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How buffer protocol works?
There are three participants involved in the protocol and the process goes as explained below
- 1.Liquidity providers(LP): LPs provide liquidity to the liquidity pool and receive write buffer tokens($rBFR) against it. The provided liquidity is used to write both call or put options and the premium paid by the option buyer (strike fee + option fee) is distributed among the $rBFR holders as yield. There will be multiple Liqudity pools for different assets starting with BNB and then ETH, BTC, and a stable coin will also be added to support options on different cryptocurrencies and stocks.
- 2.Option buyer: An option buyer can customise strike price, expiry, and options size to buy a put or call option on all the supported assets after paying an option premium and a settlement fee. This option can be exercised anytime before the expiry date directly on-chain against the liquidity pool.
- 3.Token holders ($iBFR): $iBFR is the native token to the Buffer Protocol, $iBFR holders can buy and stake tokens to get multiple utilities.
- 1.Perpetual revenue share - via staking in our staking pool
- 2.Liquidity mining rewards - become LP on AMMs like and stake to get $iBFR rewards
- 3.Governance - Participate in governance proposals
- 4.Discount on the ticket price for the prediction game - To be added later
- 5.Milestone-based burn and buybacks - buybacks will be announced to regularly decrease supply of tokens
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Total fee = Strike fee + Option fee + Settlement fee
1. Option premium = Strike fee + Option fee
2. Protocol Revenue = Settlement fee
Fee distribution among stakeholders
Strike fee and the Option fee is paid out as yield to liquidity providers and 50% of the settlement fee is funneled as revenue share to $BFR holders
- 1.Strike fee (Intrinsic Value): This is the current intrinsic value of the option for a call option, it's MAX(0, strike price - current price) and for a put option, it's MAX (0, current price - strike price).
- 2.Options fee(Time Value): This fee is calculated using our option pricing formula and uses the current price of the asset and Implied Volatility as the key inputs
- 3.Settlement fee (Revenue): A 4% settlement fee is charged over the total amount of asset being covered under the option - 50% of the settlement fee is funneled to $iBFR holders as revenue share and the remaining goes to DEVs and this fee can be used for buybacks - marketing and product development.
Settlement fees charged is currently 4% of the size of the option being bought but this can be changed under our governance proposal.
Last modified 1yr ago