Yam Call Options (YAMCO)

Hi everyone, below are some thought of potential financial products that can be built on Yam. Feel free to expand on the story below.

  • Alice owns 10 yams in her wallet. Alice thinks the next several rebases for Yam will be positive. Alice thinks in 10 days, there will be 20 yams in her wallet.

  • Bob owns 100 yams in his wallet. Bob thinks the next several rebases for Yam will be neutral. Bob thinks in 10 days, there will still be 100 yams in his wallet.

  • Bob meets Alice at the Yam Exchange (YEX). Both Bob and Alice discuss what the rebases of Yam will be in 10 days. Alice wants to profit on the rebases. Bob wants to earn interest on his yams.

  • Bob offers Alice a Yam Call Option (YAMCO) with his 100 yams as collateral. Bob sets the YAMCO strike price to 100 yams, the expiration date to 10 days, and the premium to 10 yams. Alice accepts the offer.

  • Bob goes to the YEX and create a YAMCO with such conditions. Bob locks 100 yams into the YAMCO. Bob sells the YAMCO to Alice for a premium of 10 yams.

Four scenarios occur at the contract’s expiration.

  • Positive Scenario: After 10 days, the YAMCO has 200 yams locked in the contract. Alice has profited 100 - 10 = 90 yams (+900%). Bob has profited 10 yams (+10%).

  • Breakeven Scenario: After 10 days, the YAMCO has 110 yams locked in the contract. Alice has profited 10 - 10 = 0 yams (0%). Bob has profited 10 yams (+10%).

  • Neutral Scenario: After 10 days, the YAMCO has 100 yams locked in the contract. Alice has profited 0 - 10 = -10 yams (-100%). Bob has profited 10 yams (+10%).

  • Negative Scenario: After 10 days, the YAMCO has 50 yams locked in the contract. Alice has profited 0 - 10 = -10 yams (-100%). Bob has profited 10 - 50 = -40 yams (-40%).

At the expiration of the contract, the YAMCO yams are released to Bob. The parties complete their transaction. The YAMCO can explore possibilities of the following features:

  1. Being structured in a European style or American style option.
  2. The YAMCO has the option for Alice to buy out the yam collateral in a mutually agreed ERC20 token specified by Bob.

Once the YEX gets the YAMCO working, the Yam Put Option (YAMPO) can be included next following the same examples above. The YEX will have an opportunity to collect fees for the Yam Treasury in one of the following formats.

  1. The YEX takes a percentage of the premium when the option is created.
  2. The YEX takes a percentage of the premium when the option is traded.
  3. The YEX takes a percentage of the collateral when the option is collateralized.
  4. The YEX takes a percentage of the collateral when the option is expired.
  5. The YEX takes a percentage of the collateral when the option is executed before expiration.
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@Temp this is a great idea, and I wholeheartedly support it!

I’m also thrilled that you used the acronym “YEX” for the exchange. I’m linking to a post I made proposing that we start idea generation surrounding a YAM-driven exchange, because the mechanisms I discussed in my post could be made complimentary to what you are proposing, and I really want to help build support for the idea and development of the YEX.

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