On-chain options protocols, like Thetanuts Finance, are currently a smaller segment in the cryptocurrency market compared to decentralized applications (Dapps) focused on trading and lending. However, options are a crucial financial derivative in traditional finance, and as the crypto market becomes more mainstream and professional, the demand for on-chain options could grow significantly. Thetanuts Finance is a leading platform in this space, according to DeFiLlama, recently launched governance tokens. Since 2021, it has demonstrated the importance of options products in DeFi by enhancing capital efficiency, reducing transaction costs, and improving the user experience.

What is Thetanuts Finance?

Thetanuts Finance is a decentralized on-chain and multi-chain options protocol focused on altcoin options. It allows users to go long or short on options using its v3 architecture, offering intuitive trading through a streamlined interface. The platform supports multiple networks and aims to provide broad asset coverage for on-chain options trading. After its V3 upgrade, Thetanuts Finance expanded its offerings in the altcoin options space. Unlike many option protocols focusing primarily on Ethereum-based assets like $ETH and $WBTC, Thetanuts provides options for a wider range of altcoins across multiple blockchains. This multi-chain approach allows them to offer the largest coverage of altcoin options, leveraging their expertise as a leading Option Vault protocol.

Background

Every successful decentralized finance (DeFi) project is driven by a dedicated team of visionary leaders and experts. Thetanuts Finance, founded in 2021 and based in Williamsburg, Virginia, exemplifies this with its innovative approach to on-chain options trading. Thetanuts raised $18 million in a Seed round in April 2022 and $17 million in a Series A round in April 2023. Investors include Polychain Capital, QCP Capital, Deribit, Paradigm, GSR, Wintermute, Jump, GoldenTree Asset Management, Tribe Capital, and others.

Thetanuts Finance V3 Upgrade

In the first quarter of 2024, Thetanuts Finance’s V3 mainnet was launched, which marked the transformation of Thetanuts Finance from an options vault protocol to a decentralized on-chain options protocol focusing on altcoins, supporting users to conduct long and short operations. The Thetanuts V3 architecture will leverage the existing Basic Vaults, lending markets, and Uniswap V3 pools, and will also feature free market pricing – where users can express their views on pricing.

Source: arbitrum.foundation

Benefits of the Thetanuts Finance V3 Upgrade

The V3 upgrade of Thetanuts Finance brings several benefits:

• Enhanced User Experience: Streamlines the interface and transaction processes, making it more user-friendly. V3 upgrade will provide a trading-like interface for traders to interact individually with Basic Vaults, AMM, and the Lending / Borrowing Market.
• Ability to Buy Options: Option Vault strategies mainly center around the sell-side, with no ability for users to go long. V3 will change this through the use of the AMM and Lending Market.
• Additional Yield: V3 upgrade will bring more yield to users other than option premiums from the Basic Vaults. These additional sources include: lending interest from the Lending Market, trading fees from AMM, potential $NUTS token incentives, and potential additional token incentives.
• Free Market Pricing: Thetanuts V3 allows the market to determine prices. This means if users believe the automated market maker (AMM) is pricing options incorrectly, they can exploit these discrepancies for arbitrage opportunities, potentially earning a profit.
• Tested Infrastructure: Thetanuts provides full security to its users. The protocol has Aave V2 security and technology from Uniswap V3. The Thetanuts team is confident in the V3 upgrade, which benefits from these proven technologies, ensuring a secure and reliable experience for users.
• Protocol Solvency: Basic Vaults in Thetanuts Finance are 100% collateralized.

Architecture of Thetanuts Finance V3

Thetanuts Finance V3’s architecture is built on a strong foundation, leveraging existing elements such as basic vaults, lending markets, AMM, Aave V2 security, and Uniswap v3 pools.

Basic Vaults

The Basic Vaults in Thetanuts Finance v3 sell out-of-the-money (OTM) European cash-settled options to accredited market makers. This process generates yields for users in the form of option premiums. Each vault has predefined parameters, such as strike price, delta, and tenor, which create specific risk-adjusted yields. From the vaults, users will receive a Basic Vault LP token (i.e., $XYZ-C or XYZ-P), which may be used to:

• LP tokens can be deposited into the lending market to earn interest.
• These LP tokens can also be deposited in AMM to generate trading fees.
• Users can take long or short positions on the AMM for underlying.

Lending Markets

The Thetanuts Finance V3 Lending Market is integrated within the V3 interface and is designed based on Aave V2 contracts. This core component allows users to take long or short positions on on-chain options. The Lending Market supports $XYZ-C, $XYZ-P, $XYZ, and $USDC assets, just like Aava V2 users can borrow up to 95% LTV from the Lending Market with 20x leverage. The leverage may be lower due to slippage, price impact, and fees on the AMM. There are two participants involved in the lending market.

Lenders

In Thetanuts Finance v3, lenders can deposit Basic Vault LP Tokens (like $XYZ-C and $XYZ-P) into the lending market through a feature called “Boost.” This allows them to earn lending interest from borrowers.

Borrowers

On the other hand, borrowers can open long positions by borrowing these LP tokens from the lending market and selling them on the AMM. The platform also offers capital efficiency by allowing users to borrow against their positions if they have supplied collateral to the lending market.

Automated Market Maker

Thetanuts Finance V3 utilizes battle-tested Uniswap V3 pools to enable users to go long or short on on-chain options and will form a key part of Thetanuts Finance V3. The liquidity provider would deposit $XYZ/$XYZ-C (for calls) or $XYZ-P/$USDC (for puts) into the Thetanuts Finance V3 Add Liquidity Module. For providing liquidity, users will be incentivized with NUTS tokens.

Liquidity Providers

In Thetanuts Finance v3, liquidity providers (LPs) supply total value locked (TVL) to enable traders to go long or short on on-chain options. In return, LPs earn a share of AMM trading fees.

Traders

Traders can use Uniswap v3 liquidity pools to take positions on long or short volatility, depending on their market outlook.

Sources of Yield

Currently, users have five sources of yield on Thetanuts Finance V3.

1. Option Premiums from Basic Vaults: Basic Vaults sell out-of-money (“OTM”) European cash-settled options to accredited market makers and generate yields for users in the form of option premiums.
2. Lending Interest from Lending Market: By providing liquidity on the Lending Market, lenders generate yields in the form of lending interest. In the coming days, users will be able to deposit $XYZ and $USDC into the lending market to generate lending interest as well.
3. Trading Fees from AMM: Thetanuts also allows users to earn trading fees from AMM pools. By depositing $XYZ/$XYZ-C or $XYZ-P/$USDC assets in pools on Uniswap V3, will be entitled to earn 50% in trading fees.
4. $NUTS Token Incentives: By providing trading volume and liquidity in Thetanuts ecosystem, users may be eligible for NUTS tokens in the future.
5. Additional Token Incentives: This reward depends on the third-party ecosystem. For providing trading volume and liquidity on certain assets on Thetanuts Finance V3, users may be eligible for additional token incentives, particularly when other ecosystems seek to incentivize activity on Thetanuts Finance V3.

Leveraged LRT Strategy

Users can earn Liquid Restaking Token (LTR) and other yield resources such as EigenLayer Points, Protocol Points (i.e. EtherFi Loyalty Points), and additional yield from using LRTs in DeFi (i.e. on Pendle) by participating in liquidity staking protocols. For now, Thetanuts Finance is using Pendle’s $PT-eETH to create a leveraged LRT strategy vault on the Ethereum mainnet. Using Pendle vault users can borrow ETH by depositing $PT-eETH into the lending market and can generate 3 further sources of yield: Pendle $PT-eETH Fixed Yield, Thetanuts Finance $ETH-C Basic Vault Option Premiums, and $NUTS Rewards.

Fee Parameters

Thetanuts Finance charges some fees, depending on module users using Thetanuts Finance v3. Every fee earned by Thetanuts Finance will be accumulated in the Treasury, which has Thetanuts Finance DAO governance rights. The fee parameters can be changed depending on DAO.

Roadmap

Thetanuts Finance Token

Thetanuts Finance, or NUTS, is a native token based on ERC-20. The NUTS is the ecosystem’s governance token, to be used to drive the protocol’s long-term goals, including decentralization, governance, and incentives. Thetanuts Finance refers to Curve’s vote-escrow model. At the end of each epoch, liquidity incentives will be issued in the form of $veNUTS on the Ethereum main network and can be used after being claimed.

NUTS can be staked as veNUTS at a 1:1 ratio and then be linearly unlocked into liquid $NUTS over a 90-day days. $veNUTS holders can enjoy various privileges as Thetanuts Finance community members and participate in weight voting on various components within the Thetanuts Finance ecosystem. Holders can further lock up $veNUTS to receive up to 1.5x liquidity incentives for accelerated emissions on Thetanuts Finance. NUTS tokens will have a maximum supply of 10,000,000,000 tokens and an initial circulating supply of ~7.5%.

• Name: Thetanuts Finance
• Symbol: NUTS
• Type: Governance and Utility
• Chain: ERC-20
• Maximum Supply: 10 Billion NUTS
• Circulating Supply: 1.05 Billion NUTS

How do I Buy NUTS Tokens?

• Go to Gate.io Exchange and create an account by entering your email ID and password.
• Set up your fund password by entering settings; this password will be asked during fund withdrawal.
• To buy NUTS tokens, you must complete KYC with the proper documents.
• After KYC, go to Spot Trade, search for NUTS, and select.
• After opening the new page, fill in the amount in NUTS or USDT you want to buy, and click the buy button.
• After a successful buy, go to the Wallet > Withdraw page.
• Here, select NUTS, and then enter the wallet address.
• It will ask you for your fund password, 2FA, and email code; enter them correctly and submit.
• Your NUTS will arrive in your wallet after a few confirmations.

Conclusion

Following the launch of V3, Thetanuts Finance plans to introduce a DAO governance model, furthering its commitment to decentralization. While the platform has achieved significant milestones as a leading on-chain options protocol, it recognizes that bringing options to a broader range of traders for profit is a long-term goal. Its user-friendly interface and altcoin options other than Ethereum mainnet make it a strong DeFi in the market.