Arrow DFMs: Options Markets On The Avalanche Platform
While the decentralized finance market has been plagued with high risk, high yielding options to put funds on (like the food DeFi epidemic earlier this same year), there has been a drought of more professional, more institution catered options for investing, akin to traditional instruments. This is the market that Arrow, a research group founded by Edward Mehrez and Patrick Keefer, both PHD in Economics, that have seen the opportunity in DeFi options to democratize and expand the access of normal users to these applications.
The Arrow Research Group envisions envisioned a DeFi protocol for expanding the world of options to end users through the use of its DFM concept. A DFM (an acronym that stands for Decentralized Financial Market) is an instrument that lets users create on chain markets for options, and allows users to leverage these instruments to “farm” these options while assessing a determined level of risk. In a way, it can be defined as an options market maker of sorts.
One of the most interesting traits about this proposed platform is the power it provides to its users, which will be capable of creating option markets for virtually any underlying assets, providing there is liquidity interest in doing so. This also brings another interesting, derived advantage to the table: any traditional asset will be able to be traded 24/7 via their corresponding derivatives on chain, instead of limiting its market to traditional times, something that is quietly becoming the norm now that stocks are also being offered in cryptocurrency based exchanges like Uphold.
Stablecoins and Tokenized Assets and Use Cases
The Arrow DFM protocol also provides the flexibility and tools to create stablecoins that will be pegged to any fiat currency, maintaining its peg via the collateral and liquidity pools provided by the same protocol. TrueUSD, an already established stablecoin, also announced its launch on the Avalanche platform recently. There is also the possibility of creating tokenized assets pegged to the value of any commodity leveraging the Arrow protocol.
There are a number of use cases that range from limiting exposure to price changes in any portfolio, to speculation on any other cryptocurrency like BTC or ETH. However, the star use case for simple end users is the ability of “farming” options, allowing anyone to provide liquidity as tail collateral in a pool while earning income in the form of fees for any operation other users do in the active DFM.
Weapon Of Choice
These instruments, due to their nature, need a fast and reliable platform to shine. Ed Mehrez, one of the cofounders, declared that they were “excited about the Avalanche‘s capabilities in terms of the high transaction output,” during a recent webinar where they explained the reach of the Arrow DFM tech. According to Mehrez, Avalanche allows these instruments to really scale, given that they are market tools designed to be traded numerous times in seconds.
Also, it’s not only the throughput that counts. Launching on the platform will allow DFM’s to be actively traded in decentralized exchanges (DEX) that are already being constructed, providing a market to trade buy and sell them. The Avalanche has also shown its interoperability with other protocols (such as Ethereum), so scaling to other chains could also be possible in theory.
While Arrow is still in its early stages, actively developing its platform to make it easier to use, it has plans to support USD, AVAX, BTC, and ETH based decentralized financial markets in a first wave, with other markets being added at a later date. The use cases of the project cater it to the institutions more than the end users, a trend we will likely be observed in the next year with new development trying to grab a niche market during the bull stages of the market that is developing right now.
