Can a Decentralized Options Protocol Use a Decentralized Stablecoin for Margin?
Yes, decentralized options protocols frequently use decentralized stablecoins (like DAI) for margin and settlement. The stablecoin provides a low-volatility, on-chain asset that minimizes price risk for both the option buyer and writer.
Using a decentralized stablecoin also maintains the non-custodial and trustless nature of the entire derivatives protocol.
Glossar
Decentralized Options Protocol
Protocol ⎊ A decentralized options protocol is a set of smart contracts and rules enabling the creation, trading, and settlement of options contracts on a blockchain.
Decentralized Stablecoins
Collateralization ⎊ Decentralized stablecoins mitigate systemic risk inherent in centralized models through varied collateralization mechanisms, often employing over-collateralization to maintain peg stability.
Capital Efficiency
Leverage ⎊ Capital efficiency, within cryptocurrency and derivatives, fundamentally represents the maximization of risk-adjusted returns relative to capital at risk, a metric increasingly vital given regulatory constraints and market volatility.
Decentralized Stablecoin
Architecture ⎊ A decentralized stablecoin leverages blockchain technology, typically employing smart contracts on platforms like Ethereum or Solana, to maintain a peg to a fiat currency or other asset.