What is Premia?
Premia is a decentralized finance options protocol. It allows users to provide liquidity to, or buy and sell options from, a liquidity pool. Premia enables the trading of options, allows users to earn a market yield on DeFi assets and provides protection to users through hedging risk.
Hold on, what are Options?
Options are instruments that give holders the ability to purchase an asset at a set price at a certain point in the future.
Selling Options
Selling options is a complex process than buying them. It requires specialist knowledge to decide on different metrics. Market makers and sophisticated traders use such strategies in traditional finance. This is highly complex and difficult for individuals to get into.
DeFi platforms like Premia are allowing previously impossible things to become possible- such as allowing users to benefit from the returns of options selling, simply by depositing their assets into a pool.
Premia runs a peer-to-pool market-making model. This means that when you purchase an option on Premia, it is sold to you by the pool. This pool is a DeFi Option Vault (DOV), which other users deposit into. DOVs democratize the process of selling options and removes the requirement to match options sellers and buyers. It also enables liquidity providers to earn passive yield without actively writing or managing options.
Check out our tutorial here for a detailed breakdown of how to use Premia.
What does the PREMIA token do?
The token serves two main use cases. Firstly, it is a revenue-sharing token that grants holders a small percentage of revenue produced by the company, which is currently around 2-3%. Secondly, it serves as a governance token through which holders can vote on certain proposals the team presents.
Conclusion
We are bullish on DeFi Derivatives, and we have a lot to say about Premia. These explainer pieces aren’t for our opinions, plans, or projections. They’re here to give you a base level of understanding so you can appreciate the premium reports and make the most of them.
