ALGORAI FINANCE
Vault Strategy
Physical settled put options are sold on the USDC TVL deposited by users into the vaults, with reference to an underlying cryptocurrency asset. The vaults automatically perform option writing on Fridays, and the option contracts are sold to whitelisted market makers who pay a premium. The premiums are deposited into the vault and represent the yield that users will receive. The premiums received are in the same currency as the deposit asset. The vault reinvests the yield earned back into the strategy, effectively compounding the yields for users over time. If the vault expires In-The-Money (ITM), the vault converts the USDC deposits to the underlying cryptocurrency asset at the week's strike price.
Strategy Risk: If the spot price of the referenced underlying asset is below the strike price of the option at contract expiry, the options will expire In-The-Money (ITM) and the vault will convert the USDC deposits to the underlying cryptocurrency asset at the week's strike price.
Users deposit into vaults
Users deposit USDC assets into the vault. These assets are utilised as collateral to perform weekly physical put option writing strategies, with reference to an underlying price of BTC, ETH, or ALGO.
Vault performs option writing
At 10am UTC Fridays, the vault determines the optimal strike prices for BTC, ETH, or ALGO. In preparation for the option contract auction, the vault TVL is locked until the follow Friday, post settlement at 9am UTC.
Vault Sells Options to market makers
Whitelisted market makers participate in a blind auction and bid for the option contract that matures the following Friday. The winning market maker pays a premium to purchase the option contract.
Vault receives Yield
The premium paid by the market maker to purchase the option contract is deposited into the vault. This represents the yield for users.
Options mature OTM
The spot price of the asset is higher than the strike price at option maturity. The option expires out-of-the-money and no financial settlement take place. The vault keeps the premium paid.
Options mature ITM
The spot price of the asset is below the strike price at option maturity. The options expires in-the-money and the vault converts the underlying USDC deposits into the reference currency at the option's strike price.
Settlement to market maker proceeds
The market maker pays an amount of BTC, ETH, or ALGO to the vault equal to the notional of the maturing option contract. The vault pays out the USDC deposits to the market makers for the purchase.
Users deposit into vaults
Users deposit USDC assets into the vault. These assets are utilised as collateral to perform weekly physical put option writing strategies, with reference to an underlying price of BTC, ETH, or ALGO.
Vault performs option writing
At 10am UTC Fridays, the vault determines the optimal strike prices for BTC, ETH, or ALGO. In preparation for the option contract auction, the vault TVL is locked until the follow Friday, post settlement at 9am UTC.
Vault Sells Options to market makers
Whitelisted market makers participate in a blind auction and bid for the option contract that matures the following Friday. The winning market maker pays a premium to purchase the option contract.
Vault receives Yield
The premium paid by the market maker to purchase the option contract is deposited into the vault. This represents the yield for users.
Options mature OTM
The spot price of the asset is higher than the strike price at option maturity. The option expires out-of-the-money and no financial settlement take place. The vault keeps the premium paid.
Options mature ITM
The spot price of the asset is below the strike price at option maturity. The options expires in-the-money and the vault converts the underlying USDC deposits into the reference currency at the option's strike price.
Settlement to market maker proceeds
The market maker pays an amount of BTC, ETH, or ALGO to the vault equal to the notional of the maturing option contract. The vault pays out the USDC deposits to the market makers for the purchase.
Users deposit into vaults
Users deposit USDC assets into the vault. These assets are utilised as collateral to perform weekly physical put option writing strategies, with reference to an underlying price of BTC, ETH, or ALGO.
Vault performs option writing
At 10am UTC Fridays, the vault determines the optimal strike prices for BTC, ETH, or ALGO. In preparation for the option contract auction, the vault TVL is locked until the follow Friday, post settlement at 9am UTC.
Vault Sells Options to market makers
Whitelisted market makers participate in a blind auction and bid for the option contract that matures the following Friday. The winning market maker pays a premium to purchase the option contract.
Vault receives Yield
The premium paid by the market maker to purchase the option contract is deposited into the vault. This represents the yield for users.
Options mature OTM
The spot price of the asset is higher than the strike price at option maturity. The option expires out-of-the-money and no financial settlement take place. The vault keeps the premium paid.
Options mature ITM
The spot price of the asset is below the strike price at option maturity. The options expires in-the-money and the vault converts the underlying USDC deposits into the reference currency at the option's strike price.
Settlement to market maker proceeds
The market maker pays an amount of BTC, ETH, or ALGO to the vault equal to the notional of the maturing option contract. The vault pays out the USDC deposits to the market makers for the purchase.

Vaults