Vault Settlement
This page outlines the specifications and technical details on the settlement process.
European Options
All of Thetanuts' products are European options where market makers are only able to exercise their right at expiration.
Settlement Types
Thetanuts basic strategies which are covered calls and cash secured puts can be cash settled or physically settled.
Cash settlement refers to a settlement type where actual delivery of the underlying asset is not required.
Physical settlement: refers to a settlement type where actual delivery of the underlying asset is required.
Example: Settlement price at 0800 UTC for ETH is at $2,700. The strike selected for the call vault was $2,500. There was a deposit of 1 ETH.
In the cash settled scenario, the value of ETH will be settled such that it will have the equivalent vault of ETH at $2,500.
In the physical settled scenario, the ETH will be swapped for USDC or equivalents that is equivalent to $2,500.
Settlement Price
Vaults with expirations have a final settlement price at the conclusion of the Epoch upon expiration.
This final settlement price is signed by the Protocol team, but is only valid if it is bound within a fixed percentage of the latest price feed from the Chainlink oracle.
In the event that the protocol team does not sign off on the price, after a delay, anyone can trigger the retrieval of the first valid price after expiry from the Chainlink oracle’s on-chain price history, and the contract will use it as the settlement price.
Settlement Flow
BTC, ETH and SOL are settled using Deribit Index. Anyone can poll the Deribit API to obtain settlement prices. This is the leading practice amongst structured products in Crypto.
On other assets, settlement prices are determined using the 1 hour TWAP from 0700 to 0800 UTC on the most liquid exchange at which the asset is trading on. This tends to be Binance spot market.
Copy link