Buffer Finance V2 Overview
There has been much buzz around what Buffer Finance V2 will look like and what role will $iBFR play in the new version? Will it be just a governance token, or will it be central to the liquidity of the protocol?
Before going into details of V2, we will explain what we tried to achieve via Buffer V1 and the key challenges we face right now.
We started building the first version of buffer finance, focusing on three fundamental problems that we wanted to solve.
Capital efficiency: Options protocols struggle due to fragmented liquidity among different chains and assets, restricting their ability to offer options over multiple assets. They have to stick to blue-chip cryptos like BTC, ETH, and Link.
V1 approach: We solved this problem by harmonizing liquidity in a single pool responsible for writing options on all the assets. Liquidity harmonization over multiple assets allowed us to launch stocks, crypto, fiat, and commodities options.
Challenge — The harmonization came with an un-defined risk for the liqudity providers; t$iBFR rewards compensated for this risk, but that might not be enough to make it a highly scalable solution.
Simplifying options trading: Option protocols still haven’t seen mainstream adoption among retail crypto users, and the major bottleneck for it is the complexity of options. We believe simplification/gamification of option buying will go a long way and lead to adoption at the scale of crypto perpetual and futures.
V1 Approach: We tried simplifying options via our prediction game interface that allows anyone to take a position on any asset by just selecting up or down and deciding how much they want to bet.
Challenge: The prediction market significantly improves over a plain vanilla options interface. We still see users getting confused in using the payout calculator and understanding the break-even value.
Customization: Currently, most options protocols are built for specific use cases and cannot be customized for a particular use case.
V1 approach: We have built all the contracts as customizable templates that allow pricing and settlement options on any asset. Additionally, option buyers can mint their positions as NFTs, enabling them to leverage NFT marketplaces as a secondary marketplace.
Challenge — V1 still doesn’t support pricing and settlement of exotic options and has certain limitations regarding the degree of customization possible for a given use case.
Although V1 was significant progress toward an options trading platform that the masses can adopt, V2 would be a paradigm shift. We present a brief overview of what V2 would look like and how we have tried to solve all the above challenges.
- Capital efficiency: Like V1, V2 will also support multiple assets, but the liquidity pool would use $iBFR to mint options, and 100% liquidity will be protocol controlled. $iBFR based liquidity gives direct utility to the $iBFR tokens and will allow us to experiment with risk hedging ideas to build a more robust liquidity pool. As the risk-hedging mechanics of the pool becomes more defined, we will gradually shift to a stablecoin-based LP (at least for a few assets) and allow anyone to provide liquidity.
- Simplification: V2 will use exotic options to simplify the option buyers' journey further. Buyers would be able to decide the exact price they want to bet on via our cash-or-nothing binary options. They will also be able to buy options that give them a pay-off if the price of the asset stays in a range.
- Customization (AKA Buffer Pro): Buffer V2 was built, keeping generic use cases for options in mind. With the on-chain options narrative evolving, this architecture will allow us to fine-tune features as per the market requirements. Some of the use cases included
- Decentralized options vaults for exotic options like binaries, barries, and one-touch
- Stock options for DAOs
- Treasury management for DAOs
- Multi-leg options strategies and minting them as NFTs for OTC trading
All in all, this was a brief overview of V2. We have already made different levels of progress in all three aspects including some key partnerships and will be releasing details in the coming days. You can join our Telegram group or our Discord server to stay updated.
Buffer is a multi-asset gamified options trading protocol. It allows anyone to buy options directly against a liqudity pool.