Value proposition

Value Proposition Behind PAYG Options

Consistent yet sustainable returns: In this model, the potential returns are reduced; however, the risk is also reduced. This results in a lower range of payouts for the holder and is more suited for extremely uncertain markets. In a highly uncertain market, there is value for option holders to strive for lower risk, lower return strategies to yield consistent yet sustainable returns.

Capital efficiency: Although buying options are inherently more capital efficient than outright longs and are sometimes viewed as leveraged with the credit risk being borne by the option buyer, the PAYG model further enhances an option's capital efficiency by allowing partial funding at the beginning.

Transfer of credit risk: Instead of forking out the total premium for options, buyers will be able to partially fund the option at the start of the tenor, with the remainder of the option risk being handled by the protocol. This results in a partial shift of credit risk from the buyer to the seller.

In the traditional model, the option buyer takes on the credit of the option seller, thereby taking on the risk. In the PAYG model, because the option seller relies on the option buyer to fulfil an obligation to continue paying the price of the option, some of the credit risk is shifted from the buyer to the protocol.

Real-time market feedback: The option buyer can continually monitor the market outlook and decide the default on the option purchase. If the market swings in a wildly unfavourable direction to the option buyer's initial view, the option buyer may re-assess the position and choose to cut loss by wilfully defaulting on the option premium. Option default risks are appropriately priced via structuring models in collaboration with market makers.