In Options Trading, Why Might a Trader Prefer a Wrapped Token as Collateral?
A trader might prefer a wrapped token as collateral to gain exposure to the underlying asset's value while operating within a specific DeFi ecosystem. For example, using wBTC as collateral allows a trader to leverage Bitcoin's value for an options trade on the Ethereum network, which offers a broader range of DeFi protocols and liquidity.
It increases capital efficiency.
Glossar
Wrapped Token
Definition ⎊ Wrapped Token describes a synthetic asset created on one blockchain that represents and is pegged 1:1 to an asset native to a different blockchain, facilitating its use within the smart contract ecosystem of the host chain.
Options Trading
Stewardship ⎊ Involves utilizing these contracts to manage exposure to assets whose underlying technology or governance may evolve, ensuring capital is not locked into potentially obsolete systems.
Wrapped Tokens
Collateralization ⎊ Wrapped Tokens represent a mechanism for utilizing otherwise illiquid or less-liquid cryptocurrency assets within decentralized finance (DeFi) protocols, functioning as tokenized representations of underlying collateral.
Decentralized Options
Architecture ⎊ Decentralized options represent a paradigm shift in options trading, moving away from centralized exchange reliance towards blockchain-based smart contracts for execution and settlement.
DeFi Protocols
Function ⎊ DeFi protocols, or Decentralized Finance protocols, are autonomous applications built on blockchain technology that replicate traditional financial services without intermediaries.