Option Panda limits the amount of options with a certain expiry date that could be generated from the underwriting pool, with a balanced distribution across different expiry dates, to contain the concentration risk exposed to option underwriters. Option Panda also sets up a 75% utilization ratio upper bound to contain liquidity risk for underwriters.
Hegic let option buyers tailor the option strike price and expiry duration they desire. Buyers could buy options with any strike price with expiry duration ranging from 1 day to 28 days. It imposes potential risk to underwriters. If there is a sudden violent pump or dump of BTC or ETH price, it is likely that a large portion of the underwriting pool will be exhausted.
For each underlying asset, Option Panda has two option underwriting pools, one for Call and another one for Put. Underwriters have the freedom to express their market price trend prediction by entering either underwriting pool, no need to afford the lost of their counterparty underwriters if they make correct predictions.
For each underlying asset, Hegic only has one option underwriting pool, which underwrites both Call and Put options. In a volatile cryptocurrency trading market, it is obvious that the pool will lose on either an up or down price movement. Underwriters has no freedom to choose. By entering Hegic underwriting pool, you have to afford the lost of other underwriters even if you have your own correct price trend prediction.
The Pricing formula adopted by Option Panda is financially solid, adopting Black-Scholes model, an academically proved and widely accepted work by Nobel Prize winner. Option Panda applies Dynamic Sigma Adjustment to frequently update Sigma to reflect the up to date market volatility, no human intervention as well.
By examining Hegic's smart contract code, one can discover that the Pricing method is a simplified formula, P=sigma*t^0.5*S/K, which has not been academically proved and market tested. What’s more, Hegic owner manually updates Sigma every month. It’s thus subjected to manipulation, let alone too low an update frequency in a volatile market. Letting buyer’s tailor the option strike price while using one flat IV value for option pricing also introduce problem, as it neglects the well-know volatility smile curve.
Option Panda offers Fiat Basis option. The option premium paid by option buyers to any option underwriting pool on Option Panda is paid in USD pegged stablecoin, and the profit from exercising an option is also received as underwriting pool’s asset denominated in USD. Therefore, option buyer and sellers’ P&L are calculated on the basis of fiat currency without any invisible losses. Using the same example in the right column, we can easily calculate that when ETH price reaches $50, the buyer would break even, without any invisible loss.
Hegic basically offers Coin Basis option. Coin Basis introduces invisible loses to buyers who use their Coin to hedge the same Coin’s upside/downside risk against Fiat currency. Suppose a user purchased an ETH call option with four weeks to expiry and the current & strike price both are $500. If the option premium is $50, the user pays 0.1 ETH to Hegic ETH option underwriter pool. If ETH expires at $550 after four weeks, the user should’ve made a profit of $50. However, he will only get 50/550 = 0.091ETH from the Hegic option pool, which means that it’s not even enough to cover his cost of 0.1ETH.
Option Panda automatically exercises expiring options, cash settle and physical deliver profit to option buyers by smart contract. No user action needed.
Hegic requires buyers to manually exercise their option holdings before expiry. If an option buyer fails or forgets to take actions before expiry, he would lose all his book profit even if his option holdings expires ITM.
Beneficiary rights Trading
Liquidity is obtainable. For option seller(underwriter), he/she could trade his/her beneficiary rights any time.
Hegic doesn’t provide a mechanism for users to trade his/her beneficiary ownership.
Option Panda support Binance Smart Chain, and would support Polygon & Ethereum OR network.
Hegic now only runs on Ethereum mainnet.