Thetanuts Finance

Factors that affect Stronghold Price


There are four primary factors that affect the price of Stronghold at any given moment. These are listed in order, in terms of the impact to price.
  1. 1.
    Users swapping in and out
  2. 2.
    Premiums being deposited
  3. 3.
    Settlement of option positions
  4. 4.
    Cross-chain arbitrage

1. Users swapping in and out

Stronghold is represented as an AMM, allowing users to easily swap in and out of positions. For instance, in USDC Stronghold, when a user deposits USDC for indexUSDC, it will change the price of indexUSDC. For a detailed read on how swaps generate price impact, refer to this detailed piece by Paradigm.
Example of xyk curve
A limitation of AMMs is that large swaps will result in high slippage and price impact. To circumvent this, we have implemented direct deposits and withdraw. See Swap and Deposit for more information.

2. Premiums being deposited

After the auctions are complete for the options in Stronghold, Thetanuts requires the Market Makers to deposit the premiums. The premium deposit will increase the value of the Stronghold.

3. Settlement of option positions

At settlement, if any of the options within Stronghold is in-the-money, Stronghold would incur a loss. The loss will impact the price of Stronghold.
Fundamentally, Stronghold is either composed of vanilla puts or calls. See Covered Calls and Put Selling for more details on understanding the profit and loss of these products.

4. Cross-chain arbitrage

Stronghold exists on mainnet and multiple EVM chains which include Binance Smart Chain, Polygon, Avax and Fantom. There may be mispricings that occur between chains at any given moment, depending on user swaps impacting price.
E.g. A user swaps USDC on Ethereum, resulting in indexUSDC to trade at $1.01. On Polygon, indexUSDC remains at $1.00. A arbitrageur may swap on Polygon, bridge to mainnet and sell indexUSDC to generate $0.01 on the dollar before transaction costs.