GY Options trading

[Proposal setup] Proposal title

Please provide your proposal title

GY Options trading

[Proposal Summary] Budget Information

Enter the amount of funding you are requesting in ADA

100000

[Proposal Summary] Time

Please specify how many months you expect your project to last

6

[Proposal Summary] Translation Information

Please indicate if your proposal has been auto-translated

No

Original Language

en

[Proposal Summary] Problem Statement

What is the problem you want to solve?

Cardano lacks native, decentralized options trading tools, limiting DeFi users’ ability to hedge, speculate, and manage risk without centralized intermediaries.

[Proposal Summary] Supporting Documentation

Supporting links

• https://www.geniusyield.co/
,
• https://docs.geniusyield.co/

[Proposal Summary] Project Dependencies

Does your project have any dependencies on other organizations, technical or otherwise?

No

Describe any dependencies or write 'No dependencies'

No dependencies

[Proposal Summary] Project Open Source

Will your project's outputs be fully open source?

Yes

License and Additional Information

Apache 2.0 LICENSE

[Theme Selection] Theme

Please choose the most relevant theme and tag related to the outcomes of your proposal.

DeFi

[Campaign Category] Category Questions

Describe what makes your idea innovative compared to what has been previously funded (whether by you or others).

While other projects may have explored derivatives on Cardano, none have implemented options as freely tradable native tokens backed by smart contracts. Our model removes pooled risk, enables trustless execution without intermediaries, and uses CIP-68 metadata for wallet transparency. We leverage Cardano’s unique EUTxO model to create individualized, secure, and composable options trading—something not yet achieved in the ecosystem.

Describe what your prototype or MVP will demonstrate, and where it can be accessed.

Our MVP will demonstrate minting and execution of options as Cardano native tokens via a functional UI. Users will be able to create options with custom token pairs, strike prices, and intervals, then execute or trade them. A prototype web app will be deployed publicly for testnet users. It will include CIP-68 metadata display, and validate full contract logic. Source code for smart contracts will be open-sourced on GitHub.

Describe realistic measures of success, ideally with on-chain metrics.

Success will be measured by on-chain metrics such as number of option tokens minted, executed, and traded; TVL locked in option contracts; number of unique wallets interacting with the protocol; and growth in trading volume over time. Additional indicators include integration into wallets and DEXs, feedback from testnet participants.

[Your Project and Solution] Solution

Please describe your proposed solution and how it addresses the problem

Implementing options on the Cardano blockchain involves a unique approach that leverages the strengths of the blockchain's architecture. The system is designed around two key components: a minting policy and a validator.

With this approach, an option is simply a Cardano native token, and as such, it can be traded freely like any other token. This opens up a whole new level of flexibility and accessibility for options trading on the Cardano network.

The option smart contract protects both the option holders and the option writer. For the holders, it is guaranteed that they will be able to execute the option during the execution interval, taking "deposit" tokens in exchange for the right number of "payment" tokens. For the writer, it is guaranteed that they will get their deposit back - either in the form of deposit tokens that haven't been claimed or in the form of an equivalent amount of payment tokens. This dual protection mechanism ensures fairness and security for all parties involved.

In addition, option smart contracts eliminate the centralized intermediary restrictions and risk. Option buyers and sellers don’t face any limitations in the amount or type of options they can utilize by a clearing house. In addition, market participants do not have to worry about the solvency of the intermediary.

When someone wants to issue (“write”) an option, they specify a token pair: one is the "deposit" token, and the other is the "payment" token. The issuer locks a number of deposit tokens in a smart contract, which is secured by the option validator. They then mint the same number of options as Cardano native tokens, with these options governed by the option minting policy.

The minting policy of the option token ensures that the correct number of deposit tokens has been locked in the option smart contract. This is a crucial feature that guarantees the integrity of the system and ensures that the options can be executed, eliminating the need for a traditional clearing house.

The validator guarantees that during a specified execution interval, any holder of an option token can exchange it for one deposit token, provided they burn the option token. This exchange requires the holder to also deposit a specified number of payment tokens.

For example, consider an option that is parameterized by the two tokens ADA (Cardano's native cryptocurrency) and ACME (the Acme Inc. utility token). In this case, ADA could be the deposit token, the price could be set to 1.5 ACME per ADA, and the execution interval could be set to a specific period in July 2023. This setup realizes a "put" option. During this interval, a holder of 750 option tokens could burn those tokens, take 750 ADA from the deposit, and deposit 1,125 ACME tokens (1.5 * 750).

To realize a "call" option, we can simply swap the roles of the deposit and payment tokens and use the reciprocal of the price. For instance, ACME could be the deposit token, the price could be set to 0.67 ADA per ACME, and the execution interval could be the same. During the execution interval, a holder of 750 option tokens could burn those tokens, take 750 ACME from the deposit, and deposit 502.5 ADA tokens (0.67 * 750).

This system covers both "put" and "call" options, as well as both American and European options, as the execution interval can be set to any arbitrary time interval. Finally, the number of issued options is completely flexible and depends on the number of deposited tokens.

Many option protocols on Ethereum or Ethereum Virtual Machine (EVM) compatible blockchains utilize an account model that pools users’ assets, forcing option liquidity providers to share trade fees and risks such as impermanent loss. Sharing risk and return limits the ability for option liquidity providers to manage the risk of their positions and can lead to catastrophic losses in times of high market volatility or quickly shifting market sentiment.

Options on Cardano correct the weaknesses of option protocols that pool users assets together through Cardano’s novel EUTxO model, which allows every option to be separate, unaffected by the outcome of other options. Instead of sharing potential profits and losses among many unknown market participants, each option liquidity provider is able to create option positions whose profit/loss output is unique to the terms of that specific option. In contrast to sharing unpredictable return and risk, option liquidity providers have full control of the return and risk profile of each option they create, including the amount of liquidity, the assets, the execution price, and the term of each option.

Technical Implementation

Our implementation of options on Cardano consists of two smart contracts working in tandem, the option minting policy and the option validator.

Parameters

Both smart contracts are parameterized by:

The “deposit” token.

The “payment” token.

The execution interval.

The price.

The Option Minting Policy

The minting policy for the option token guarantees that for each minted option token, a “deposit” token is locked in the option smart contract.

The Option Validator

When minting option tokens, the same number of “deposit” tokens is locked in the option smart contract. This contract guarantees that deposit tokens can only be removed during the execution interval if the correct (determined by the exercise price) number of “payment” tokens is put in and if the same number of option tokens is burnt.

It also allows the option writer to remove all remaining “deposit” and “payment” tokens, once the execution interval has passed.

Future Improvements

Looking ahead, there are several areas where the system could be improved. One possibility is to allow the staking of deposited ADA. For example, a trader selling an option where they deposit ADA that is temporarily locked for the term of the option could accumulate “locked” ADA staking rewards. Depending on whether the option is exercised, the accumulated staking rewards provide an extra source of profit for the option seller or the option buyer. In the Cardano network, addresses are pairs consisting of a payment part and an optional staking part. The payment part of the deposit address is the option validator, but the staking part could be the option writer’s staking key. This means that if the option writer deposits ADA in the smart contract, they could earn staking rewards during the duration of the smart contract. This would provide an additional incentive for investors to participate in the options market.

Another potential improvement is the development of a dashboard that provides a user-friendly interface for managing options. This would make it easier for investors to track their options, execute trades, and monitor the performance of the market. A well-designed dashboard could also provide insights into market trends and help investors make more informed decisions.

Prototype

We have developed a prototype UI, which allows users to mint options for arbitrary token pairs, execution intervals, and prices. If desired, these options can be executed during the execution interval. This prototype represents a significant step towards making options trading more accessible and efficient on the Cardano network.

the introduction of options on the Cardano network represents a significant advancement in the field of decentralized finance. By leveraging the unique capabilities of the Cardano blockchain, we can provide a more flexible, efficient, and transparent options market. The fact that an option is simply a Cardano native token that can be freely traded, combined with the dual protection mechanism of the option smart contract, makes this system uniquely advantageous. This will not only benefit individual investors but also contribute to the overall stability and maturity of the crypto market. As we continue to refine and improve this system, we look forward to seeing the innovative strategies and opportunities that it will enable.

[Your Project and Solution] Impact

Please define the positive impact your project will have on the wider Cardano community

Our approach is to bring a widely utilized traditional finance (TradFi) instrument and make it available on Cardano. And not just available but better. This caters to the needs of current Cardano DeFi users and lures in newcomers from TradFi.

Options in Traditional Finance

In traditional finance, the two main types of options are call and put options. In every option, there are two parties, the option buyer and option writer. Options differ from other derivatives, such as futures, in that option buyers have the right, but not the obligation, to exercise the option before expiration.

A call option gives the buyer of the option the ability to buy a certain amount of an underlying asset at an exercise price, or strike price, by the expiration date of the contract. If the option is exercised, the option writer, or seller, must deliver the asset or cash value of the asset at the exercise price.

The buyer of a call option is usually “bullish” on the underlying asset, meaning that the call buyer believes the market price of the asset will increase. If the asset’s market price increases above the exercise price before expiration, the call option buyer could profit by first exercising the option to buy the asset at the strike price and then subsequently sell it on an exchange at the higher market price.

A put option gives the buyer of the option the ability to sell a certain amount of an underlying asset at a specific price by the expiration date of the contract. If the put option is exercised, the option writer must buy the asset or cash value of the asset at the strike price.

The buyer of a put option is usually “bearish” on the underlying asset, meaning that the put buyer believes the market price of the asset will decrease. If the asset’s market price decreases below the exercise price, the put option buyer could profit by exercising the option to sell the asset at the strike price after buying it on an exchange at the lower market price.

On the opposite side of each option are the option writers, or sellers. Call and put option writers create the options contract. If a trader creates and sells a call option, the trader is considered bearish on the asset’s price. Alternatively, the writer of a put option is considered bullish on the asset’s price. The option writer determines the terms of the contract before creating the option and offering it for sale to potential buyers on an exchange.

American vs European Options

Options are also classified as American or European based on the timing of their execution. American options can be executed at any time before the expiration date, providing flexibility for the holder. European options, on the other hand, can only be executed on the expiration date, which requires careful timing and strategy.

Single Point of Failure

In traditional finance, the execution of options is guaranteed through the use of clearing houses. A clearing house acts as an intermediary between the buyer and seller of an option. When an option is bought or sold, the clearing house takes on the obligation of the opposite party. This means that if you buy an option, the clearing house guarantees that you will be able to exercise it if you wish to do so. The clearing house ensures this by requiring the seller of the option to provide collateral, usually in the form of cash or securities. This collateral is used to fulfill the seller's obligation if they are unable to do so themselves. The clearing house could also restrict derivative use on its platform to keep their notional value exposure within a desired range or restrict certain types of options.

A weakness for derivatives in traditional finance is the centralized intermediary between option traders. Since the intermediary is financially obligated to settle all options, each option is an asset or liability on the intermediary’s balance sheet. The single point of failure is the intermediary. If a party in the options contract does not have enough collateral to settle the transaction, the clearing house is obligated to settle the transaction. If the clearing house cannot settle the transaction, an option buyer risks non-receipt of the asset or funds.

Any restrictions and collateral requirements from an centralized intermediary place an additional financial burden on some investors. These restrictions also limit investors’ ability to utilize options, reducing the liquidity and transparency of the markets.

Number of Issued Options

The number of issued options is another important aspect, as it indicates the liquidity and depth of the options market. In traditional finance, options are typically issued in certain fixed, common numbers. For example, you might find options contracts for 100 or 1,000 shares, but it would be highly unusual to encounter a contract for a non-standard number like 139,465 shares. This standardization helps to streamline the market and make pricing more transparent. It also facilitates trading and increases the overall liquidity of the market.

Learning from TradFi and making options better

We will take into account the above considerations and aim to create a financial instrument that is easier to use, more flexible and widely available. This way we address the challenge brief that states "Cardano needs a thriving ecosystem of different products and integrations for the community to use that increasingly become the better alternatives over current centralised providers". We are committed to do just that.

Benefits to investors and measuring them

Options are a cornerstone of traditional finance, providing a level of security and flexibility that is essential for the healthy operation of markets. The multi-trillion dollar options market allows investors to:

Hedge against potential losses

Leverage trade to increase the upside of an investment with a small amount of capital

Speculate on future market or price movements of an underlying asset or index

Generate income by selling options to collect premiums or trading derivatives on a relative-value basis

Gain exposure to assets when owning the underlying asset, such as commodities, is not feasible

Options can provide a mechanism for managing the inherent volatility of cryptocurrencies, thus contributing to the stability and maturity of the market. The introduction of options on a DEX, therefore, represents a significant advancement in the field of decentralized finance, opening up new possibilities for risk management and strategic investment.

We can measure the success of the project by surveying and interviewing our investor users, asking them directly whether the now available options are giving them the above mentioned benefits.

Sharing Outputs

The options protocol is a DeFi, permission-less protocol accessible to anyone. Genius Yield has built a community of over 26,000 followers on Twitter, over 6,200 Discord members, and partnerships with other entities that could market the options protocol.

Our protocol will give millions of Cardano users around the world, many of whom don't have access to derivatives in traditional finance in their home countries, the ability to hedge, leverage trade, generate income, and speculate on assets previously not possible.

We believe our options protocol is a key pillar in our mission to democratize finance for all by providing the permission-less opportunity to use options, a derivative whose use has historically been limited to residents of who live in countries with a developed financial system.

Measuring Success

Growth in options-related TVL and trading volume.

Number of new users bridging from TradFi to Cardano.

[Your Project and Solution] Capabilities & Feasibility

What is your capability to deliver your project with high levels of trust and accountability? How do you intend to validate if your approach is feasible?

A talented team of developers and engineers whose combined decades of experience has created one of the most innovative DeFi platforms to date.

Some accomplishments include:

Genius Yield DEX - the innovative order-book DEX, that fully utilizes Cardano's unique EUTxO architecture, unlocking the tremendous efficiency of trades.

Decentralized - open-source DEX that fully utilizes the EUTxO architecture. Fair and decentralized order matching is secured by the open-sourced Smart Order Routers (SORs) that make AMM-like batchers obsolete. SORs are technically superior, as they can execute orders in parallel due to the high level of order fragmentation created by the order book.

Deterministic - say goodbye to large slippage amounts and know what you're going to get at the order’s execution. As Genius Yield DEX doesn't use batchers to match orders, the price is locked at order submission. Large slippage amounts are a risk in EVM chains and shouldn't be an issue on Cardano!

Efficient - The EUTxO architecture and matching orders with SORs allowed us to cut fees in an unprecedented way and eliminate impermanent loss! We've created the most efficient DEX in the ecosystem. Moreover, by staking $GENS traders participate in Genius Yield’s Fees Sharing Program, which unlocks passive rewards sharing opportunity and transfers 20% of the DEX’s fees to the stakers.

Atlas - Atlas is Genius Yield's state-of-the-art Plutus Application Backend (PAB) in Haskell. Atlas is an off chain, backend tool that allows dApps to interface with the Cardano blockchain and execute Plutus smart contracts. Genius Yield has open-sourced Atlas, making the solution available to any Cardano developer. A high-quality PAB will increase innovation and developer adoption on Cardano by significantly reducing the resources new developers would need to create dApps. Some of the biggest projects on Cardano, such as World Mobile, which is building the first mobile network built on the blockchain, is utilizing Genius Yield's PAB for its technology. http://bit.ly/3LXfFPn

At Genius Yield, we firmly believe that sustainable growth can be achieved through collaboration with the Cardano community and the ecosystem. That’s why selected, core elements of our DEX were open-sourced:

Market Maker Bots

Smart Order Routers

Plutus Application Backend “Atlas”

Trading Bot API

DEX’s Smart Contracts

We will validate our approach via:

Prototypes & Testnet Deployments

Community & Partner Testing (e.g., dApp users, potential institutional clients)

Gradual Release – from testnet to mainnet, with thorough audits and user feedback

[Milestones] Project Milestones

Milestone Title

Plutus Smart contracts for options

Milestone Outputs

Options should be Cardano native tokens, where one token gives the holder the right to swap one specific asset for another specific asset at a specific strike price during a specific execution interval. The smart contract(s) must guarantee that the holder can exercise the option, and it must guarantee that the issuer receives the payment.

Acceptance Criteria

Plutus validator logic correctly enforces option exercise conditions (strike price, token amounts, execution interval).

Minting policy enforces locking of deposit tokens at issuance.

Full test coverage for both scripts, validating typical and edge-case option executions.

Successful deployment on Cardano testnet with test options executed without failure.

All logic audited or internally reviewed for correctness and security.

Evidence of Completion

Source code of Plutus validator and minting policy published on public GitHub repository

Unit and integration test reports verifying correctness of smart contracts

Testnet transaction hashes showing options issued and exercised successfully

Internal audit report or external audit summary confirming contract behavior

Screenshots or video walkthrough of testnet interaction via CLI or demo UI

Delivery Month

1

Cost

20000

Progress

20 %

Milestone Title

Contract off-chain code

Milestone Outputs

Develop the off-chain backend logic and client code that enables interaction with the Plutus smart contracts from Milestone 1. This includes endpoints to mint, execute, and expire options. A minimal web-based UI will be provided to demonstrate real-time creation and execution of options using testnet wallets and token pairs. The UI will allow users to input parameters such as deposit token, payment token, strike price, and execution interval.

Acceptance Criteria

Full backend interface built using Atlas or equivalent PAB layer to connect dApp with Plutus contracts.

Frontend UI allows users to mint and execute options based on user-defined parameters.

Users can create and exercise options using testnet wallets through the UI.

Successful execution of multiple option flows demonstrated via testnet transactions.

Code repository includes documentation for off-chain interaction and frontend behavior.

Evidence of Completion

GitHub repo including complete off-chain code and frontend prototype.

Live demo or video walkthrough showing minting and exercising options via UI on testnet.

Logs and screenshots of testnet interactions using user wallets.

API or CLI documentation for minting and exercising flows.

List of transaction hashes demonstrating testnet interactions from the frontend.

Delivery Month

2

Cost

20000

Progress

40 %

Milestone Title

CIP-68 on-chain option metadata

Milestone Outputs

Extend the option minting policy to generate Cardano native tokens compliant with CIP-68. Each token will carry on-chain metadata including key parameters: deposit asset, payment asset, strike price, execution interval, and token type (put/call). This ensures users can inspect token data directly in supported wallets (e.g., Nami), minimizing risk of confusion or fraud. Optionally, an SVG logo containing embedded metadata will be generated for added clarity and UX enhancement.

Acceptance Criteria

Updated minting policy mints CIP-68-compliant NFT reference tokens.

Metadata includes clearly labeled key-value pairs for strike price, assets, and time window.

Metadata format is verified and displays correctly in supported wallets (e.g., Nami).

Tests confirm metadata is retrievable without accessing backend endpoints.

Optionally, dynamic SVG logo generation includes visual encoding of metadata.

Evidence of Completion

GitHub repository with updated minting policy code and test suite for CIP-68 compliance.

Sample minted options with complete metadata accessible via token registry or wallet explorer.

Screenshots or videos of option token preview in Nami or compatible wallets.

Example metadata JSON for at least two different option token configurations.

If implemented, samples of SVG logos showing embedded token data.

Delivery Month

4

Cost

20000

Progress

60 %

Milestone Title

DEX integration (swap)

Milestone Outputs

Update the Genius Yield DEX architecture to support trading of option tokens as standard Cardano native assets. This includes indexing and recognizing option tokens, enabling liquidity provision and swaps between options and other tokens (e.g., ADA, stablecoins), and ensuring compatibility with the order book and Smart Order Routers (SORs). This will make options seamlessly tradable alongside other assets in a permissionless manner.

Acceptance Criteria

Genius Yield DEX backend accepts option tokens as valid tradable assets.

UI allows users to list, search, and trade option tokens.

Orders involving option tokens are matched and settled correctly via the DEX.

At least two example trades using option tokens are executed on testnet.

Option token trades are handled with the same slippage protection and fee logic as regular tokens.

Evidence of Completion

GitHub pull requests or commits showing changes to the DEX backend, indexer, and UI for option token support.

Screenshots or video of trading an option token via the DEX interface on testnet.

Testnet transaction hashes for at least two swaps involving option tokens.

Documentation update reflecting option token integration in DEX architecture.

Option tokens visible in the DEX asset list with metadata displayed (via CIP-68 or otherwise).

Delivery Month

5

Cost

20000

Progress

80 %

Milestone Title

Production readiness & Option dashboard app

Milestone Outputs

Finalize and optimize off-chain infrastructure for mainnet deployment, ensuring robust, secure, and scalable interaction with option contracts. Deliver a production-grade web dashboard where users can view, filter, mint, and execute options. The UI will display CIP-68 metadata (strike price, token pair, expiry) and allow wallet-based interaction. The dashboard will be compatible with major Cardano wallets (e.g., Nami, Eternl) and built for both desktop and mobile accessibility.

Acceptance Criteria

Fully tested and optimized backend capable of handling mainnet load and error conditions.

UI supports all option lifecycle actions: create, list, execute, expire.

Display of real-time option data via contract queries and/or indexer.

Dashboard functions with Nami or Eternl on testnet and/or preview mainnet.

At least five unique user accounts demonstrate successful end-to-end use via UI.

Evidence of Completion

Open-source backend repository ready for deployment, with mainnet configuration.

Live staging version of the dashboard app accessible via public link.

Screenshots or screencasts showing minting, execution, and display of live option tokens.

Testnet transaction hashes for option actions initiated via dashboard.

User feedback or community test reports validating dashboard usability.

Delivery Month

6

Cost

20000

Progress

100 %

[Final Pitch] Budget & Costs

Please provide a cost breakdown of the proposed work and resources

Plutus Smart Contracts for Options – 20,000 ADA

Development of validator and minting policy logic to support options as Cardano native tokens

Full unit test coverage and validation logic (strike price, token pair, execution interval)

Internal review and audit preparation

Estimated effort: 2 developers × 4 weeks × 25 hrs/week × 50 ADA/hr

1. Contract Off-chain Code + Minimal UI – 20,000 ADA

Backend logic to mint, execute, and expire options through a web interface

Integration with wallets (e.g., Nami) for testnet interactions

Minimalistic frontend for user testing and contract interaction

Estimated effort: 2 developers × 4 weeks × 25 hrs/week × 50 ADA/hr

1. CIP-68 On-Chain Metadata – 20,000 ADA

Extend minting policy to include CIP-68-compliant metadata for each option token

Store option parameters (strike, expiry, tokens) on-chain in readable format

Optional SVG rendering for richer wallet previews

Estimated effort: 1–2 developers × 4 weeks × 25 hrs/week × 50 ADA/hr

1. DEX Integration (Swap) – 20,000 ADA

Update Genius Yield DEX to recognize and trade option tokens

Integrate order book and Smart Order Router logic to support these trades

End-to-end testing with testnet swaps

Estimated effort: 2 developers × 4 weeks × 25 hrs/week × 50 ADA/hr

1. Production-Ready Dashboard App – 20,000 ADA

Finalize and deploy dashboard to create, monitor, and execute options

Display of CIP-68 metadata and wallet-connected UI

Prepare codebase and backend for mainnet release

Estimated effort: 2 developers × 4 weeks × 25 hrs/week × 50 ADA/hr

[Final Pitch] Value for Money

How does the cost of the project represent value for the Cardano ecosystem?

We believe the cost of the project is relatively small compared to the value it brings to the ecosystem. While we are asking for 100,000 ADA, we believe that eventually hundreds of millions in ADA volume will flow through the platform, allowing many users around the world to access complex DeFi tools like options to manage their wealth as they see fit.

[Required Acknowledgements] Consent & Confirmation

Terms and Conditions:

Yes