Polynomial V2 Analysis

    Introduction

    Polynomial automates financial derivative strategies to create products that deliver passive yield on various assets. Polynomial Earn is the first DeFi Options Vault (DOV) that executes completely on-chain by selling options directly to an AMM.

    Recently Polynomial has launched the next generation of Earn Vaults or Vaults V2, a successor to the first ever fully on-chain option vaults introduced 4 months ago.

    What is Option?

    Options are immensely powerful financial instruments. Buyers of options can hedge their portfolios, generate leveraged upside returns or simply cheaply get upside to a stock, all with limited downside. Sellers of options can generate high returns on their investments by selling both calls and puts, generating yield that is unmatched elsewhere in the world of finance.

    What is an Option Vault?

    Trading options is not as easy as clicking some buttons, there is a steep learning curve and a lot of scientific terms to learn. Polynomial provides an easy way to trade options without extensive knowledge of its scientific terms.

    There are a few types of strategies that are currently used on Polynomial**:**

    • Call Selling
      • Direction: 📉 Bearish, Moderately Bullish
      • Not ideal for: 📈 Extremely Bullish Market
    • Put Selling
      • Direction: 📈 Bull market, Moderately Bearish
      • Not ideal for: 📉 Extremely Bearish Market
    • Gamma Vault
      • Direction: Volatile market (either bull or bear)
      • Not ideal for: Sideways market
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    Daily Vault Deposits Count

    This charts show the daily number of deposit transaction on each vault type, It can be seen that:

    • Put Selling vault and Call selling vault are both popular.
    • Gamma Vault had a significant deposit on Aug 25, and there is no more deposits on this vault.
    • There has been an increase in deposit count on Sep 2, after a week of stagnation.

    What are the Benefits of the Polynomial Earn Vaults V2?

    • ⏳ Near-Instant Deposits and Withdrawals

    > Unlike Vaults V1 that sometimes users waited up to a week to withdraw, almost all deposits/withdrawals will be processed within 4 hours.

    • 🏦 ERC-20 Tokenized Vaults

    > To facilitate near-instant deposits and withdrawals, all vaults are now tokenized with corresponding ERC-20 tokens. Net Asset Value (NAV) of the vaults are calculated to price the vault tokens.

    • 📚 Multiple Strikes across Multiple Expiries

    > Unlike v1, v2 vaults are able to trade multiple strikes from multiple expiries by capping risk at the same time.

    • 🍰 Partial Collateralization

    > Partial collateralization will allow the platform to sell 1 call option with less than 1 underlying asset as collateral. Similarly they’ll be able to sell put options with less than strike price worth of sUSD as collateral.

    Daily Volume (USD)

    The following chart shows the daily volume of the vaults.

    • On the first 3 days, there has been a considerable volume.
    • The daily deposit volume has declined over time.
    • There was a boost in volume when Gamma Vault was introduced.
    • In the previous graph, we saw an increase in the number of deposits on Sep 2, but the volume of this day did not increase much compared to the previous days.

    Overview

    In this section we can see an overview of the protocol. it can be seen that:

    • More than 670 users have interacted with the platform.
    • On average users have done 1.37 deposit or withdraw transactions, the average volume transferred in each transaction by each user is currently more than $1055.

    Users First Interaction

    The following charts shows when each user first interacted with the platform,

    First thing than can be inferred by comparing this chart and the previous chart, is that on most days, these are the new users that are making a deposit, in other word, onboarding the platform.

    Daily Interaction With Platform

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    Vaults Volume Flows

    In this section we're going to take a deeper look at the volume of each wallet, normalizing each vault using USD for easier comparison.

    The first set of charts, show total inflow volume, the second set of charts, show the total out flow volume for each vault, and the final set of charts show the net volume of each vault.

    By looking at the following charts, the following points can be inferred:

    • Call Selling vault, with more than 50% of inflow, has the largest amount of inflow volume. Followed by Put selling vault with more than 37% of the inflow volume.
    • Put selling vault has the largest amount of outflow, more than 70% of total outflow is from this vault.
    • Every vault has a positive net flow, the total net flow cannot be negative, but it can be zero, which means a depleted vault.
    • Gamma Vault volume has not changed much.
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    Call Selling Vault (sETH)

    The following chart show the daily net volume and daily cumulative volume for Call Selling Vault. A call selling strategy comes in handy when you have a moderately bearish view of the asset. This strategy is not ideal for an extremely bullish market.

    It can be seen that on the last 4 days, its net volume is almost zero.

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    Lets take a look at the amount each user have deposited.

    The following donut chart show that:

    • Almost 50% of the deposits been between $100 to $1,000.
    • Almost 40% of deposits been less than $100.
    • Less than 1.5% of transactions worth more than $10,000.

    The next chart shows daily deposits grouped by their volume range.

    Gamma Vault

    Gamma vault tries to profit from short-term volatility by taking advantage of option’s gamma**.** To achieve this the vault buys a near at-the-money call option with highest gamma and shorts perpetual futures equal to the delta of the option.

    This vault had almost no change in net volume after its creation.

    Put Selling Vault

    The following chart show the daily net volume and daily cumulative volume for Put Selling Vault. Put Selling strategy comes in handy when you have a moderately bullish view of the asset. The strategy is not ideal for an extremely bearish market.

    In the last 9 days, the net volume is very low, there is also 2 negative days.

    Call Selling Vault (sUSD)

    The following chart show the daily net volume and daily cumulative volume for Call Selling Vault. Since sUSD is a stablecoin, the total position's value doesn't change due to the market situation. A call selling strategy comes in handy when you have a moderately bearish view of the asset. This strategy is not ideal for an extremely bullish market.

    This vault had very mixed days, there are some days with significant increased volume followed by days of negative or almost zero volume.

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    Approach

    Data Source

    To conduct our study, we use the Flipside Crypto database. They offer one of the best and most efficient blockchain data in the industry.

    Tables

    From the said data source, we are using following tables:

    • optimism.core.fact_event_logs, to access events emitted by smart contracts on Optimism chain.

    • optimism.core.fact_hourly_token_prices, is used to access latest price of the tokens, here we are using it to access ETH price.

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    Contracts

    Polynomial provides their deployed contracts addresses, they can be accessed from this link:

    We are mainly using token contracts, as they provide an easy way to all on chain activity of the vaults:

    Call Selling Vault Token -> 0x2901f5F1D4C99f9eeE36ccD9A264729c5Dd35c11
    Put Selling Vault Token -> 0xd81AbCDD67c7eb1c67C56C10A2077938037E4b06
    sUSD coll. sETH Call Selling Token -> 0x5de450325CFc837bc36BA7fcbBEAaCdBB93F5Cc3
    Gamma Vault Token -> 0x4bEFFd38832b5F158d5a05D374AE971DD0e326F2'
    

    Methodology

    As already mentioned we are using ERC-20 tokens corresponding with each vault to access blockchain data about each vault, this allows us to simply use EVENT_INPUTS column to access direction of the trade, either depositing (or minting tokens) or withdrawing (burning tokens).

    We are using the CONTRACT_ADDRESS provided in docs. When we are looking for deposit transactions, we look for the transaction that are coming from the NULL address, which means new tokens are minted, for example:

    WHERE 
    CONTRACT_ADDRESS = lower(' TOKEN CONTRACTS FROM DOCS ') 
    AND EVENT_INPUTS:from::string = lower('0x0000000000000000000000000000000000000000')
    

    And when we're looking for withdrawals, we look for transactions that are sent to the NULL address, e.g.:

    WHERE 
    CONTRACT_ADDRESS = lower('0x2901f5F1D4C99f9eeE36ccD9A264729c5Dd35c11') 
    AND EVENT_INPUTS:to::string = lower('0x0000000000000000000000000000000000000000')
    

    To access transferred amount, we use this piece code: EVENT_INPUTS:value::string

    Whales are defined as users that are currently holding more than 100 ETH on Optimism network.

    Study Period

    The study is conducted from the first day of Vaults V2 creation. As this study is a historical analysis the charts and numbers on this dashboard don’t get updated.

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    Resources

    1. Learn more about options here: Link
    2. Learn more about options strategies here: Link
    3. More advanced explanation on options strategies: Investopedia and PlayBook

    Summary

    Lets summarize our findings in this study:

    • It can be seen that the average number of users have decreased over time. On this type of platform, a drop in user numbers is not necessarily a bad omen, as users can deposit their assets and leave them for months or even years.
    • Gamma Vault had a significant deposit on Aug 25, and there is no deposits on other days on this vault.
    • The daily deposit volume has declined over time.
    • No user has deposited more than 2 times with a deposit of $20K.
    • Put selling vault has the largest amount of outflow, more than 70% of total outflow is from this vault.
    • There is a significant activity on Thursday 15:00.
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    Most Active Moments

    The following chart depicts a weekly map of users activates (both deposit and withdrawal).

    It shows the day of the week and exact hour that users have interacted with the Polynomial platform.

    All times are in UTC.

    By looking at the chart, it can be seen that:

    • There is a significant activity on Thursday 15:00.
    • There is almost zero activity during night time.
    • On Tuesdays and Wednesdays, there isn’t much activity.

    Deposit Count And Total Volume Relation

    The following chart depicts a relation between number of deposits made by each user and the total amount they have deposited.

    It can be seen that,

    • Most users have only made a single deposit, mostly under $10K.
    • No user has deposited more than 2 times with a deposit of $20K.
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    Daily Unique Users

    The following chart shows the daily number of unique users who interacted with the Polynomial protocol.

    It can be seen that

    • On the first few days, more unique users interacted with the platform.
    • The average number of users have decreased over time.
    • On Aug 25, there is a spike in unique user count.

    On this type of platform, a drop in user numbers is not necessarily a bad omen, as users can deposit their assets and leave them for months or even years.

    Deposit Volume Distribution

    Vault Volumes

    Whale Activities

    In this section we are going to analyze whales behavior on Polynomial, and compare it with all the users activity. As already mentioned in the Approach section, we are selecting wallets holding more than 100 ETH as whales.

    By looking at the following charts, we can understand:

    • Whales account for less than 10% of the user base.
    • Whales were not active on the very first date that vaults were created, but on the second day their deposits accounted for almost 50% of the volume.
    • They have deposited fewer times than other users, for example from 89 user that deposited into Gamma Vault, only 9 of them are considered whale (about 10%), while they have deposited almost 20% of the volume.
    • whales are more likely to deposit more than $10K.
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