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Protocol design

This reference covers the protocol’s liquidity movement, position manager and pricing architecture. For the conceptual payoff relationship, see Uniswap LP positions as options.

What is the relationship between Panoptic and Uniswap?
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The core idea behind Perpetual Options is that Uniswap liquidity provider (LP) positions can be seen as tokenized short puts. This core result emerges from the simple observation that providing concentrated liquidity in Uniswap generates a payoff that is mathematically identical to selling a put option.

This means that Uniswap LP tokens can be used as a primitive for an options contract. While users can already sell options by providing liquidity in the Uniswap smart contracts, what Panoptic enables is the capital-efficient minting of options in a "peer-to-protocol" manner by facilitating the minting of LP tokens as long/short puts and calls.

Uniswap v3 <> PanopticUniswap v3 <> Panoptic

At a core level, Panoptic has deployed a smart contract that replaces the NonFungiblePositionManager.sol (NFPM) smart contract from v3-periphery. This "new" smart contract, called the SemiFungiblePositionMananger.sol (SFPM), uses the ERC1155 interface to track positions within Uniswap V3 or V4.

The SFPM and the NFPM both interact with the Uniswap smart contracts to deploy and track liquidity positions, with the SFPM replicating all the basic functionalities of the NFPM but with a significant decrease in gas costs. The Panoptic interface allows existing Uniswap liquidity providers to easily migrate their positions from NFPM to SFPM.

Permissionless, Perpetual Options
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Options positions in Panoptic have no expiration. Trading requires a compatible pool, valid tick-aligned strikes and widths, sufficient collateral, and available liquidity. Buying removes liquidity supplied by sellers, subject to the position manager's limits. Interface listing is separate from permissionless pool deployment. Panoptic aims to transform the way users trade options the same way Uniswap transformed on-chain spot trading.

Oracle-free Pricing
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The key difference between the pricing of regular options in TradFi and in Panoptic is the way the premium is calculated. Instead of requiring users to pay for their options upfront, the pricing of a Panoptic option is path-dependent and will grow at each block as long as the spot price is within range of the option strike price. Total streamia (streaming premium) depend on the path of prices and trading activity. Low or zero streamia accrual over an interval does not imply a cost-free trade: commissions, gas, and applicable borrow interest remain separate. V2 uses internal price observations for collateral and solvency checks.

Capital Efficiency
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Options sellers in Panoptic are able to write undercollateralized options. Required collateral depends on the selected RiskEngine, position composition, price, utilization, and action buffers. A base collateral percentage is not a universal leverage limit or evidence of compliance with traditional broker margin rules. Undercollateralized options aim to more accurately reflect the risks associated with selling options compared to fully-collateralized options.

Fees
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Users pay fees in three scenarios.

  1. When a position is opened or closed, the options trader pays a commission fee according to the pool's RiskEngine and settlement operation. Streamia commission can be subject to a notional cap; builder routing can change the amount paid. See the parameter page for configuration.

  2. When a user borrows funds from the Panoptic pool to open positions on leverage, the user pays interest on the borrowed amount. The interest rate is a floating rate which depends on the pool's current utilization vs target utilization.

  3. When a user buys an option, the user accumulates streamia on the position.

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