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In the current OptionsLM draft the user has 1 month to redeem their option. If the option expires, it can no longer be redeemed.
This means it's safest for the LP to immediately redeem their rewards and sell half after claiming (in case of a -50% strike price). If they wait, they risk not being able to redeem their option profitably before it expires, and then they'd end up with nothing. LPs would be "racing to the bottom" in this case by constantly selling at least the portion they bought (50%).
Idea: What if there's a vesting period between claiming and redeeming? The LP can't redeem their option until after e.g. 2 weeks, and after that they can claim it at any time (or have a considerable expiration of 1-3 months).
If within the vesting period (e.g. 2 weeks) the token price drops -50%, then the user would have to wait until the price recovers to a point where redeeming is profitable again.
This would prevent any risk that users would be immediately selling off 50% of their reward after redeeming it just to get back the ETH they spent and to mitigate the risk of never being able to redeem the tokens on expiration.
Would a vesting period better prevent liquidity locusts from constant reward sell-offs?
The text was updated successfully, but these errors were encountered:
deanpress
changed the title
Mitigating instant sells on redeem to prevent expiration risks
Vesting period between claim and redeem, preventing instant sells on redeem to mitigate expiration risk
Dec 2, 2021
In the current OptionsLM draft the user has 1 month to redeem their option. If the option expires, it can no longer be redeemed.
This means it's safest for the LP to immediately redeem their rewards and sell half after claiming (in case of a -50% strike price). If they wait, they risk not being able to redeem their option profitably before it expires, and then they'd end up with nothing. LPs would be "racing to the bottom" in this case by constantly selling at least the portion they bought (50%).
Idea: What if there's a vesting period between claiming and redeeming? The LP can't redeem their option until after e.g. 2 weeks, and after that they can claim it at any time (or have a considerable expiration of 1-3 months).
If within the vesting period (e.g. 2 weeks) the token price drops -50%, then the user would have to wait until the price recovers to a point where redeeming is profitable again.
This would prevent any risk that users would be immediately selling off 50% of their reward after redeeming it just to get back the ETH they spent and to mitigate the risk of never being able to redeem the tokens on expiration.
Would a vesting period better prevent liquidity locusts from constant reward sell-offs?
The text was updated successfully, but these errors were encountered: