Risks
Read this before you put money in.
Market risk
Options expire Most options finish out of the money. Here that means the long leg settles at the 10% floor — better than zero, but still a 90% loss on the position. Buying options is a strategy where small, frequent losses are the normal case.
Upside is capped. A long leg can never be worth more than the collateral behind it. Unlike a vanilla call, a spectacular move in the underlying does not produce a spectacular return — the payoff approaches 100% of collateral and stops.
Time works against the buyer. Every day that passes removes value from a long option, regardless of what the underlying does. Weekly expiries mean this happens fast.
No insurance, no recourse. There is no fund, no backstop and no organisation that reimburses losses. Transactions are final and there is nobody to appeal to.
Oracle risk
Settlement depends entirely on Chainlink. Every payoff is determined by a feed reading at expiry.
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Chainlink feed reporting a different price deviating from major exchanges settles options at that price. The value is written once and can never be corrected.
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Settlement is a snapshot, not an average, so a brief market distortion at exactly the wrong moment determines the outcome.
Liquidity risk
Prices can be far from fair value. A thin pool can sit well away from the model price. Trading it is expensive by design — the dynamic fee rises with divergence — so a bad entry can be difficult to reverse cheaply.
Trading stops at expiry. Once the maturity timestamp passes, swaps revert. If you meant to sell and did not, your only remaining exit is to exercise.
Liquidity provider risk
Providing liquidity has its own risk profile, and it is not a yield product by design.
Impairment is structural, not incidental. Option prices decay deterministically and move sharply, hence arbitrageurs continuously rebalance the pool toward fair value. The dynamic fee is a compensation, calibrated to mitigate the drag and the tail of severe losses, but it does not 100% guarantee profitability.
Positions do not roll themselves. Each weekly expiry requires action. Liquidity left in an expired pool must be withdrawn and the recovered options exercised manually.
See Providing liquidity for the full treatment.
User error
Mundane, and a leading cause of losses:
- Buying the wrong leg. Long and short differ by one bit in the token id and have opposite exposure. Check the
Buy/Sellfield in the token name before confirming. - Wrong USDC. Only native Base USDC works. A bridged variant will not be recognised.
- Forgetting to exercise. An expired in-the-money position pays nothing until you claim it. There is no deadline, but also no reminder.
- Interacting with pairs directly.
mintandburnon a pair are low-level and assume the router already moved your tokens. Use the router. - Sending tokens to the wrong address. As always, irreversible.
Regulatory
Options are regulated instruments in most jurisdictions. Whether you may lawfully use this protocol is your responsibility to determine. Nothing in this documentation is financial, legal or tax advice, or a solicitation to trade.
Reporting a vulnerability
The contracts have had a thorough audit security review, with findings tracked and fixed, and a regression test for each closed finding. Please report privately, before disclosing publicly, via Telegram or Discord. Give us a chance to protect users' funds first.
Next
- Core concepts — understanding the instrument properly
- Contracts & addresses — verify what you're interacting with
- Payoff & pricing — exactly what you are paid at expiry