Capital efficiency is a hallmark of Siren Flow’s design, something we’ve covered previously when presenting the innovation of bringing portfolio margin calculation to on-chain options. Siren Flow’s liquidity model applies these same efficiency-first principles, resulting in a unified liquidity system that allows capital to flow across different asset markets as needed. Alongside unified liquidity, Siren Flow offers an advanced hedging system to protect liquidity providers from delta exposure and deliver more consistent fee-based yields.
Let’s delve into the details of Siren Flow’s liquidity model and the advantages it presents for traders and LPs.
Unified Liquidity
As opposed to an orderbook model, Siren Flow executes all trades through a unified liquidity pool that consists entirely of USDC. Since all Siren contracts are cash settled, there’s no need to bootstrap pools consisting of the underlying assets being traded. Consolidating liquidity in this fashion has quite a few benefits for traders:
- Instant execution
- Deeper and more flexible liquidity
- Extensive selection of contract strikes and dates
- Readily available liquidity for adding new assets
This unified general liquidity model provides the smoothest trade execution available on or off-chain. And Siren Flow can use this unified liquidity pool to facilitate any market, making it easy to add new tradable assets to the platform. Siren Flow will initially offer ETH and BTC markets, but any asset that can be traded on GMX (or other perps protocols integrated for hedging) is on the table for future additions.
It’s true that a pool model creates the possibility of bad actors sending malicious orders in hopes of getting filled when they shouldn’t. But Siren Flow uses a network of off-chain Gaurdians to co-sign each order and ensure these malicious trades are not executed.
Siren Flow’s unified liquidity pool helps us maximize speed and capital efficiency for traders.
Providing Liquidity
Attracting LPs is essential to growth, so when Siren Flow launches its public mainnet, we will partially fill the liquidity pool with protocol owned liquidity. Aside from helping seed the liquidity pool, having Siren Flow’s own liquidity in the pool gives us skin in the game. It’s one reason why we’ve optimized Siren Flow’s liquidity model to generate consistent healthy yield.
Unified liquidity plays a part in achieving healthy yield by creating a single yield source rather than dividing earnings between markets. While other models allowing for asset specific liquidity and concentrated liquidity have their merits, we believe that general options liquidity in stablecoins should generate predictable yield that LPs will appreciate. No need to maintain a ratio of assets, pick a specific market to deposit in, or deal with price exposure to deposited assets. It’s a straightforward model that can appeal to a wider selection of LPs who value more consistent yield.
Hedging
To offset delta exposure and completely take price exposure out of the liquidity equation, Siren Flow hedges its liquidity pool with perpetuals. We’ll use GMX V2 and fellow Arbitrum perps protocol Perennial (when Perennial launches V2) to execute hedges.
An off-chain Hedge Keeper intakes pricing data from multiple on & off-chain sources, allowing for proactive hedge adjustments prior to asset prices being known on-chain.
Hedging price exposure earns LPs yield that is only coming from bid/ask spreads and premiums, minus the cost of hedging. This also preserves liquidity because imbalances in net options exposure won’t affect the pool. For example, during a market pump, open interest could be skewed long with no detriment to the pool, because the perps would recoup losses. This means trader and LP profitability are not mutually exclusive on Siren Flow, so users may wish to participate in both.
Deposits and Withdrawals
Siren Flow conducts deposits in daily rounds and withdrawals on a weekly basis. This allows withdrawals to occur independently from the duration of contracts facilitated by the pool, and deposited funds continue to earn yield during the withdrawal process. While deposits are USDC only, Siren features an integration for bridging assets from other major chains into Arbitrum USDC. The LP experience is just as smooth as the trading experience.
Deposit requests are processed once per day, assigning pool shares to each depositor according to their proportion of the total liquidity in the pool. An off-chain keeper calculates the price per share and adds deposited collateral (USDC) to the pool.
Users can initiate withdrawals at any time, and they are processed each Friday. Funds requested for withdrawal will continue to earn yield in the pool over the course of the week. Cash inflows to the pool from premiums and bid/ask spreads are reserved for paying out pending withdrawals before being utilized in trading. We distribute available cash in the pool pro-rata across pending withdrawal requesters. In the event available cash isn’t sufficient to cover withdrawal requests, for example during a period of high utilization and high withdrawal requests, remaining withdrawals roll over to the following round next week. We make payouts in USDC, immediately claimable after the week’s withdrawal round closes on Friday.
In Summary
Meticulously designed, Siren Flow’s liquidity model is built for optimal trading and LP experience. Flexible stablecoin liquidity flows where it is needed, and LPs earn yield completely decoupled from price movement.
Siren Flow — professional options trading on-chain, coming soon.
Get in on the action early: https://siren.xyz/flow
