This article was moved to the Charm Finance publications page, where you can find more articles published by Charm. It is included here for reference purposes only.

Introducing Charm Finance (beta)

Creating liquidity for decentralized options.

Today, we launched Charm Finance — a decentralized options protocol that uses a radically different mechanism to create on-chain liquidity for everyone.

Our protocol is the most efficient way to create liquidity for any option markets, at low fees, and at a price that is 100% fair and transparent.

We will be opening our first markets for ETH options very soon, and this short article will cover some of the questions you may have before placing your first trade. Before we go into the details, we would like to highlight a few caveats:

• Charm Finance is in the earliest stage of public beta, and as such it is still very much an experiment so please do not put in any funds that you cannot afford to lose.
• Charm Finance was audited but this is no guarantee against protocol bugs and hacks that can result in the 100% loss of your funds. You can find the audit report here.
• Options are incredibly useful, but sophisticated financial instruments that can result in up to 100% loss of your investments, so please ensure you understand the risks before proceeding.
• To protect our users, we have decided to roll out our option markets gradually, gather feedback, and thoroughly test the smallest details before introducing them to the public.

If you have any other questions, you can message us on Twitter, or join our Discord group.

What is Charm?

Charm is the most efficient way to create liquidity for any option markets.

This is possible because of the radical way in which we have designed our options protocol. We have used a simple, but profound mathematical property frequently found in prediction markets, and applied them to options. This property allows our option protocol to create liquidity for any option markets, in a way that makes our options Automatic Market Maker (AMM) self-sustaining without any liquidity providers.

The technical details can be found in our Litepaper.

How is Charm different from other options platforms?

Charm does not rely on option writers to create options.

This means we can offer an unlimited supply of options.

Charm does not use pricing formulas to quote option prices.

The prices are entirely driven by supply and demand. This allows us to offer option prices that are 100% fair and transparent.

Charm does not rely on liquidity pools (eg Uniswap Pools).

Which means we don’t have to charge high trading fees to incentivise liquidity provision.

We believe the above are the keys to creating highly liquid, fair, and vibrant markets for decentralized options, so that everyone can experience the full benefits of options ownership.

How does Charm work?

If a user want to buy or sell an option, Charm will mint or burn the options for them on demand, at a price determined by a special type of token bonding curve (explained further in our Litepaper). The options will be deposited into or burned from the user’s wallet as an ERC-20 token.

At expiration date, the settle() method can be called by anyone to fetch the settlement price, and the payoff will be calculated for everyone according to the same payoff profiles as options you see elsewhere. The token bonding curve will ensure Charm will always hold enough ETH or USDC for settlement purposes.

Users can realise the benefits of in-the-money options by either selling them before the expiration date, or by collecting the payoffs at any time after it.

What are the benefits of options?

Options are the cheapest way to grow your crypto wealth.

As a hodler or trader, options can get you leveraged exposure to 1 ETH (for both long and short positions) for only 0.3 ETH, without any risk of losing the 0.3 ETH prior to settlement due to margin calls or liquidation.

As an investor, options can free up more of your capital for other investments. It is therefore the perfect tool to diversify your wealth.

Charm is the only provider to offer covered calls, which allows you to earn a high yield if you believe the price of the underlying asset will not be volatile.

Options are the best way to sleep at night.

As a hodler, trader, or investor, you can get protection against a 30% drop in ETH prices over 1 day (like it did in March 2020), for as little as 0.05 ETH, which means your total loss is capped to 5%.

Options are therefore the perfect tool to help you sleep at night, and Charm will be releasing further options to help you manage risk as we emerge from our public beta.

Options are the coolest way to get into crypto.

One of the most charming thing about options is that they offer unlimited gains, whilst limiting your loss to only the small amount you pay for the options. It is therefore a solution to crypto’s volatility problem, which we feel is a huge deal for anyone interested in getting into crypto.

A crypto inductee can just buy an option for a small fraction of their money, and then ignore all the doomsayers saying you’re going to lose everything investing in crypto.

We think that is pretty cool.

So there you have it:

Options are for everyone, and Charm is created for everyone.

Key Points

• Charm is the most efficient way to create liquidity for any option markets.
• Charm does not rely on option writers, which means we can offer an unlimited supply of options.
• Unlike Constant Product Market Makers (eg Uniswap), Charm does not have liquidity pools. So we can offer low trading fees.
• The option price is 100% decided by our users. No messy formulas or hidden costs.
• Users can buy or sell options, just like how they can buy or sell tokens directly from a smart contract.
• Charm offers European style call options, put options, and covered call for ETH (for now).
• The options can be bought or sold at any time to realise the benefits. No need to wait till expiration date.
• The payoffs from Charm options are calculated in exactly the same way as options offered elsewhere.
• In the money options are automatically settled on expiration date, and the pay-offs can be collected at any time.
• Charm does not have margin calls, liquidations, or charge daily fees for holding a position.

When can I start using Charm?

Very soon! We are preparing for our public launch so watch this space for further updates.

If you have any questions in the meantime, you can message us on Twitter, or join our Discord group.

: )