Opium is an Ethereum-based decentralized platform that powers the trading of any decentralized derivative.
During Bitcoin’s early days, cryptocurrencies existed as isolated products. As the industry grew, there was a need to interface traditional finance practices into the decentralized world. Part of the infusion happened by introducing distributed derivatives.
Derivatives are financial contracts that derive their value from an underlying asset. A derivative can involve two or more entities. In the cryptocurrency ecosystem, the underlying asset is mostly Bitcoin, although it is slowly shifting to other leading digital currencies.
Despite the growing popularity of cryptocurrency derivatives, very few platforms are solely focusing on this market. To help grow the space, the Opium Protocol provides a professional platform to handle everything related to derivatives. Due to the platform’s vast capabilities, let’s take a simplified overview.
Behind Opium are professional and experienced consultants, mathematicians, programmers, and traders. For example, its founder, Andrey Belyakov, is a professional derivative trader and has managed hedge funds for ten years.
The project’s CTO, Ali Nuraldin, is a technology strategist experienced in full-stack web and mobile development. Michael Garber, another Opium team member, has won championship titles on mathematical research and mathematics.
Leading partners associated with the project include Aave, Zerion, The Graph, DeBank, and Chainlink. The protocol’s backed by Kyros Ventures, Galaxy Digital, Digital Strategies, HashKey Capital, CMS, One Block, Alameda Research (founding company of FTX and ProjectSerum), and SevenX Ventures.
What is Opium Network?
Opium is an Ethereum-based decentralized platform that powers the trading of any decentralized derivative. The platform regularly comes full circle, handling everything from creation to settling.
Interestingly, instead of using Ethereum’s ERC20 token standards, the protocol employs ERC-721o. These purposely-built standards drive finance-related activities. As such, it provides an easy way to put together and trade a portfolio.
The network has unique oracles that allow its smart contracts to interact with reliable off-chain data. Therefore, the platform is capable of hosting agreements outside the financial space. For example, the oracles provide data to contracts focusing on sporting, lottery, or other non-derivative functions.
What Sets Opium Apart?
The network’s major qualities revolve around the creation of smart contracts, trading, settlement, learning, consistency, and completeness. These qualities work together to bring Opium to life.
- Simple Interaction – Provides a simple way to launch smart contracts by obstructing the complexities involved. However, during creation, a derivative contract must contain basic parameters such as the initial margin size, maturity date, execution details, payout details, and procedures.
- Trading – This quality brings in the best of both worlds. It matches orders off-chain but executes them on-chain. Furthermore, it enables trading of combined portfolios such as rolls, swaps, and spreads.
Note that a combined portfolio is traded or managed as an individual token. Therefore, it saves on transaction fees charged if the portfolio’s content were traded individually. Additionally, combing a portfolio eases the implementation of economic logic.
Luckily, a combined portfolio can be reverted to its constituent ingredients. By virtue of using ERC-721o standards, existing portfolios can also be recomposed to add or remove previously added tokens.
- Settlement – Provides for professional settlement of transactions including, but not limited to, token burns and minting. Observe that the entire process is handled on the Opium Protocol.
To enhance a uniform settlement process, derivatives creators specify finer details about their creation. The details are housed outside the network but are connected using specially-designed connectors. This approach allows the system to treat each contract equally.
- Intelligence – To some extent, the protocol is intelligent enough to anticipate related logic by evaluating the provided logic.
- Level Standard Throughout– The network employs the same token standards allowing tokens to traverse the Opium ecosystem easily. Furthermore, its consistency comes from the fact that the platform’s derivatives can be used as assets to create other derivatives.
- More Than Derivatives – Opium is empowered to handle both financial and non-financial related smart contracts. Additionally, being hosted by a Turing complete platform like Ethereum means Opium can “predict” the future depending on the provided task execution flow.
Notably, by exuding these qualities, the protocol can provide decentralized functionalities initially held by intermediaries and financial institutions without compromising the trust factor.
All from The Traditional Sphere Are Welcome on Opium
As such, the platform opens its doors to participants in the conventional financial market such as hedgers, investors, arbitrageurs, margin traders, and speculators. In addition to these users, Opium enhances its products by including relayers, product designers, among other individuals.
Relayers, for example, are entities tasked with off-chain order matching before bringing them on-chain. They’re rewarded from two places. One comes from Opium users in the form of fees, while the other comes from arbitraging activities.
On the other hand, product designers combine products on the network to form a single product or design a product from scratch. For example, they can take several products and make them a portfolio.
But where are the incentives?
When designing a new product, whether it’s from scratch or a combination of existing ones, the designer can change the fees involved when interacting with the new one, thus, earning a commission.
Opium arbitrageurs make a profit from studying the markets and liquidity sources. Consequently, they can benefit from the price difference in different corners of the Opium ecosystems.
Data suppliers also form a vital part of the protocol. They interface real-world data with Opium and charge a fee for their services. Being a finance-focused platform, market makers come in handy. The network incentivizes market makers to provide liquidity.
Opium and Decentralized Finance (DeFi)
The DeFi scene is continuously gaining momentum, and Opium is at the center of it all. By merely providing a decentralized platform to create, trade, and settle derivatives, it already has one leg into the DeFi ecosystem.
To further its involvement in the industry, the platform’s team has launched credit default swaps (CDS) contracts for popular DeFi systems such as Aave. In addition, they have introduced pre-market futures for COMP, another DeFi-focused platform.
Opium protocol CDS is another product targeting to make a huge impact in the decentralized insurance market. Note that CDS ease the transfer of risks.
Opium’s Native Token and Governance
OPIUM is the network’s native token with a total supply of 100 million tokens. During their distribution, active users account for 60 percent, while investors/advisors, the Opium team, and the reserve fund take 16, 14, and 10 percent, respectively.
The tokens are used on the platform to:
- Provide liquidity.
- Write CDSs.
- Write options.
- Increase the protocol’s TVL (total value locked).
- Design derivatives.
- Reward liquidity providers.
- Vote on governance proposals.
Although the platform originally enacted centralized governance, it’s leaving major decision-making processes to its decentralized community of users. The distributed governance approach uses a decentralized autonomous organization (DAO), which is inspired by AragonDAO. As stated, OPIUM tokens also give the protocol’s users the right to participate in governance matters.
Opium Protocol presents a trustless, decentralized system that can accommodate a wide range of use cases such as powering futures, advanced combined derivatives, swaps, and options. The platform’s layered design based on these qualities makes it easy to understand and use.
By allowing portfolios to be composed, decomposed, and recomposed, the platform enables its users to save on gas fees.
Furthermore, supporting participants from a traditional financial setting props the platform up for success. The success score is further boosted by additional entities such as relayers, product designers, and arbitrageurs.