OMM Design

OptiFi Market Maker (OMM) is designed to function using voluntary contributions of OptiFi platform users.
Users deposit USDC into OMM vault and in exchange receive LP tokens. LP tokens represent a share in the OMM assets. This means that any profits or losses are shared proportionally among LP token holders. As LP tokens accrue bid-ask spread over time, the LP tokens potentially accrue value over time as well. LP token can be withdrawn at user’s request, subject to availability of OMM liquidity to fulfill withdrawal.

Liquidity and Risk Metrics

OMM accepts contributions from all users in USDC.
OMM uses its USDC balance to calculate:
  • Liquidity (measured in quantity of BTCUSDC)
  • Delta mismatch (measured in quantity of BTCUSDC)
  • Available liquidity on offer (in delta measured in quantity of BTCUSDC)
Liquidity is calculated as OMM Net USDC value measured in BTC quantity:
Liquidity = (USDC Balance + Net Option Premium) / BTCUSDC Price
OMM Net USDC value is considered the current value of money attributable to OMM pool by contributors which needs to be preserved, and on which returns/yield must be generated.
Liquidity value is considered as the benchmark value against which BTC (or other underlying assets) delta position needs to be managed at each OMM calculation epoch.
Trade capacity provides orderbook quote quantities on OptiFi exchange.
For example, assuming no outstanding positions, OMM USDC balance is USDC 5,000,000 and BTCUSDC spot price is 50,000:
Liquidity = 5,000,000 / 50,000 = 100 BTC
Trade Capacity = Liquidity x 25% = 25BTC
In such scenario above, OMM would be able to offer to buy or sell up to 25 BTC of delta on one side of an orderbook which would be within its risk tolerance of 25% delta mismatch.
In order to adjust Trade Capacity and calculate delta hedging metrics, Delta Mismatch is defined as net delta position across all instruments tied to the underlying asset held by OMM:
Delta Mismatch = Net Options Delta + Net Futures Delta
Currently, OMM is set up to have a 25% positive or negative delta tolerance relative to liquidity which is used as a risk management tool to ensure that at a given point in time, the outstanding exposure to the account is not too high. Furthermore, delta mismatch is used to adjust OMM orderbook positions to offer quantities which do not exceed its trade capacity:
Trade capacity to BUY = Trade Capacity - MAX ( Delta Mismatch , 0)
Trade capacity to SELL = Trade Capacity + MIN ( Delta Mismatch , 0)