Primitive is a decentralized option market protocol on Ethereum. Option markets can be created for tokenized long and short options on any ERC-20 token. Liquidity providers (LPs) can earn yield on DAI, ETH, or DeFi tokens by providing liquidity to a variety of option markets. Yield is earned through option trading fees generated on supported Automated Market Maker (AMM) venues.
Primitive V1 options don't have admin keys, use oracles, or carry default risk. The protocol is permissionless, so anyone can create new option markets.
Options on Primitive have market-based pricing mechanisms rather than Black-Scholes approximation formulas, the latter of which is not an accurate pricing method for long-dated, high volatility options. Options are written and traded on individual AMM pools consisting of short option tokens and the underlying asset. The long and short option token premium for each option is derived from its AMM bonding curve.
Written option exposure is tokenized into short option tokens, which can be directly swapped with underlying tokens. Long option tokens can be indirectly swapped with underlying tokens.
Primitive's option pools grant exposure to option trading volume in a risk-adjusted manner. LPs enter these pools delta-neutral, and depending on the direction of trades made against the pool, accrue small amounts of long or short option risk, referred to as "Impermanent Exposure". LPs' original liquidity deposit is never fully risked in the option market. This enables passive LPs to remain profitable in many scenarios, as the trading fees generated will offset most of the risk accrued.
How to use Primitive?
Users can access the [Primitive app, https://app.primitive.finance], an open-source and free interface to interact with the protocol.