#Learn DeFi — Exploring Synthetix and Spectre.AI Binary Options
By: Value Network Defi Products
Tags: Defi, Blockchain, Synthetix, Prediction, Aave

Adoption of binary options in cryptocurrencies is slowly happening. Some emerged and disappeared, while a few stayed on. If you are a newcomer to the crypto space and still wondering how blockchain-based binary options are different from the regular ones, here is a quick drop down.

Interfaces of the platforms (Synthetix and Spectre.AI)

Trustless trust joins binary options

Smart contracts control trading of binary options on blockchain, compared to conventional binary options trades which are facilitated by brokers who are focused on serving their own interests rather than the traders. Most often, they go overboard about making the profits, using scrupulous means to make money and ignore traders’ interests. Generally, they will favour the traders who have more money than others to throw in.

To say it differently, in traditional binary options, the most affluent players get the best deals. Decentralized blockchain-based exchanges set up a level-playing field for all the participants, regardless of the capital they have put in.

Now that you are aware how decentralized and traditional binary options differ, let us have a look at the decentralised variety of binary options and determine how they work in a bit detail. The two names which immediately pop out and make their presence felt are Synthetix binary options and Spectre.

I also see Value Network in the league soon, but for now, let us focus on Synthetix and Spectre, understanding how they operate, betting process, returns, oracles, restrictions, and more.

A dive into Synthetix binary options

Providing support for more than 25 different asset types, Synthetix binary options consists of three phases:

Bidding — Participants buy long or short options, which they can sell at any time for a 5% fee.

Trading — The system fixes the options earmarking ERC20 tokens representing the trading position to the traders.

Maturity — A post-option six month window which holders can use for a payout.

Synthetix enables traders to buy/sell tokenized representation of options on DEXs like Uniswap or Balancer, thus bringing in a core aspect of DeFi. The platform demonstrated how binary options can have interesting effects on spot prices, as it was evident in the case of SNX, the native token of the platform.

Being a decentralized exchange, it is the stakers of native token (SNX), who facilitate trading instead of a single business, deciding the policies which govern trading of binary options. This includes stuff like how these options are priced, how long they are traded, and such. Anyone can stake SNX and be a part of binary options governance here.

Creating a market

Synthetix allows anyone to create a market by selecting an asset, a strike price, the long/short price skew, and the relevant dates. The long/short price skew refers to the expected probability of the market creator i.e. initial belief about the odds. This ascertains the initial price of each option, which moves once traders begin buying options in favour of a market or against it. The maximum skew on Synthetix binary options is 95% to 5% on either side. When a marketer creates an opening price skew, they also have options on either side. In case they set a 60% long and 40% short opening price skew, it means their options are 60% long and 40% short.

Challenges

Conventional binary options face issues like exorbitant fees and opaque pricing structures. On a blockchain-based platform like Synthetix, such issues get obliterated.

Volume incentive program

Currently, Synthetix binary options has no apparatus to capture the fees during trading. They have done it intentionally to allow projects developing binary options exchanges to extract value in the markets. Synthetix has been flexible regarding this aspect. Projects are rewarded with the native token SNX for driving trading volume through the platform.

Oracles

Market creators can select the price oracle from the approved set of data sources on the Synthetix ExchangeRates contract which includes several Chainlink aggregators. Initially, Synthetix has opted for a trusted sets else malicious actors could supply manipulated data feeds. In future, however, oracles selection procedure could be democratised.

Trading

When a market moves to the trading period, bidding is disabled while ERC20 token transfer is enabled. The mechanism would compute the quantity of options as the individual token prices get stabilised, enabling the users to claim the options.

Maturity

When a market reaches the maturity date, an update is obtained from the oracle. The mechanism would resolve the outstanding options to pay out 1 sUSD each, or nothing. Users can then exercise the positive balance of options to obtain the payout. Any collected fees is released to the market creator and the fee pool.

Explore Spectre.AI

A prominent blockchain-based platform for binary options, Spectre.AI brings across the sort of transparency which was simply missing in the conventional markets. It removes brokers from the scene, enabling traders to trade against a liquidity pool or other traders. Users may trade right from their wallet or, if they want to save on gas fees, via an escrow account.

Users own the liquidity pool on Spectre.AI and get rewards based on the traded volume. Unlike conventional binary options, there is no role for centralised management. Spectre has trade execution times of a few milliseconds. With trade fees and gas cost missing as well, it has provided plenty of reasons to traders to hop on.

Spectre.AI executes smart option contracts which are automated algorithms and no human can interfere in these. The mechanism makes the binary options contracts completely fraud-free. Unlike the conventional system where you go for the trades through an intermediary i.e. a broker, trades on Spectre.AI are verifiable via a publicly distributed ledger network. This turns out into 24/7 liquidity. The trades are settled immediately as well.

Centralised as well as decentralised accounts

A useful option Spectre provides to traders is an off-site decentralized wallet account along with regular centralized accounts. People who prefer trading in the conventional manner can opt for the latter. Spectre registers its trades on the blockchain where the publicly distributed ledger network would verify them. Thanks to the optional wallet account, there is no need for users to deposit for trading. This ensures safety of funds as well as transparency in the system.

The addition of a DeFi Boost wallet using Chainlink oracles enables traders to trade the DeFi tokens to make profit of 70–400%, depending on the way their digital contract has been constructed. The whole episode will take anywhere between a few seconds to a few hours. Hyper API of Spectre is super quick in matching buyers and sellers. In case there is a liquidity shortfall, the liquidity pool ensures there is no dearth of liquidity.

How the system works

The algorithm first attempts to settle new orders against the order book. However, in absence of an opposing trade, the system executes the order against the liquidity pool. The algorithm fills all the trades in a timely manner and eliminates all doubts about broker reliability.

The Spectre.AI algorithm functions on a fee system. Commissions are done away with and spreads are much tighter than how it is with most other brokers. If you glance at the EUR/USD spread among forex brokers, for instance, you will find it hardly goes to six pips, while it is 12 pips with general forex brokers.

Lower spreads improve win rates for the participants. They can execute strategies in a better way as there is less spread to overcome to make the trade profitable. Though the payouts on the digital binary options is a bit lower, you won’t realise it if you win for more number of times.

What you can trade on Spectre.AI

The platform has smart contracts on forex pairs, binary return derivative and CFDs on various financial products. Forex pairs stand out when it comes to leverage. Payouts to the range of 200% are possible with some binary return derivatives.

Aggregate of past market movements

Spectre added more zing to their platform in late 2019 when they added Epochal Price Index Composite (EPIC). It rolls out an aggregate of past market movements, thus feigning live markets. EPIC prices are based on real time market values. You may trade this asset just like any other. However, the advantage you can trade this asset round the clock.

Withdrawals

Powered by Ethereum, Spectre required ETH when it started. Later, however, the platform allowed traders to use fiat currencies like USD for functions like deposits and withdrawals. If you are using a stand-alone wallet, withdrawals become easy. In some regions, USD withdrawals can also be made. Sometimes, funds may take up to 24 hours to show up on your exchange wallet.

Oracles

Spectre has chosen Chainlink to source its fresh data as it ensures a tamper-resistance data delivery, thanks to a decentralized network of secure, Sybil-resistant node operators. Chainlink serves Spectre accurate prices which stand for the volume-adjusted aggregate across all trading environments.

Closing thoughts

Emergence of blockchain, particularly DeFi and decentralized oracles, has given a new dimension to binary options. The technology has brought in trustless trust, meaning that parties who are totally unknown to each other can trade in binary options without a second thought.

Value Network brings along an opportunity to trade your funds on an advanced DeFi product that provides you easy liquidity and trustless environment. We started in 2008, when binary options were publicly made available as tradable assets on CBOE (Chicago Board Options Exchange). With the advent of 2021, Value Network will take another big step when its token VNTW is listed on Uniswap on January 5.

Till February 2021 Value Network Binary options prediction markets MVP will shape up.

Uniswap fork ValueSwap v.2 coming on its way

Till March 2021 Value Network will begin working with community owners, webmasters and other participants on a multi-level referral program, enabling them to earn commission on the traffic they refer to the platform.

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Roadmap for Q1 2021 — Value Network — https://valuenetworklive.medium.com/roadmap-for-q1-2021-value-network-9d582795bfe5

VNTW token vesting period explained (07.12.2020) — Artem Levin- https://valuenetworklive.medium.com/vntw-token-vesting-period-explained-07-12-2020-artem-levin-b31fcee9b5d5

Value Network project history — a lookback to 2018- https://valuenetworklive.medium.com/value-network-project-history-a-lookback-to-2018-9cc5c30eb2ad