Disclaimer: This is not investment nor investment advice. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.

The information made available in this report is NOT for replication. The purpose is to share the thought process behind the DAO’s decision making – additionally, this is a HIGH RISK journey for the DAO which means capital has also been allocated in accordance with this. Once again, DO NOT REPLICATE.

 

Asset: PREMIA

Description: Market hasn’t priced in upcoming events, and the protocol is undervalued (even before considering what’s coming) at $18m mcap and $167m FDV.

Proposal: Sell HEGIC for PREMIA.

Reason:

HEGIC is being delisted from Binance, as of now we don’t know the reason, likely simply liquidity, however, this shows a lack of demand for HEGIC.

This, combined with the consistently dropping liquidity and lack of marketing, leads me to believe the speculative market for HEGIC isn’t there. I believe this capital is better placed elsewhere, and I’m confident with where we should put it…

PREMIA

Premia have been hard at work, and have a mass of big announcements and improvements coming in the next 6 months. Now is a perfect time to get in before the news becomes widely known.

These include:

• Launching on Fantom (coming days)
• vePREMIA (1-2 months)
• DOVs building on top of Premia launch (2-3 months)
• V3 released (4-5 months)

vePREMIA

vePREMIA would require all stakers to lock their PREMIA, earning protocol revenue and voting rights in exchange (Premia is also considering any other ways they can add value, full details on vePREMIA are coming in the next week or so). The longer tokens are locked for, the higher the rewards multiplier.

The voting rights will be used to allocate the PREMIA emissions to pools. They are hoping to inspire a curve wars type situation. I’m not an expert on ve-tokenomics voting, in fact, I’m quite sceptical of them when it comes to smaller protocols, but I can certainly see the potential and looking forward to seeing it play out.

Even completely disregarding the voting on emissions distribution, the rewards multiplier should be plenty to get people to lock for longer. Locked PREMIA = less supply on exchanges = higher price.

DOV funding

Liquidity is an issue that plagues DeFi option protocols, Hegics’ has been steadily dropping, Dopex has masses but can’t find demand to put it to use.

The Premia community has voted and is funding 2 DOVs building on top of Premia.

Vaults.Pro were granted 235,000 Euros to build an actively managed vault protocol, where anyone can design a strategy for others to deposit into. This democratises access to complicated and often high yielding strategies.

https://gov.premia.finance/#/proposal/0x671986784d3d842884e0ca5cabefcc0773c16f686ebc0aaed78ed0f32ea03b00

Fort Knox Vaults will receive $250,000 and 50,000 PREMIA to build a passive vault DOV protocol, similar to traditional DOVs such as Ribbon and Friktion. We expect to see the first version of Fort Knox Vaults live in around 2 months, and as far as I’m aware, it will be the 1^st DOV protocol on Arbitrum.

Fort Knox Vaults will also distribute 20% of revenue back to Premia treasury (and there is discussion of having this going directly to PREMIA stakers).

https://gov.premia.finance/#/proposal/0xb33da0562b7715e583a11eae33da1b20dbd149171f32da1356284d329ba8c6a2

As part of the agreement, both teams will be open-sourcing code needed for other protocols to easily build on top of Premia.

This is an absolute game-changer in my opinion, it unlocks massive potential, and secures Premia a spot in the future of DeFi, provided all goes to plan.

Also, the protocols built on top of Premia could one day decide to release tokens. If they do, there could be an opportunity/benefit there…

V3

This is the big daddy of what’s coming up for Premia.

There will be additional yield-bearing pools, that will use the collateral deposited to the pool to earn additional yield (it normally sits there until options are exercised).

LPs will be able to select the strike price and duration of options they would like to underwrite (there will still be an option to have this done automatically for you).

Options buyers will have a range of tools, likely including stop, limit and take profit orders (and more). Something we haven’t seen in DeFi options before.

The user experience will be improved throughout, including a dashboard detailing all updates since you last visited the platform (tied to your wallet).

Premia vaults will be released, one of which we expect to have some form of delta-hedging, the other will look to take advantage of arbitrage opportunities. The form the vaults will take is unknown, as they have yet to share details.

Full details of what is coming in V3 will be covered in an article Premia are posting in the coming weeks!

Updated fees

The 3% fee on options purchase remains, but the 3% exercise fee on profits has been scrapped.

Instead, they have introduced a 2.5% annualised utilisation fee, which will be paid by LPs. This works out at around 0.2% per month the capital is being used, FAR less than the LP earns, and considerably lower than competing vaults charge.

Assets coming

MAGIC and GMX are expected soon, and the team are in talks with other protocols about listings.

As protocols can provide the options liquidity themselves, through Premia’s Protocol Owned Options Liquidity (POOL) initiative, it is likely we see many more added. POOL is also a form of treasury management for protocols.

More chains

The team will go wherever there is demand, and encourage users to put forward proposals, through their governance page, if they’d like to see a specific asset or chain supported! The level of community involvement and encouragement in Premia is refreshing!

Additional notes

The community is currently discussing a potential token burn, team fully supports this and will go with whatever the community decides best. Whilst we certainly can’t count on this, if it does happen, it is an immediate value add.

Protocol built from the ground up to support upgradability and flexibility, DeFi’s ‘money-lego’ ethos and fully decentralised and automated functioning. Fully upgradeable contracts mean the protocol can improve and adapt to anything that may be required. This means Premia can slot perfectly into the future of structured products, and much more, coming in DeFi.

Open and transparent in all aspects. From the governance process to their impressively comprehensive and honest analytics page (https://app.premia.finance/analytics).

Considerations – The Devil’s Advocate

High FDV vs Circulating Supply

Fully diluted value is around 10x the circulating supply. However, emissions will last for over 10 years. The current inflation sitting at around 35% a year, which will be diluted as tokens are released, as emissions remain constant.

48% of the total supply is reserved for protocol development (not emissions). What is done with these tokens will be decided by the community, and there are discussions at the moment about a potential burn (likely of a portion of the 48%). The team has said they support a burn if that’s what the community decides.

I don’t consider the fully diluted value an issue, due to the low market cap, huge growth potential, transparent emission and community governance.

Team Tokens

One consideration is the team tokens, which are 10% of the total supply, and equal to the current circulating supply, and are due to unlock next year.

I’m aware of discussions about potentially delaying this in some way. This is something to keep an eye out for, and should the delay not happen, we would need to consider our position closer to the time.

DOVs

Until V3 is released, Fort Knox and Vaults.Pro won’t be able to add liquidity or buy options from Premia.

This is solved by V3, which is due in around 4 months, but I must add a cautionary note before we get too excited.

Fort Knox Vaults gives Premia exclusivity for 3 months, after which ‘strategies will become more complex and thus additional protocols will need to be utilised’. Vaults.Pro does not have an exclusivity clause.

I know the teams of both protocols are in close contact with Premia, and fully expect them to utilise Premia when V3 is released.

C-Value and Volatility Oracle Pricing

Premia options pricing is calculated fully on-chain (removing centralisation that we see among many competitors), using the ‘C-value’, a supply and demand-based pricing model, alongside Premia’s Volatility Surface Oracle.

Essentially, what this means, is that Premia’s option prices flex with the supply and demand on the platform. If people are depositing into the pools, but no one is buying the options, the options prices drop. The same is true the other way around, prices increase if demand outweighs supply.

As more capital flows into the pools, there is a need for more buy-side demand. This is one area where the pricing model may come into its own, as the lower than market priced options would likely attract more buyers.

We have yet to see Premia’s unique options pricing model used on a large scale, or with DOVs involved.

We don’t know how this model will affect pool utilisation (the % of capital in the pools that is being used to underwrite options), as whilst independent to a certain extent, when utilisation holds above 50-60%, it is likely that Premia’s options will be priced higher than the rest of the market. In some markets, this won’t be an issue, as Premia is the only protocol selling those options, but in BTC and ETH markets, high pool utilisation (and therefore prices) may drive buyers elsewhere.

This gives us a bit of a catch 22 situation, where we want high pool utilisation, but having high utilisation would bring the C-value up, increasing option prices and potentially driving buyers elsewhere.

To an extent, this is by design, as it means there shouldn’t be excess demand the platform can’t cope with (disincentivising purchasing options when liquidity is low by increasing price), or excess liquidity sitting idle in the pools (incentivising purchasing options when liquidity is high by lowering prices).

As this pricing model hasn’t been battle-tested, it is vital we keep a close eye on how it affects supply and demand on the protocol. For example, one thing we will be looking at is where pool utilisation naturally settles (the point at which buyers and sellers are matched). If that happens to be around 70% (for argument’s sake), how would that affect LPs capital efficiency? Is Premia a better option than competitors for LP returns? Are buyers happy with price at this level? That all needs to be taken into account.

I will be keeping a close eye on Premia post Fort Knox and Vaults.Pro launch. Should the pricing model stand the test, this would give other protocols the green light to build atop Premia, and could open the flood gates (maybe time to double down).

If this goes pear-shaped, and issues arise (for example excess DOV liquidity isn’t matched by buy-side demand, and LPs on the protocols earn minimal returns for a sustained period of time), we will have to see how Premia address the issues.

Conclusion

There is a succession of value-adding events, and the market hasn’t priced them in yet in my opinion. This is an opportunity for us to get in before the upgrades happen, and should they succeed, ride the bull.

Strategy & Execution

I’m open to suggestions from the team here, but I propose TPs at:

25% at 2x buy-in price.

25% at 3x buy-in price.

Let the rest run, with constant evaluation.

Execution I will leave with Karim, as he is the execution wizard. Possible to buy on Ethereum on Arbitrum through Sushiswap, staking is currently only available on Ethereum, however as it stands I would not recommend staking our PREMIA, so would suggest buying on whichever chain is more liquid.

 

Proposal 19 has been executed ✅

• 320,000+ HEGIC swapped for 4,783 PREMIA, at an average entry price of $1.845

• See the transaction here