# Polynomial Earn Vaults Polynomial automates financial derivative strategies to create products that deliver passive yield on various assets. Polynomial Earn is the first DeFi Options Vault (DOV) that executes completely on-chain by selling options directly to an AMM. Check out this short video by [Lito](https://twitter.com/litocoen) from [Cryptotesters](https://twitter.com/cryptotesters) to get acquainted with Polynomial Earn {% embed url="" %} ### Guides: Jump right in Follow our handy guides to get started on the basics as quickly as possible: ### Strategies: How vaults work {% content-ref url="/pages/qmKhxkVqSf9dZrGvOR0R" %} [Call Selling](/vault-strategies/call-selling) {% endcontent-ref %} {% content-ref url="/pages/Jvt6QmWAM5uInHiLPLwS" %} [Put Selling](/vault-strategies/put-selling) {% endcontent-ref %} {% content-ref url="/pages/oI9ceBytykgWvso2CVru" %} [Broken mention](broken://pages/oI9ceBytykgWvso2CVru) {% endcontent-ref %} **Deposit:** For users who want to deposit money into the vaults {% content-ref url="/pages/FL5zb6x71F5gw2ByTKCE" %} [Deposit](/technical-implementation/deposit) {% endcontent-ref %} **Withdraw:** For users who want to understand the mechanism behind withdrawing funds {% content-ref url="/pages/FD2Q2xq9FTbeg3vgSkPS" %} [Withdraw](/technical-implementation/withdraw) {% endcontent-ref %} {% hint style="info" %} **Be Alert!:** * Polynomial Protocol doesn't have a token or a telegram group. * Polynomial Team will never ask you for your private key / secret phrase. * Please exercise caution and common sense when dealing with people/platforms. * Follow Polynomial Protocol on Twitter ([@PolynomialFi](https://twitter.com/PolynomialFi)) for official updates. * Join Polynomial Protocol's [Discord](https://discord.gg/V2Du2qkahb) for support or to be part of the community. {% endhint %} # FAQ ### What is Polynomial Earn vaults? Polynomial automates financial derivative strategies to create products that deliver passive yield on various assets. Currently, we have a call selling and put sell strategy on the platform. Through a weekly automated option selling strategy, the vault generates a return on its deposits. To effectively compound the returns for depositors over time, the vault reinvests the yield into the strategy. ### Why Optimism? Optimism is a layer two scaling platform that inherits the security of Ethereum by being a rollup. Optimistic Rollups have been quicker to provide a generalized environment where multiple applications can exist. Also, the transactions are so fast and the low gas fees. ### Why does the user need to connect the wallet? To interact successfully with a dApp like Polynomial Earn vaults, you'll need to connect your wallet and give the DApp permission to make signed transactions. Most crypto wallets allow you to connect easily with the dApp in this way. ### Why do the users need to switch to Optimism? Polynomial Earn Vaults are built on top of the Optimism Network. ### Why does it show insufficient balance, while I have assets on my wallet? Polynomial Earn Vaults use synthetic assets developed by [Synthetix.](https://synthetix.io/)\ If the user doesn't have the synthetic assets, then users should swap into synthetic assets to deposit into the Earn Vaults. The user can use the swap feature available on the site for this. ### Does Polynomial have a token? Polynomial does not have a protocol token, be aware of scams. Please report scam tokens if you see one. ### **How does Polynomial vaults sell options?** Polynomial vaults sells the newly minted options to Lyra AMM in batches to collect yield. ![Polynomial sells options to AMM in batches over few hours.](/files/iA9i7j2Somsh3NgVitDs) ### What risks does the user need to know when depositing in the Earn Vault? Please refer to [Risk](/risk) ### What about Lyra trading rewards? The protocol will stake it on behalf of polynomial users as xLyra, which will decrease AMM fees for users in the long term, thereby increasing yield marginally. The protocol will keep all the tokens.
### Why is the amount I bridged different from the deposited amount? This is because the assets were swapped into vault compatible assets for deposit \ For eg : USDC -> sUSD ### What are tasks for Polynomial's Optimism Quest? Optimism Quests are a simple, educational, and rewarding exploration of the Optimism app ecosystem. Just by completing a short quiz and task, users will be able to mint a commemorative NFT that represents the completion of the Polynomial's Optimism Quest. The off-chain tasks for Polynomial's Quest are * Follow Polynomial on [Twitter](https://twitter.com/PolynomialFi) * Join the [Discord](https://discord.gg/polynomial) community The on-chain task Polynomial's Quest is : * Deposit > $1000; Duration > 24 hours * Deposit < $1000; Duration > One week To get started with our quest : [Click Here](https://app.optimism.io/quests/polynomial-use-options-vaults) # Fee The vault fee structure consists of * 10% performance fee * Withdrawal fee (only if the vaults have an active position). If the vault strategy is profitable and the options expire worthless, the weekly performance fee is charged on the premiums earned. If the strategy is unprofitable, no fees are levied.\ \ For the option selling vaults, after contracts expire for the week - there'll be a 2-hour gap before selling resumes, during this time no withdrawal fee will be applied on withdrawals. # Risk ### Market Risk Vault Strategies are subject to market risks that might adversely affect the user, these are discussed in detail in the [Vault strategies](/vault-strategies/call-selling). ### Smart Contract Risk Smart contracts are nascent technology and are subject to risks associated with code. The vaults are peer-reviewed smart contracts with an audit from : * [Peckshield](https://peckshield.com/) Audits and peer reviews don't nullify the possibility of an exploit or hack, and we advise the users to only risk the amount of money they can afford to lose. # Rewards {% hint style="warning" %} Polynomial doesn't have a token and rewards are in OP. Don't get scammed. {% endhint %} ### Retroactive Airdrop The OP retroactive airdrop is distributed to the users who are early users of the Earn Vaults v1, as per this [Governance Proposal](https://gov.optimism.io/t/gf-phase-0-proposal-polynomial-protocol/1625). **Snapshot date**: Friday, 13 May 2022 (1652429638) **Amount** : 180,000 $OP #### Criteria * Users should have deposited at least $69 * Participated in min. one active round. **Formula** $$ f(x) = \sum W(t)\cdot t - \sum \cdot D(t)\*t + ST\cdot RF $$ W(t) withdraws the amount at time t, D(t) deposit amount at time t. ST = snapshot time, RF = remaining funds. All times are in unix timestamp In the end; the whole score is divided by 604800 (number of seconds in week/round) ### Liquidity Mining {% hint style="info" %} **Liquidity Mining for Polynomial Earn Vaults hasn't started yet.** {% endhint %} **Amount** : 450,000 $OP **Criteria** : Future users of Polynomial Products Future vault users of the polynomial earn vaults will earn liquidity mining rewards. $$ f(x) = \alpha \* (OP \* C\_x )/\sum(C\_i) $$ OP is Total OP allocation C is vault capacity Alpha is vaults multiplier (newer vaults \~1.5-2x). # Options Primer An option is a contract created between a buyer and seller of an asset, which gives the holder of the asset in question the option, but not the obligation to purchase (or sell) the asset at a pre-determined price. *The buyer of the option has the right, but not the obligation to buy(or sell) an agreed quantity of an asset (the underlying) from(or to) the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or “writer”) is obligated to sell(or but) the asset should the buyer so decide. The buyer pays a fee (called a premium) for this right.* *View the following to learn more about options:* {% content-ref url="/pages/ZxVmoiXmn7BNfigsMd2q" %} [Call options](/fundamental/options-primer/call-options) {% endcontent-ref %} {% content-ref url="/pages/J5yYA14Z9Dmo2ew528Js" %} [Put Options](/fundamental/options-primer/put-options) {% endcontent-ref %} # Call options A call option contract gives the owner the right but not the obligation to buy a specified amount of tokens at a strike price within a specified option expiry time. #### Lets consider an example: Consider a scenario, Joe wants to buy 1kg of gold. But Joe is looking out for the best time to buy. At this moment, gold is priced at $50,000. Joe heard a rumour that many small countries are going to increase their gold reserves to hedge against inflation in 6 months. But since this is highly speculative because if countries didn’t increase their reserve, the price of gold won't shoot up(can also crash). Joe has a good friend Ben who is also a jeweller. Joe wants to play it safe, he thinks of the whole situation and finally proposes a structured arrangement to Ben, which Joe believes to be a win-win for both of them. The arrangement is as follows: 1. Joe will pay $1k upfront today. Consider this as non-refundable agreement fees that Joe pays. 2. Against this fees, Ben agrees to sell 1kg of gold to Joe after six months at $50,000.The price of sale is fixed today. 3. Because Joe paid an upfront fee to Ben, Joe can call off the deal at the end of 6months (if he wants to do this). 4. Ben cannot call off the deal. If Joe calls off the deal at the end of six months, Ben gets to keep the upfront fees. Now there are three possible outcomes at the expiry - Small countries started increasing their gold reserves. Price of gold shoots up to $60,000. Small countries did not start increasing their gold reserves to fight against inflation. Price of gold crashes to $40,000. Nothing happens, the price of gold stays at $50,000. #### Scenario - 1, Price of gold shoots up to $60,000. Since the countries started increasing reserves as per Joe's expectation, price of gold has also increased. Joe has the right to buy gold from Ben as per the agreement at $50,000. So Joe will be making : Agreement Fees = $1,000 Buy Price = $50,000 Current Price = $60,000 Net profit for Joe = 60000 - 50000 - 1000 =$9,000 #### Scenario-2, Price of gold crashes to $40,000 It turns out that countries increasing reserves was just a rumour and because of that the price crashes. So in this case, it doesn’t make sense to purchase gold and Joe will call off the deal. So he will incur a loss of $1,000. #### Scenario-3, Price stays at $50,000 For whatever reasons, price of gold stays at $50,000. Joe will walk away from the deal obviously and would not buy the gold. So in this case also, he will incur a loss of $1,000. Call options provide the owner of the option the right (again, not an obligation) to purchase the described amount of underlying tokens at the specified strike price, by the option's maturity date. **Buyers of call options believe the underlying token could go up in price over time.** # Put Options Put options give holders of the option the right, but not the obligation, to sell a specified amount of tokens at a strike price within a specified option expiry time. **Let's understand put options with an example:** Assume you bought a brand new Audi. You are really enjoying your new car, driving it daily. But people constantly nags you to get insurance since it was not a small purchase. And just to shut them down, you bought insurance. Unlikely event occurred and you met with an accident. Fortunately, nothing happened to you but the car got a lot of damage. Luckily you bought the insurance, so you got nothing to worry about since the insurance company will repair your car for no extra cost. Buying insurance is exactly like buying a put option. You are holding a large chunk of an asset and you wanted to protect your asset from an unlikely event(Market crash). So what you do is, you purchase a put option by paying premium(insurance in above example) to the option seller. So in case an unlikely event(market crash) happens, you have nothing to worry about. #### Put Options are bets that the price of an asset is going to fall. Here is a typical situation where buying a put option can be beneficial: Say, for example, that you bought ABC at $105, but you start getting concerned, because the asset price is starting to drift down because the market is weakening. So you decided to purchase a put option with expiry(lets say June 30th) and strike price of $100 for a premium of $8 . By buying the put, you’re locking in the value of your asset at $100 per share until the expiration date. Now even if the price of the asset drops to $80, you can still sell your asset for $100 dollars to the option seller. **So in effect, the put option gives you the right to sell the asset at $100 no matter how low the price falls.** # The Greeks The specific risk metrics of each option can be measured in terms of *4* common metrics, often called The Greeks. 1. **Delta (Δ)** measures the sensitivity of an option’s price relative to the change in the underlying asset’s price. In other words, if the price of the underlying asset increases by $1, the price of the option will change by *Δ* amount. 2. **Gamma (Γ)** represents the rate of change of Delta relative to the change of the price of the underlying asset. Since Delta frequently changes with underlying asset’s price, Gamma provide insights into what to expect from the future. Near at-the-money options have highest Gamma value. 3. **Vega (v)** measures the sensitivity of an option’s price to volatility. If the underlying asset’s volatility increases by 1%, option’s price will increase by *v* amount. 4. **Theta (Θ)** represents the rate of time decay of an option. If the option’s time to maturity decreases by one day, the option’s price will change by the *Θ* amount. Traders often use these metrics to compare the risk of options and make decisions as to which option closer meets their strategy. # Premium collection The premium is collected and distributed after the expiry date, if the option that was sold in the strategy expired worthless(or worth less than the premiums collected)
> Yield is calculated as below;\ > \ > **Yield = Total Premium Collected - Intrinsic value of options.**\ > \ > Yield generated can be profitable or loss-making for the user. This depends completely on the market movements # Deposit The vault receives assets from depositors and invests in an options strategy. There will be a min deposit time to process the deposits into the vault. All vaults are now tokenized with corresponding ERC-20 tokens to represent user balance. The net Asset Value (NAV) of the vaults is calculated to price the vault tokens. These vault tokens can be integrated into the rest of DeFi since the vault tokens act as a yield-bearing asset on the deposit token; the possibilities are endless. Users can deposit into vaults from {% content-ref url="/pages/Kl5RhshNARoq7dHvTZpV" %} [Deposit on Optimism](/technical-implementation/deposit/deposit-on-optimism) {% endcontent-ref %} {% content-ref url="/pages/rfsRQoP1dHIAnxmaSJUK" %} [Deposit from Ethereum,Arbitrum\&Polygon](/technical-implementation/deposit/deposit-from-ethereum-arbitrum-and-polygon) {% endcontent-ref %} **Vault capacity** Polynomial Earn vaults are capped at a $1 million capacity. Deposit from a unique address is uncapped. #### Min deposit time Since there is no round system in the newer version, there will be a min deposit time to enter into the position. The min deposit time ranges between 4 hours. # Deposit on Optimism The users can now deposit into the vaults, 1. Synthetic assets like sETH,sUSD, etc., to the respective Strategy vaults. 2. Deposit ETH and USDC on Optimism #### Synthetic assets The users can deposit synthetic assets from Synthetix directly into the vault. Synthetic assets like sETH,sUSD, etc, can be deposited according to the vault. #### Deposit ETH and USDC on Optimism Users can now deposit USDC and ETH directly into the vaults. The vault automatically converts the asset into a Synthetic asset through 1inch. The vault does the swap internally, and polynomial won't charge any fees for this.

Deposit flow of USDC deposit on Optimism

### Deposit flow for Synthetic assets To deposit to the vaults, the user has to [approve](/technical-implementation/approve) the asset in the wallet. ![](/files/u7vvfkIqzgGp5jHSTOIo) After approval, users can enter the amount to deposit. ![](/files/Yzx7aYwVLrQpwMfog2zy) The popup will come after the successful deposit. ![](/files/1QrW9bTM2r3oVX9nKen7) Since there is a min deposit time, users can see the progress of the deposit on the vault page. ![](/files/PUSWAUFvBjDVP3rwEs8V) After the min deposit time criteria, the vaults will process, and the user can view the positions in the position tab on the portfolio page. # Deposit from Ethereum,Arbitrum\&Polygon ### **Polynomial Portal** Users can deposit assets from any EVM chain into the polynomial earn vaults. Under the hood, this asset is bridged via Hop or Optimism bridge to Optimism using [Socket](https://socket.tech/). After which, this asset is converted automatically to the asset used in the vault and deposited into the vault. Assets supported are stable pairs and are converted using Curve. Currently, it is available with Ethereum, Arbitrum and Polygon as chains. And supporting ETH and USDC as assets. #### How it works 1. The user first selects the chain and token to deposit into the earn vaults. 2. When a bridging transaction is requested, a unique address is generated for the user (on optimism) based on the deposit amount, token, user address and the vault they are depositing. 3. The bridging amount is sent to this address once the amount is in this address, a contract is deployed to that address to finish depositing to the vault. 4. Once the contract is created, the contract performs a swap (if required) and deposits to the vault. ### Deposit flow Select the asset from the supported chain and enter the amount to deposit.
After entering the amount, click deposit and the asset is converted automatically to the asset used in the vault and deposited into the vault.
# Withdraw Users can withdraw at any time from the vault. There will be a minimum withdrawal time to process the withdrawal from the vault to your wallet. #### Minimum withdrawal time Since there is no round system in the newer version, there will be a minimum withdrawal time to exit from the position. The min withdrawal time ranges between 6-24hours. {% hint style="warning" %} There is a limit for withdrawals of 10- 20%; if it exceeds, users might have to wait for the expiry to process the withdrawal.\ \ Withdrawal can only be processed when new deposits are made or when the options are settled on Friday. If you have already requested a withdrawal, there is no need for further action as the funds will be transferred to your account automatically after settlement. {% endhint %} ### Withdrawal flow #### **Request to withdraw** A user can request to withdraw at any point in time. The withdraw tab is available inside each vault page near the deposit tab. ![](/files/pvU6JLyTY9HFm0Fuuae6) #### Pending withdraw Since there is no round system in the newer version of the earn vaults, the users can withdraw the funds from the wallet after the min withdrawal time. It will be available on the vault strategy page. ![](/files/0BGDcqTXqarwPqTqIK6D) After completing the min withdrawal time, the assets will be credited to your account. Once the withdrawal is in the 'pending' state, your **deposits will no longer be auto compounding.**\ \ \ **Withdrawal Fee** The vault charges a 1% withdrawal fee when a user withdraws while the vaults have an active position. This fee is implemented to cover the costs of closing the open position and to ensure the ongoing stability and security of the protocol. For option selling vaults, there is a brief period of time after the contracts expire where no withdrawal fees are imposed, this is to facilitate the option settlement process (approx 2 hours). This occurs after option settlement, with a small delay and it can be seen in the UI that the withdrawal fee is 0% at this time. Sometimes the delay can be by approx 10-15 mins. # Approve TL;DR:- Approvals are required because Polynomial uses the Ethereum blockchain to settle transactions. When using a Decentralized Application(dApp) like Polynomial, you must first approve each token you plan to deposit. Polynomial uses smart contracts on the Ethereum blockchain to execute transactions. To use a smart contract, you must : * Permit it to validate your token balance * Let it transfer the number of tokens you wish to trade from your wallet. # Swaps Now users can swap the synthetic assets in the protocol itself. By leveraging the Synthetix protocol’s unique pooled collateral model, users can trade with infinite liquidity and zero slippage. ## **How to swap?** * Go to the **swap** page. * Connect your wallet and choose optimism network. ![](/files/svwVVaWE1n7mCZcj6ryf) * Select the token to swap. ![](/files/EOD2VI2aJ0Fkb5xQYpiM) * Once you have selected tokens to swap, enter the quantity to trade and click preview swap. * Your wallet will pop up asking for confirmation to Swap, press Confirm. * Once confirmed in your wallet, you will see a 'Transaction Submitted' pop up and after a few seconds, your trade will be completed! # Synthetic Assets Please note that the vaults only accept deposits with Synthetic Assets. Synths are created by [Synthetix Protocol](https://synthetix.io/synths). Synths are derivative tokens providing exposure to a range of assets. They can be traded with infinite liquidity and zero slippage by leveraging the Synthetix protocol’s unique pooled collateral model. * [sUSD](https://optimistic.etherscan.io/address/0x8c6f28f2F1A3C87F0f938b96d27520d9751ec8d9#code) (for the put-selling vaults) * [sETH](https://optimistic.etherscan.io/address/0xe405de8f52ba7559f9df3c368500b6e6ae6cee49#code) (for the call selling ETH vault) To swap your existing token into Synthetic assets. Please use [1inch](https://app.1inch.io/#/1/swap/USDC/sUSD) # Collateralisation Polynomial Earn will be the first ever option vaults to implement partial collateralization. Partial collateralization will allow us to sell 1 call option with less than 1 underlying asset as collateral. Similarly, we'll be able to sell put options with less than the strike price worth of sUSD as collateral. The collateralisation ratio ranges from .8 to 1 according to the strategy. # APR & APY Calculation All vaults have performance indices, which are started from 1.00 and calculated against deposit tokens (sUSD for Put Selling and sETH for Covered Call), and shares are issued against the index. #### Total Projected Yield (APY) Calculated by getting the average of the past 4 week's annualised performance. Average of past four weeks weekly yield (in the money weeks are excluded) Let $$w\_1,w\_2,w\_3,w\_4$$ be the 4 weeks in chronological order. Let final tokenPrice at end of week $$w\_i$$ as $$f\_i$$ and start price as $$s\_i$$ $$ g\_i = \frac{(f\_i - s\_i)}{s\_i} $$ $$ \texttt{yield} = (\prod\limits\_{i} (1+g\_i)) $$ $$ \texttt{APY}= (1 + \texttt{yield})^{\texttt{NumWeeks/4}} - 1 $$ Where $$\texttt{NumWeeks} = 52.1429$$, number of weeks in year. **This Weeks's Projected Yield (APY)** It is expected annualised performance for current week if options expire out of money. It is calculated as $$ \texttt{yield} = \frac{\texttt{totalPremiumCollected}}{\texttt{totalFunds}} -1 $$ $$ \texttt{APY}= (1 + \texttt{yield})^{\texttt{NumWeeks}} - 1 $$ **Last Week Yield (APY)** It is annualised performance based on last week. Let tokenPrice on last to last friday be $$f\_1$$ and tokenPrice on last friday be $$f\_2$$. $$ \texttt{yield} = \frac{f\_2 - f\_1}{f\_1} - 1 $$ $$ \texttt{APY}= (1 + \texttt{yield})^{\texttt{NumWeeks}} - 1 $$ #### Historic Yield (APY) Annualised average yield from inception (in the money weeks are included). {% embed url="" %} # Call Selling **Check out this video** explaining the strategy and the PnL scenarios (profit and loss) {% embed url="" %} There are two kinds of call selling vaults {% content-ref url="/pages/p2WMLFFjnWRPmwuRbbJu" %} [Asset collateralised](/vault-strategies/call-selling/asset-collateralised) {% endcontent-ref %} {% content-ref url="/pages/QUseyq1QJSSz15eDAnOv" %} [sUSD collateralised](/vault-strategies/call-selling/susd-collateralised) {% endcontent-ref %} | Level | 🧙‍♀️ beginners | | ------------- | ------------------------------ | | Components | Sell far OTM Call option | | Direction | 📉 Bearish, Moderately Bullish | | Not ideal for | 📈 Extremely Bullish Market | | Max Risk | ⛔️ Capped\* | | Max Reward | 💰 Capped | \*Risk uncapped until the asset falls to zero. One has to sell the far OTM(out of the money) call option to implement this strategy. A call selling strategy comes in handy when you have a moderately bearish view of the asset. This strategy is not ideal for an extremely bullish market. ### Strike Price Determination The vaults will have multiple strike prices and multiple expiries. The strike prices for the strategies are determined using the following criterion. > **Delta <= 0.25 from Lyra's AMM** Currently, the strike prices are selected by a permissioned manager; later, it will be automated. Users can find the selected strike price on the snapshot page. #### Multiple Strikes across Multiple Expiries Unlike v1, v2 vaults can trade multiple strikes from multiple expiries by capping risk at the same time. The vault will be able to dynamically select different strikes as the underlying price moves in another direction. At the same time, on-chain restrictions will limit the vault from selling risky options. Vaults are limited to selling options of delta less than 25. ### Settlement If the options expire with ETH's spot price below the strike(*out-of-the-money*), the options are worthless, and the vault makes a profit.\ If the options expire with ETH's spot price above the strike price(*in-the-money option)* or at the strike(*at-the-money*), the options have some value that can be exercised. The AMM will claim some portion of the collateral to compensate the option buyers, and the rest will be returned to the vault. ### Market Risk Apart from smart contract risk, this strategy loses money when our assumption of the market being moderately bearish turns out to be false(Refer to [Asset collateralised](/vault-strategies/call-selling/asset-collateralised) or [sUSD collateralised](/vault-strategies/call-selling/susd-collateralised)). Even if the market being aggressively bearish, this strategy will make money. # Asset collateralised In asset collateralized call selling vaults, the asset used for collateral for the option selling will be the respective asset itself. The premium is collected in that respective asset and is auto compounded.\ \ For, e.g., In sETH call selling vaults, the asset used as the collateral is sETH. Premium is collected in sUSD and converted to sETH. #### Who is this vault for? Asset collateralized vaults are generally for users who'd like to stack more of that particular asset, regardless of what the value of that asset is.\ \ \ A scenario for the same is described below, \ \ Let's say a user is selling one 100% collateralized option of ETH at 2000 sUSD strike when the price is $2000, for a premium of \~ 0.1E(200 sUSD) upfront.\ \ At expiry, there are three ways the market can go. ### **Case 1**: ETH spot price moves up **Current Price**: 2200\ **Net Loss**: +0.1E (Premium Upfront \~ 220 sUSD) - 200 sUSD(\~0.0909E Option Excersized) = 0.009E (20sUSD) \ \ Even though we lost 200 sUSD worth of ETH, our sUSD value for what is left of our initial capital stays relatively about the same as when we started because ETH is also up in value.\ \ This is an advantage of asset collateralized vaults!
### **Case 2**: ETH spot price moves down **Current Price:** 1800\ **Net Profit**: +0.1E (Premium Upfront \~ 180 sUSD) - 0E(Since Option is worthless) = +0.1E\ \ Here we stacked more ETH; we started with 1ETH collateral and ended up with 0.1E more.\ \ **Total**: 1E + 0.1E = 1.1E(\~1980 sUSD) \ \ We can see that even though we started with 2000 sUSD and stacked more ETH by selling options, we are still worse off than how we began in sUSD terms.\ \ This is because we are paid in sETH, and our premium collected in sETH is also affected by price fluctuations. Here we stacked more ETH; we started with 1ETH collateral and ended up with 0.1E more. {% hint style="success" %} If you want to protect yourself against this kind of situation and prefer to always be up in sUSD terms, when the vault makes a profit, then please refer to [sUSD collateralised](/vault-strategies/call-selling/susd-collateralised) Vaults. {% endhint %} ### **Case 3**: ETH price stays neutral **Current Price**: 2000 \ **Net Profit**: +0.1E (Premium Upfront \~ 200 sUSD) - 0 sUSD(Since Option is worthless) = +0.1E\ \ **Total**: 1E (Collateral) + 0.1E = 1.1E(\~ 2200 sUSD)\ \ In this case, ultimately, we end up more in terms of ETH & Dollars than how we started with. # sUSD collateralised In the sUSD collateralised vaults, the asset used for collateral for the option selling will be sUSD. The premium collected in the sUSD will be auto compounded. Since sUSD is a stablecoin, the total position's value doesn't change due to the market situation.
#### Who is this vault for? sUSD collateralised vaults are generally for users who are looking for pure profit and want to do away with the volatility of the asset that they are selling options for :\ \ \ A scenario for the same is described below, \ \ Let's say a user is selling one sUSD collateralised option of ETH at $2000 strike when the price is $2000, for a premium of, say $200 upfront At expiry, there are three ways the market can go : ### Case 1 : ETH spot price moves up **Current Price** : 2300\ **Net Loss** : +200 sUSD(Premium Upfront) - 300 sUSD(Option exercised) = -100 sUSD\ \ Unlike asset collateralised vaults, even though ETH went up violently, we don't get the benefit of it because we locked the premium upfront in sUSD; we face a loss in dollar terms and are worse off than we started.\ \ **Total** : 2000 sUSD(Collateral) - 100 sUSD = 1900 sUSD {% hint style="info" %} To stack more ETH rather than lock sUSD as profits, please refer to [Asset collateralised](/vault-strategies/call-selling/asset-collateralised) Vaults {% endhint %} ### **Case 2** : ETH spot price moves down **Current Price :** 1800\ **Net Profit** : +200 sUSD (Premium Upfront) - 0 sUSD (since option is worthless) = +200 sUSD\ \ When the vaults make a profit, in sUSD collateralised vaults - it is a guaranteed profit!\ \ **Total** : 2000 sUSD (Collateral) + 200 sUSD(Premium) = 2200 sUSD\ \ Regardless of how low the ETH price goes, we are not affected as we have locked our profits in sUSD terms. ### **Case 3** : ETH price stays neutral **Current Price** : 2000 \ **Net Profit** : +200 sUSD (Premium Upfront) - 0 sUSD (since option is worthless) = +200 sUSD\ \ Again, since the premiums are collected in sUSD, the market situation won't affect our profitability.\ \ **Total of** : 2000 sUSD (Collateral) + 200 sUSD = 2200 sUSD \ \ In this case, ultimately, we end up more in terms of sUSD than how we started with. # Put Selling | Level | 🧙‍♀️ beginners | | ------------- | ---------------------------------- | | Components | Sell far OTM Put option | | Direction | 📈 Bull market, Moderately Bearish | | Not ideal for | 📉 Extremely Bearish Market | | Max Risk | ⛔️ Capped\* | | Max Reward | 💰 Capped | \*Risk uncapped until the stock falls to zero. One has to sell the far OTM(Out of the Money) put option to implement this strategy. Put Selling strategy comes in handy when you have a moderately bullish view of the asset. The strategy is not ideal for an extremely bearish market. ### Strike Price Determination The vaults will have multiple strike prices and multiple expiries. The strike prices for the strategies are determined using the following criterion. > **Delta <= 0.25 from Lyra's AMM** Currently, the strike prices are selected by a permissioned manager; later, it will be automated. Users can find the selected strike price on the snapshot page. #### Multiple Strikes across Multiple Expiries Unlike v1, v2 vaults can trade multiple strikes from multiple expiries by capping risk at the same time. The vault will be able to dynamically select different strikes as the underlying price moves in another direction. At the same time, on-chain restrictions will limit the vault from selling risky options. Vaults are limited to selling options of delta less than 25. ### Settlement If the options expire with ETH's price above the strike (OTM), the options are worthless, and the vault makes a profit. If the options expire with ETH's price below the strike(ITM) or at the strike(ATM), the options have some value that can be exercised. The AMM will claim some portion of the collateral to compensate the option buyers, and the rest will be returned back to the vault. ### Market Risk Apart from smart contract risk, this strategy loses money when our assumption of the market being moderately bullish turns out to be false(similar to [**scenario - 3**](/vault-strategies/put-selling/vault-strategy)). Even in the market is aggressively bullish, this strategy will make money.
# Vault strategy Consider the example for the put selling strategy; let's assume the Eth spot price is at $3000 and sell the 2700CE option. Let's check the possible scenarios for the strategy Strategy setup - * **Sell 2700PE** and receive $300 as a premium and always remember that it's a far OTM call option. After we initiate the trade, the market can move in any direction and expire at any level. Therefore let us take up a few scenarios to get a sense of what would happen to the put selling strategy for different levels of expiry. #### Scenario 1 - Ethereum price expires at $3100 (above the strike price) The value of the put options would depend upon their intrinsic value. The intrinsic value of a put option upon expiry is – Max \[0, Strike - Spot] => Max\[0, 2700-3100] = 0 The **2700PE** option has 0 intrinsic value, but since we have sold/written this option, we get to retain the premium of $300. Put selling strategy payoff would be: $300 #### Scenario 2 - Ethereum price expires at $2700 (at the strike price) So the maths will look like this- Max \[0, 2700-2700] = 0 The result would be the same as above. We(Seller) get to retain the premium of $300. Put selling strategy payoff would be: $300 #### Scenario 3 - Ethereum price expires at $2300 (below the strike price) We assumed the market to be moderately bullish, but the market comes out as aggressively bearish. In this case, the option seller of the put option will suffer a loss proportional to downward movement. Maths will look like this - Max\[0, 2700-2300] = 400 Put selling strategy payoff would be: 300 - 400 = -$100.
Strategy setup - Sell 2700CEEth spot price - $3000Premium= $300

expires at $3100 (above the strike price)

expires at $2700 (at the strike price)

expires at $2300 (below the strike price)

$300$300-$100
# Audits [Peckshield](https://peckshield.com/) has audited the v2 contracts; the audit report is attached below. {% file src="/files/r8gEueOfVUlKEa4gbVcL" %} # Deployed Contracts ### Synth Token Address | Token | address | | ---------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | sUSD token | [0x8c6f28f2F1A3C87F0f938b96d27520d9751ec8d9](https://optimistic.etherscan.io/address/0x8c6f28f2F1A3C87F0f938b96d27520d9751ec8d9#code) | | sETH token | [0xE405de8F52ba7559f9df3C368500B6E6ae6Cee49](https://optimistic.etherscan.io/address/0xe405de8f52ba7559f9df3c368500b6e6ae6cee49#code) | | sBTC token | [0x298B9B95708152ff6968aafd889c6586e9169f1D](https://optimistic.etherscan.io/token/0x298b9b95708152ff6968aafd889c6586e9169f1d?a=0xea48dD74BA1Ff41B705ba5Cf993B2D558e12D860) | ### Vault Contracts
ContractAddress
sETH Call Selling Vault0x2D46292cbB3C601c6e2c74C32df3A4FCe99b59C7
Call Selling Vault Token0x2901f5F1D4C99f9eeE36ccD9A264729c5Dd35c11
sETH Put Selling Vault0xb28Df1b71a5b3a638eCeDf484E0545465a45d2Ec
Put Selling Vault Token0xd81AbCDD67c7eb1c67C56C10A2077938037E4b06
sUSD coll. sETH Call Selling Vault0xB7b4270cFD938F4F1C111ac819e7365E8Ce0300a
sUSD coll. sETH Call Selling Token0x835afb7b0F1F3A0df0ECdc7a4cf86B7894072Ac6
Gamma Vault0x965e460bF5cb38BadA79fB2293c6304C799D0b1c
Gamma Vault Token0x4bEFFd38832b5F158d5a05D374AE971DD0e326F2
# Community Content Unofficial Community Content At Polynomial, we have a thriving community of like-minded web3 citizens who are happy to help their peers. ***Disclaimer :** These are community-made content for Polynomial Earn; while they may be factually accurate, the materials shared are not to be mistaken by anyone as the source of truth. They are unofficial and only shared to make it easy for users.* **Earn Docs Translation by community** | Language | Contributors | | -------------------------------------------------------------------------------------- | ------------ | | [Chinese](https://mirror.xyz/flycloud.eth/L95VmkBp3uNE3VRMRqD_2rtOhlPrJM2uQc7woC1uzCg) | bukeai#5793 | | Russian | WIP | | [Japanese](https://mozuku.gitbook.io/polynomial-japan/gai-yao/polynomial-earn-vault) | mozuku #1169 | | [Thai](https://polynomial-thai-doc.gitbook.io/th/polynomial-earn-vaults) | 72r #1836 | | Vietnamese | WIP | | Turkish | WIP | | French | WIP | ####