Our Take On Dopex
THE BOTTOM LINE:
Dopex is a decentralized options exchange focusing on calls and puts across Arbitrum and Polygon. As a result of its clever derivatives products, the protocol markets itself to traders with a healthy risk tolerance. In addition to a wide range of options vaults, Dopex offers advanced speculation instruments, including concentrated liquidity options and synthetic yield-bearing tokens. As a crypto-native one-sentence summary, Dopex was created by degens for degens.
- Innovative options instruments that provide high yields
- Lots of new features coming as a part of a major “V2” overhaul
- Currently giving out 600,000 ARB tokens through Arbitrum incentives
- Not available to US residents
- The founding and development team is fully anonymous
- There is still no public governance structure in place for holders of the DPX governance token
|Weekly and monthly option vaults
Concentrated liquidity options
$rtETH yield-bearing synthetic asset
|Audits by Solidified and Sourcehat
What Is Dopex?
Dopex is a decentralized options exchange that offers a variety of crypto options and yield-bearing products.
Users can buy and sell monthly or weekly calls and puts for a variety of assets, including BTC, ETH, ARB and others. The protocol also recently introduced the “Concentrated Liquidity Automated Market Maker” (CLAMM) product, which combines the enhanced yields of Uniswap v3-style concentrated liquidity pools with crypto options. Finally, Dopex mints synthetic ETH in the form of $rtETH, which users can stake to earn yield from protocol fees, Cuve and Convex vaults, and liquid staking platforms.
Dopex Key Features
- Single Staking Option Vaults (SSOV): SSOVs are vaults where users can buy options from or write (sell) options. Vaults provide weekly and monthly expiration dates for popular assets like BTC, ETH, ARB, and others. Sellers earn an option premium + potential extra rewards, while buyers pay the option premium and keep their fingers crossed that options expire in the money. At expiration, options are automatically exercised, and profits and losses are re-assessed to user balances.
- Concentrated Liquidity Automated Market Maker (CLAMM): The CLAMM is an innovative options instrument that combines concentrated liquidity (popularized by Uniswap v3) and options trading to provide enhanced yields. In essence, user positions double as yield-bearing liquidity and also options available for purchase, maximizing yield over traditional options or liquidity-providing positions.
- $rDPX: The rebate $rDPX token can be used to mint the synthetic asset $rtETH, which in turn can earn yield in a variety of ways. Dopex provides $rtETH holders with the ability to stake the token and earn yield from platforms like Curve and Lido, as well as from protocol fees and the innovative Perpetual Put Vault.
- Option Liquidity Pool: Due to the nature of options, buyers and sellers commit to the options contract for a fixed amount of time — in the case of Dopex, this is either a week or a month. The Option Liquidity Pool allows users to sell their options early to buyers who are willing to buy their obligations. The OLP is also another way that option sellers can provide liquidity and earn yield from writing options.
A Primer On Options Trading
We’ve covered options trading in the past here on Milk Road, but let’s do a quick recap, as Dopex requires a good grasp of options theory.
What are Options?
Options are a type of derivative contract. This means that options derive their value from some underlying asset. In traditional finance, this underlying asset is usually a stock, while in crypto, it’s usually a cryptocurrency such as BTC or ETH.
Options give buyers the right, but not the obligation, to buy or sell an underlying asset at a predetermined price (strike price) before or at a certain date (expiration date). There are two types of options: “calls” grant the right to buy the asset at a particular price in the future, while “puts” grant the right to sell the asset at a particular price in the future.
For example, let’s say I buy a call option for ETH. This allows me to buy ETH at a certain locked-in price in the future, regardless of what the actual price of ETH is at that time.
In this example, let’s say I buy a call option to purchase ETH for $2,000 two months from now. The $2,000 is known as the “strike price,” while the exact date two months from now is known as the “expiration date” of the option. I also pay a fee, known as the “option premium,” to buy the right (but not the obligation!) to purchase ETH for $2,000 on a specific date two months from now. Puts work in reverse, allowing me to sell an asset like ETH for a fixed price at some future time, regardless of the market rate.
Buyers & Sellers
The option buyer pays a premium for reserving the right to purchase or sell the asset for a fixed price at some future time. This option premium, in turn, gets paid to the option seller for the service of selling or writing the option.
In essence, options are a two-sided bet, with buyers betting that the future price of the asset will compensate for the option premium they paid and sellers collecting the option premium upfront and betting that the option won’t need to be exercised.
Making Money From Options
Options expire either “in the money” or “out of the money,” determining whether the option is profitable to exercise for the buyer.
In short, buyers hope that, at expiration, options are “in the money,” and they can exercise them and either buy or sell an asset for a better price than the market rate, while sellers hope that options are “out of the money” and they get to collect the option premium from the buyer without having to lose out on the opportunity cost of the asset.
Our Expert Review Of Dopex
Dopex is a decentralized exchange for trading cryptocurrency options.
Decentralized crypto options work a bit differently from traditional options and even crypto options on centralized exchanges (like Binance). Traditional options use an “orderbook” trading model, where individual traders take both sides of the options bet — meaning someone buys an option with a defined party on the other side selling that option to them.
In decentralized options, on the other hand, users who want to sell options deposit assets into a pool, earning an aggregated yield from the premiums this pool collects. Option buyers, in turn, purchase options that are underwritten by the assets in this pool and pay their option premiums into the pool as a whole.
This is the model that Dopex uses. Below, we take a look at some of the flagship products and features the exchange supports. It’s also worth noting that Dopex is currently undergoing a major overhaul. After initially launching as the first decentralized options exchange on Arbitrum a few years ago, Dopex is progressively rolling out a v2 that includes features like the CLAMM and major improvements across other products.
Let’s dig in.
Single Staking Option Vaults (SSOV)
The Single Staking Option Vaults (“SSOV”) is the heart of the Dopex options exchange. Users deposit assets into SSOVs in order to write (or sell) the options that option buyers purchase through the platform. The option buyers, on the other hand, purchase options by paying an option premium to the sellers.
Dopex has SSOVs on Arbitrum and Polygon and currently supports options markets for BTC, ETH, stETH, ARB, DPX, rDPX, GMX, CRV, and CVX. This means that users can either buy calls and puts for these assets, giving them the option to purchase or sell at the strike price at a later time, or they can sell calls and puts for these assets, earning the option premium in the process.
The Dopex Vaults are split into monthly and weekly vaults, determining the expiration date for each asset. SSOVs utilize European options, meaning users have to wait until the expiration date to exercise the options, as opposed to American options, which allow exercising before the expiration date. Earning from the vault is simple: at expiry, options are automatically exercised if they’re in the money, and profits and losses get calculated against user balances.
Concentrated Liquidity Automated Market Maker (CLAMM)
One of Dopex’s most unique products is the “Concentrated Liquidity Automated Market Maker” (CLAMM.) This one takes a bit of explaining, so hold on tight to your milk and cookies.
Beginning with Uniswap v3, the world of DeFi was introduced to concentrated liquidity. On decentralized exchanges like Uniswap, users can provide liquidity by depositing various crypto tokens. This allows others to trade assets using the deposited liquidity while the depositors (known as liquidity providers) earn yield on their deposited tokens.
Concentrated liquidity is an innovation that allows users to provide liquidity within a certain price range. This “concentrates” their liquidity and allows for higher yields as long as the price of the asset stays within this predefined range.
The CLAMM brings concentrated liquidity to options trading. Here’s how it works.
Buyers deposit liquidity for an asset, such as ETH, buying up “ticks” that represent slices of concentrated liquidity. In the image above, you can see that the red tick represents prices between about $1,775 and $1,780. If you deposit liquidity into this tick, you will earn yield whenever the price of ETH is within this narrow range.
Each tick has a different yield rate depending on market conditions, and you can purchase multiple ticks (adjacent or nonadjacent) to ensure that you are continuously earning yield as the market price moves up and down.
So, you’re able to deposit concentrated liquidity within a narrow price range and earn enhanced yields as long as the price of the underlying asset is within this range. Where do options come in?
It turns out that you can buy and sell these ticks, and their payoffs act just like options. As the price of an asset fluctuates, you earn more or less depending on how you set up your liquidity-providing strategy, just like how your option payout varies depending on market prices.
That’s as much as we’ll be able to get through here without filling up 10 whole pages with explanations, but you can learn more about how the CLAMM works through Dopex’s official CLAMM guides.
As far as supported assets go, all CLAMM markets are denominated in the stablecoin USDC and one of three crypto assets: WBTC, ETH, and ARB.
The $rDPX token is one of two main Dopex tokens, the other being the $DPX governance token.
While $DPX only enables governance participation, $rDPX is much more interesting as it allows you to earn yield through a variety of strategies. Let’s explore these in more detail below.
- Bonding: Users can deposit just $rDPX or $rDPX + WETH to receive the synthetic $rtETH token. $rtETH is a collateralized token that tracks the price of ETH thanks to the backing of a treasury containing a combination of $rDPX and WETH.
- Staking: Once you get $rtETH by bonding $rDPX, you can stake it to earn a yield. Staking earns yield in several ways: through rewards from Curve and Convex (CRV and CVX) pools, through staking bonded ETH on liquid staking platforms like Lido, and through protocol revenue from Dopex itself.
- LP Farming: You can also put your $rtETH to work alongside regular ETH by providing liquidity to Dopex’s $rtETH/ETH farming pool. This will net you liquidity provider rewards from the liquidity pool.
- Perpetual Put Vault: The Perpetual Put Vault takes regular ETH deposits (not $rtETH) and uses them to write $rDPX-ETH put options to the Dopex treasury. These ETH deposits also earn yield in several ways including liquid staking yield from protocols like Lido, Dopex protocol revenue, and token incentives from both Dopex itself and the broader Arbitrum ecosystem.
The $rDPX token supercharges yield in all sorts of ways, but just like the other Dopex products, it can be complex to grasp at first. Check out the Dopex help center to learn more about $rDPX.
I contacted the team by opening a ticket through Discord, and it took a while for me to receive an answer, so your best bet may be to message them across multiple channels to make sure you receive assistance.
Who’s Dopex For?
- People who have extensive trading experience: Options trading is one of the most advanced types of market participation, both in traditional markets and in crypto. The instruments are complex, and it takes an expert grasp of crypto mechanisms to really understand where the yield is coming from. Getting involved in these markets without a sufficient understanding of what you’re doing is a recipe for disappointment (and insolvency.)
- People who are comfortable with high-risk markets: Even in traditional markets, options trading is canonically one of the most volatile and risky arenas traders can step into. In the even more volatile and risky world of crypto, this is also the case. On the other side of great risk, there may be a great reward, but it’s important to do a candid assessment of your risk tolerance and only enter options markets if you’re comfortable with the dangers involved.
- People who are looking for asymmetric yield: If Spiderman were an options trader, his motto might be something like “With great risk comes great yield-ability.” If you’re well-read and risk-tolerant enough to wade into the waters of crypto options trading, you can enjoy high APYs and quick bag pumps. Just remember to get out at the right time before you become someone else’s exit liquidity.
Who’s it Not For?
- People who are new to crypto: If you’re new to crypto, jumping into the deep end of options trading may not be the best start to your journey. Blockchains and cryptocurrencies are hard enough to understand as is, and investing in something you don’t understand is the fastest way to lose your money. If you don’t understand where the yield is coming from, don’t invest!
- People who are new to options: Options are complex types of financial instruments, and understanding how well your options positions are doing based on various market prices can quickly become overwhelming. There are plenty of crypto investment opportunities that are much simpler, and traders who don’t already have experience with options trading may find themselves lost on Dopex.
- People who want sustainable yield: With most financial markets, the higher the yield, the more sporadic and risky rewards are. For traders who would like constant, predictable yield, options may not be the best choice. Options offer high yields during times of market uncertainty, but there are other instruments that provide much more predictable and sustainable rewards over time.
Decentralized derivatives exchanges have gained significant traction during the bull market. Below, we take a look at several of the popular alternatives to Dopex and compare how they stack up.
Dopex Vs. dYdX
dYdX is the most popular decentralized derivatives platform by trading volume. While Dopex focuses on options, dYdX’s main offering is perpetual futures — a type of derivative that does not have an expiration date and is commonly used for leveraged price speculation.
On the other hand, dYdX does not offer advanced derivatives features like concentrated liquidity options and advanced synthetic assets that can be chained together for enhanced yield the way Dopex does.
|The decentralized perpetual futures exchange with the most liquidity
dYdX v4 is built on a proprietary blockchain that makes trading more efficient
|Advanced options yield strategies through special vaults and concentrated liquidity
Synthetic assets for advanced yield farming
Dopex vs. GMX
GMX is another popular decentralized derivatives platform. Though it mainly focuses on perpetual futures, GMX also provides a number of yield-bearing tokens, similar to Dopex, that users can leverage to earn yield.
Like Dopex, GMX is available on L2 chains like Arbitrum. Where Dopex has markets for Polygon, however, GMX has Avalanche markets.
|Leverage up to 50x on base assets
Rewards for holders and stakers of the GMX token that come from protocol fees
|Advanced options yield strategies through special vaults and concentrated liquidity
Synthetic assets for advanced yield farming
Is Dopex Safe to Use?
Due to the ever-changing nature of crypto, we cannot accurately say how safe and secure a product is now or will be in the future. We have examined a variety of factors to determine how safe we believe Dopex is, but please always use caution and thoroughly investigate the platform for yourself before using it.
One of the most important factors when it comes to assessing the security of a decentralized protocol is whether they have completed audits of their codebase. Dopex has received several audits that find no major issues with the protocol, so this is a good sign for the overall safety of the protocol.
The anonymity of the team behind the exchange may raise some questions, however Dopex has been live since 2017, and the team has since proven that they are invested in the long-term success of the protocol.
Dopex is built by an anonymous team that mostly communicates through their crypto-Twitter handles.
The most prominent figurehead of Dopex is known as “TzTok-Chad” on Twitter, where they tweet about all things Dopex, like the protocol developments and the product roadmap.
Has Dopex Been Audited?
Final Thoughts On Dopex
Dopex is an innovative options exchange that supports several flagship products and provides yield in inventive ways. For traders with a risk appetite, Dopex allows speculation across various options, products and synthetic tokens.
The anon status of founders, while common in crypto, may give some potential investors pause, and the protocol keeps a pretty tight grip on new features, with no avenue for the community to get involved in governance currently.
Still, Dopex promises enough yield-bearing debauchery for even the most seasoned degen.
Frequently Asked Questions
Dopex is a decentralized options exchange that allows advanced traders to make bets on crypto options and synthetic assets.
Users can buy or sell call and put options, provide concentrated liquidity for options, and trade $rDPX and $rETH tokens to earn yield. Dopex is live on the Arbitrum and Polygon networks and supports major assets like BTC, ETH, ARB, and GMX.
Yes, you can make money trading crypto options, but keep in mind that options are considered very risky, and they require some time to fully grasp.
Crypto options allow traders to make bets on asset price movements by buying and selling calls and puts, which are the rights to buy or sell assets for a fixed price at some future date. Options are inherently speculative as they deal with future price movements, so traders should be very cautious when getting involved in these types of markets.
$DPX is the primary token of the Dopex ecosystem. It’s used to incentivize liquidity providers, and it can be locked up to receive $veDPX, a governance token that unlocks voting rights so holders can help decide the future of the protocol.
There is also the $rDPX token, which can be used to mint the synthetic $rtETH and earn yield.