mxwtnb / ampo

Auction-managed perpetual options

Auction-managed perpetual options

A proof-of-concept Uniswap V4 hook that lets users trade perpetual options.

Overview

All functionality is built into a single hook contract in src/AmpoHook.sol. Unit tests are in test/AmpoHook.t.sol.

The main public methods in the AmpoHook contract:

bid(): Called by potential managers to place bids

deposit(), withdraw(): Deposit or withdraw collateral from contract. Collateral is used to pay rent or funding

modifyLiquidity(): Deposit or withdraw liquidity in underlying pool

setFundingRate(): Called by manager to change funding rate

modifyOptionsPosition(): Called by traders to open or close options positions

Mechanism

Perpetual options are options that never expire and can be exercised at any point in the future. They can be synthetically constructed by borrowing a narrow Uniswap concentrated liquidity position and withdrawing the tokens inside it. Users with an open perpetual options position pay funding each block, analogous to funding on perpetual futures.

The pricing of these options is auction-managed. A continuous auction is run where anyone can place bids and modify their bids at any time. The current highest bidder is called the manager. The manager pays their bid amount, called rent, each block to LPs. In return, they get to set the funding rate for options holders and receive funding from all options positions as well as LP fees from all swaps.

In summary:

• Managers pay rent to LPs each block
• Managers receive funding from options holders each block
• Managers receive LP fees each swap

Managers are therefore able to make a profit if they can set the funding in a smart way, not too low which leaves potential income on the table and not too high which discourages users from buying and holding options. They are incentivized to come up with better ways to calculate the best funding in order to maximise their profit and be able to bid more in the manager auction. With a set of competitive managers who are constantly trying to outbid each other, the system should be able to find the best funding rate for options holders and most of the potential revenue should flow to LPs.

Usage

Build

$ forge build

Test

$ forge test