead, it only fully settles the price at liquidation, on the basis of actual observed volatility (also referred to as realized volatility). This is a key innovation, not available in classical fiat system.

POTION's ORACLING

📌Potion uses UMA's priceless contract technology, and has access to its distrubuted human oracling solution (DVM).

📌UMA uses clever game theory to minimize the number of times participants call the Oracle, saving both on-chain fees and time. This is how it works:

📌Users are able to either take automatic pricing, or to submit their own manually if they believe automatic pricing isn't working.

📌Undisputed pricing: When users' submitted pricing matches pricing observed by contract seller, no Oracle will be required.

📌Disputed pricing: If the sponsor disagrees with pricing used by users when buying potion puts, or exercising them, they’re able to dispute the operation and invoke UMA’s DVM oracle. The DVM Oracle will to ask $UMA holders to vote on a neutral price, and the dispute will be settled.

Both parties benefit from this approach:

Users are incentivized to use correct pricing, or else they risk facing penalties, and losing money.

In case of disagreement, a neutral third party distributed human oracle will produce a price and settle the dispute. In most cases, the right price will be used, saving on-chain transaction costs, oracle calls and delays.

TECH

📌Potion put contracts are built using UMA technology. We took UMA's standard synth factory, and modified it to deploy put-contract minters, as opposed to UMA's standard overcollateralized synthetic minters.

📌We customized the UMA contracts substantially to allow disputing not only during liquidation, but also during minting, to accommodate our financial Black-Scholes logic.

📌For the front end, we used: Vue.js, Node.js, Ethers.js

📌We did significant econometric analysis on Black-Scholes and historical volatility, to determine how to size-up the necessary premium_deposit.

Read more about it at https://docs.potion.finance/