A stablecoin that earns yields from option premiums

Stablecoins have been the talk of the town lately.

I have been thinking about stablecoins for the past 2-3 years. At their core, stablecoins are internet money pegged to $1 through some form of asset backing.

My perspective is that a stablecoin essentially behaves like a rolling put option with the right to sell the token at $1 at the end of every minute.

So, I created a product (live) and co-authored a research paper to dig deep into this and work out the risk semantics of it. I got it reviewed by some industry folks and the paper is now being published on Wiley.

The result?

An app where stablecoins can be combined with options to create a mechanism where we can earn the option premium yields by holding a stablecoin and deploy the stablecoin elsewhere also.

The current design allows anyone to mint a stablecoin with an attached synthetic put option on ETH which allows you to hedge ETH price against any price dump while fully retaining it's upside.

This put option is borrowed at 0 upfront cost with the put option premium to be charged when you repay back the stablecoin amount.

The put option allows the hedge with 1 month expiry on ETH ATM.

Users can then deposit the minted stablecoin in another risk underwriting module called 'dCdS' to earn option premiums from other users who are hedging and minting stables.

So, you can potentially eliminate all of your hedging cost and also return a net option premium based yields on the stablecoin.

In the dCdS, other prominent stablecoins are also accepted.

But the biggest use case which I see users are using the app for is 'options arb'

Here they borrow this put option at 0 upfront cost and then sell a put option on ETH in other derivative exchanges and capture the option spreads.

It's a mechanism for them to arb against cheaply priced vol and fairly priced vol.

Curious to hear what you guys think on this.