Opyn: Total Value Locked

    Q1. What is the total value locked in the Opyn Squeeth (osQETH) contract? And where does osqeth draw its value from?

    What is Squeeth

    Squeeth is the short for of squared ethereum. it's an innovative financial derivative by Opyn. It's the first power perpetual which tracks the index of ETH^2 instead of ETH. Mainly, this makes options perpetual and make it effective hedge for anything with a curved payoff.

    With Squeeth one can either Long or Short (buy or sell ETH^2 positions). Long squeeth is a leveraged position with unlimited exposure to ETH^2 upside and also because of its pure convexity it gives a more favourable outcome in the downside with the benefit of no liquidation, when compared to other leveraged positions. However, because of the pure convexity long squeeth holders have to pay a higher funding fee. On the other end there are short sqeeth holders, who can short ETH^2 index by putting ETH as collaterals, this comes with the risk of liquidation but since the funding rates are high they get a higher reward too.

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    Note that the values are in USD, Controller holds ETH, while Uniswap pool holds both ETH and oSQTH tokens. The USD value is summation of all the token values.

    • We can see that on 30th of June, TVL on Controller contract is $7.15M (worth of ETH) while Uniswap pool has $261K (worth of ETH and oSQTH).
    • April 3 was the day where squeeth reached it's highest TVL(in terms of both controller and uniswap together) but 5th of April had the highest ETH (in USD value) locked in Controller contract.
    • June 18th had $6.79M worth of ETH on Controller contract and that's the smallest amount since Jan 11th.
    • It's clear that although the TVL in dollar terms in getting smaller it's not the case with ETH amount. The reason for the value getting lower is the fact that ETH price is getting lower due to various market conditions.

    Looking at the differences in each these contracts may indicate there's something to do with token prices, let's look at it next..

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    • Well it shows that convexity of this function.
    • When the price drops the ETH/oSQTH ratio become really high while the rise in the ETH price make this ratio go lower, as oSQTH tracks ETH^2 and also accounts for funding fees.
    • We can see a correlation between ETH:oSQTH price ratio and the ratio between Controlle contract TVL and Uniswap pool TVL. The reason os that in a down trend the price ratio go up as discussed earlier and the shorts will be encouraged where they park their ETH collaterals to Controller Contract thus making controllers (shorts) ETH value higher than that of uniswap pool's (long) hence making higher ratio.
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    Here's a diagram of how this system works. In this analysis we're going to look at:

    • how much ETH Controller (0x64187ae08781B09368e6253F9E94951243A493D5) contract hold, and how it changes overtime.
    • What is the effect of ETH and oSQTH token prices played in the changes in this ETH amounts.
    • Also we're gonna add the amount locked in Uniswap pool (0x82c427AdFDf2d245Ec51D8046b41c4ee87F0d29C) and analyse the ratio locked in both these places against the token prices.
    • Then we'll see how these ETH was acquired in to Controller contract.
    • We can see that 15th of March had both very high inflow(second only to the opening day, Jan 12th) amount and the highest outflow value.
    • Since recent the net value seems to be in a drown trend, the negative sentiment on general market could be a reason.
    • Interestingly 11th and 16th of May has very high net inflows to controller contracts(amounts are second only to first two days)., even though the week prior was the Terra collapse which sends ripples across cryptoverse.

    Yes, this looks bit confusing, the y axis is the number of unique senders that sent ETH to Controller contract on a given day while the colour represents the number of transactions and the size of the marker represents the amount of ETH inflow. The intention of this graph is to see how active the protocol over time.

    • we can see that recently, the number of transactions have dried down (colour)
    • Also the inflow of ETH has been in smaller quantity (size of the circles.
    • In other words the activities seems dried down slightly in the recent past probably due to the bear sentiment.

    Conclusion

    SQUEETH is a wonderful, novel instruments to users where they get exposure to ETH^2 index in a perpetual manner without worrying about strike prices and expiry dates. Due to the recent market conditions we can see that the main Controller contract's tvl (dollar terms) getting lower while the ETH locked in the contract is slightly going up probably due to the fact that shorts needs to park ETH collaterals.

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