Premia is a decentralized finance (DeFi) options trading platform on Ethereum and Binance Smart Chain. The protocol enables users to trade American-style puts and calls options with an expiration date. Essentially, the Premia Options Minter can write options contracts for any token denominated in DAI, ETH, or WBTC. The platform is powered by its native PREMIA token, which users can stake to earn rewards. Here we will take an overview look at what is Premia token and its decentralized options platform.
What is options trading?
Options trading is a well-used product in traditional finance, as it gives buyers the ability to bet on price movements and boost returns with minimal capital. In short, an option is a binding contract that lets the user buy or sell an asset at a predetermined price, before or on a specific date. A call option is the right to buy an underlying asset, whereas a put option is the right to sell. However, note that option holders are not obligated to do so.
Therefore options contracts always feature several elements which you will also find on the Premia platform: underlying asset, type (call or put), strike price, and expiry date. Any changes to the terms would turn it into a new contact. One thing to remember is that options have an expiration, unlike trading perpetual futures that could last forever, option pairs will stop trading after the expiry date.
How does Premia work?
It’s important to understand how options trading works to understand how a PREMIA token is special, so we hope you didn’t skip the refresher above. PREMIA is an ERC1155 token, a standard that is primarily used by non-fungible token (NFTs) creators as crypto-collectibles or artwork. It enables the same smart contract to mint and manages many unique tokens, or in Premia’s case create different options.
Additionally, as ERC1155 allows multi contracts to be created and traded in one transaction, the team’s design choice reduces network fees for users. For example, you can approve every single Premia option contract in just one Approve Transaction – if you wanted. Another positive is that ERC1155 is compatible with other marketplaces such as OpenSea, meaning users can trade even if the native marketplace goes offline. It’s no surprise that the Anon Powered development team understands the power of NFTs so well, as the first project launched under their brand was Don’t Buy Rope (an early pioneer of NFT yield farming).
The token has a fixed supply of 100M, with a 25M distribution happening via a Linear Bonding Curve. This means the token’s price will theoretically only go up as the supply increases.
PREMIA should be seen as a utility and governance token, with the following use cases:
- Fee sharing: Users can choose the stake their tokens to earn a share of the protocol’s fees. This is done through periodic buybacks, therefore, holders earn the rewards in PREMIA tokens.
- Reduced fees: Additionally stakers can lock their staked tokens to earn reduced trading fees on the platform.
- Governance: The protocol is community-driven meaning token holders have voting power over proposals, such as deciding to distribute fees to stakers.
- Rewards: PREMIA can also be earned as rewards for liquidity providers (upcoming).
Looking to the future
PREMIA token recently listed on multichain.xyz enabling seamless cross-chain swaps between Ethereum and Binance Smart Chain. Soon users will be able to stake PREMIA on BSC, removing any barriers around high network fees reducing participation. Additionally, all the platform’s code on Ethereum will be 100% compatible with BSC as it’s an EVM-based blockchain. Therefore, we expect to see more cross-chain announcements with the release of new features.
AMM & Meta Vaults: Adequate liquidity is one of the main barriers for DeFi options trading to work seamlessly. Currently, Premia follows a traditional approach with an orderbook. However, this means if there are not enough option writers then traders will not find the options on the marketplace. The team’s answer is to enable users to pool liquidity in vaults to earn yield from trading fees, option premiums, and PREMIA tokens. Essentially, the protocol will start writing options on demand.
- Note pooling funds in Premia’s AMM will be a little different than SushiSwap or Uniswap, as to earn rewards you will have to lock them for specified periods. This is required due to the nature of options trading’s expiry dates.
Liquidity Mining: Once the Meta Vaults are live users will be able to start providing liquidity and earning PREMIA tokens as rewards. Furthermore, these new features should be going live during March, so expect to see platform growth explode soon enough. One to watch!