The modern state of the Binary Options industry and how blockchain can revolutinize it — Artem Levin (10.12.2020)
By: Value Network Defi Products
Tags: Defi, Options, Prediction, Binary, Markets

Intro

The binary options industry was in the spot of attention of people around the globe since 2010. There are numerous reasons for this.

Binary options give you a smooth experience in its basics as an instrument and an easy-going process. You need to choose the market, decide on YES or NO, or if the asset’s price will be higher or lower. If you win — the premium of 30–90% is accrued on your balance.

Massive marketing campaigns “too good to be true” around the globe which just reached out to every person on the planet as far as I see it.

The negative experience of people, like from boiler rooms, that even seem to be regulated just fake the price of the asset to scam the people. And, as we know, negative experience has more word-of-mouth than positive.

History

Let’s take a look at what’s currently happening in the binary options industry and where it all may go.

Initially, binary options are just a usual vanilla option and is described in all economic books as a typical derivative instrument.

A quote from https://www.leaprate.com/news/the-history-of-binary-options-trading-infographic/#:~:text=In%20binary%20trading%20you%20can,(CBOE)%20was%20officially%20launched.&text=In%20May%202008%2C%20binary%20options,American%20Stock%20Exchange%20(AMEX).

Binary options trading is becoming increasingly famous worldwide after the advent of binary options exchanges such as Nadex and Daweda Exchange. In binary trading you can bet on financial assets and make some quick profits. The history of binary options trading dates back to 1974 when the Chicago Board Options Exchange (CBOE) was officially launched. In 2008, options were publicly made available for the first time as tradable assets on CBOE.

2008 was the year when the subprime mortgage crisis in the United States triggered one of the worst financial meltdowns in human history. Lehman Brothers, Bear Stearns and many other symbols of financial stability collapsed one by one. This was the scenario when investors realized the need for a low-risk investment option which consequently led to the emergence of binary options trading.

In May 2008, binary options were publicly made available as tradable assets on American Stock Exchange (AMEX). A couple of months later, few binary options platforms were introduced by brokers such as 24Option, Banc De Binary and AnyOption. Those brokers are considered pioneer in the binary options industry. The trend of binary options trading touched new highs after the advent of binary brokers, However, the conflict of interest problem emerged as a result of binary options trading via brokers because everyone was betting against the brokers which means brokers were the losers when traders won and vice versa.

The conflict of interest problem led to the emergence of binary options exchanges and in 2009 the first binary options exchange came into being. The name of the exchange was Northern American Derivatives Exchange (NADEX). Binary exchanges allow peer to peer trading of binary options contracts which means a binary trader can bet against another binary trader (instead of the exchange or broker). This concept successfully addressed the conflict of interest problem and consequently binary options trading continued flourishing.

In 2010, SpotOption was launched — the largest binary options software provider which currently holds more than 300 white label brokers and capitalize more than 60% market share. 2012 was also an important year in the history of binary options trading when Banc De Binary announced to become the first ever regulated binary options broker and prompted other binary brokers to follow the same path. In May 2012, Cyprus Security & Exchange Commission (CySec) — the chief regulatory agency of Cyprus- for the first time classified binary options as tradable assets; then began a slightly dark period for the binary options industry when a number of binary options scams attracted the attention of mainstream media. In 2013, CySec warned traders of unregulated binary options platforms amid lots of complaints from binary options traders. Same was the year when Commodity Futures Trading Commission (CFTC) fined Banc De Binary for illegally soliciting US customers for almost $11m. In June 2014, the CFTC and SEC issued a joint investor alert, warning binary options traders about fraudulent platforms.

In April 2015, Nadex announced 54% rise in trading volume during a 12-month period. One month later, the UK government announced plan to treat binary options as a financial product (and not the gambling product). In February 2016, SpotOption announced a record 5 million mobile app downloads. In October 2016, the term “binary options” recorded 110,000 monthly search on Google — almost the same as Forex trading.

A snapshot of Binary options history from https://www.leaprate.com/news/the-history-of-binary-options-trading-infographic/#:~:text=In%20binary%20trading%20you%20can,(CBOE)%20was%20officially%20launched.&text=In%20May%202008%2C%20binary%20options,American%20Stock%20Exchange%20(AMEX).

Long story short, we have these boiler rooms faking the price of the assets to make people lose, and pure conflict of interest as these companies are profiting on people’s losses.

On the one hand, binary options are regulated for the professional investors on exchanges like NADEX and AMEX and on the other — restricted for the retail investors in many countries, but not keeping them safe from call-centers and website mirrors of the banned services.

How can we solve that?

Settle the bets of users against each other, not the user against the platform. That lets the platform earn not on users’ losses but on commissions from the trades. Let everyone participate will the clear rules of DeFi. So all participants with a metamask wallet and any summ on the account can make a bet. Use public oracles (price feeds) to provide a fair price. We decided to choose Chainlink as a price feed as the most trusted oracle provider at the moment. Provide intuitive interfaces that the current fiat users can easily switch to Value Network instead of scammy fiat binary options providers. Apply a multi-level referral program (settled on the blockchain) to let webmasters, community owners, and other participants refer the traffic on the platform and earn from the commissions from the trades, not from people’s losses. (We’ll put a closer look at the multi-level referral system later to describe why it is just a customer acquisition instrument but not the MLM scheme. Long story short — because referrals are earning on commissions from trades, not on forcing the new people come to the platform)

What is the size of the market?

The estimated market size is from 30 to 100 billion dollars yearly, according to multiple sources.

Source 1, 2, 3

Current DeFi binary options products

Currently Synthetix launched their binary options platform and their token reacted on that event greatly

What’s next?

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

Vesting period of the project to motivate the team and advisors — https://valuenetworklive.medium.com/vntw-token-vesting-period-explained-07-12-2020-artem-levin-b31fcee9b5d5

Liquidity reward program — https://valuenetworklive.medium.com/the-problems-of-initial-liquidity-and-liquidity-reward-program-for-vntw-token-and-value-network-48f070267a64

Artem Levin, 2020