Thales
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Litepaper
Version: 1.0 (August 2021)

Abstract

Thales is a binary options trading protocol on Ethereum. Born out of the Synthetix ecosystem, it leverages Chainlink provided price feeds, 0x limit order books, and the sUSD stablecoin to provide users a novel on-chain, permissionless and non-custodial way to hedge and speculate on the prices of crypto assets, commodities, equities, equity indices, sports markets, and proprietary crypto indices.

Motivation

Decentralized derivatives present a novel opportunity to disintermediate regulatory barriers that splice and divide global markets, reducing net efficiency and leaving market segments vulnerable to opacity. Bitcoin and Ethereum derivatives experienced tremendous growth, notably in the form of perpetual swaps and vanilla options on centralized platforms. At one of these centralized platforms users deposit collateral that can be used to trade the derivative products. One of the drawbacks of centralized derivative platforms is counterparty risk.
Custody risks associated with counterparty risk can prove detrimental for users of crypto asset derivative products. For example, trading platforms can shut down before a user has a chance to withdraw collateral, founders can mysteriously die as with the Quadriga tragedy, the venue can sustain losses and become insolvent as with Mount Gox, or the counterparty can arbitrarily impose rules and fees around collateral withdrawal. In some cases centralized exchanges have had partnerships with untrustworthy vendors collecting user data and selling it, unbeknownst to centralized exchange users until after the fact. The need for trustless, self-custodied, decentralized crypto asset derivative products is clear. The time for this need to be addressed is now.
Thales is a project conceived as an offshoot of the Synthetix network ecosystem, a decentralized liquidity protocol on Ethereum. Synthetix enables the issuance of synthetic assets in a totally trustless way. The user only needs to trust the smart contract to mint sUSD against SNX behaves consistently. Minting sUSD as a synthetic asset is functionally equivalent to issuing a fiat-denominated liability against the liquid market value of the ERC20 collateral, the SNX tokens. Such an architecture enables permissionless, censor-resistant trading of synthetic assets on Ethereum. Trading and holding sUSD is much safer for users who wish to avoid censorship risks associated with temporary geographical location. sUSD is overcollateralized several times, meaning there is anywhere from $4-7 worth of SNX ERC20 collateral backing the fiat value of each sUSD.
This innovation expands market freedom globally in a way that emphasizes safety for users of derivative products. Self-custody requirements imposed on Thales users induces the adoption of sound security practices. This approach preemptively mitigates counterparty risks from being actualized.
As part of Synthetix’s quest to maintain the sUSD value over a long period of time in a sustainable way, fully-fleshed out use cases designed around sUSD enable the system to function smoothly for many years to come. One of these use cases is Thales: a platform where users are able to speculate and hedge on asset price fluctuation in a completely trustless fashion. By opening speculative and hedging use cases via binary options to global audience without any barriers to entry, Thales and Synthetix are embedded in the larger story of how Ethereum is a technology substrate disrupting the delivery of financial services.

Thales Binary Options Introduction

Thales Binary options enable users to go long or short on specific outcomes around available price feeds. Each market has a specific condition (strike price) that should be met on a specific date (expiry date), and users speculate and bet on that condition being met by either acquiring sSHORT options tokens (bet that the condition will not be met) or sLONG options tokens (bet that the condition will be met). The pricing of options tokens is constrained by the limits of 0 and 1, and it is determined by the market demand. During the trading phase, users are trading their options tokens against each other in a peer-to-peer manner by placing orders on the integrated 0x order books. On the expiry date, if the condition is met, the long options tokens are worth 1 sUSD each and the short options tokens are worth zero. On the other hand, if the condition is not met, the long options are worth zero while short options are worth 1 sUSD. A binary result.
This binary options model provides certain benefits such as:
  • Limited risk environment with capped upsides and downsides.
  • A diverse offer of events to be speculated on with flexibility to customize bets and create a market.
  • Attractive and easy-to-understand model

Synthetix sUSD stablecoin as collateral

Thales smart contracts support sUSD, an uncensorable and decentralized stablecoin, as collateral to mint options. sUSD is the flagship product of Synthetix, a decentralized derivatives liquidity protocol. It is completely censorship-resistant. There's no way to stop one person from sending another person sUSD. Similarly, there is no way to stop a person from minting sLONG and sSHORT options tokens with sUSD and there is no way to stop a person from exercising his winning options tokens for sUSD. In the event of a front-end not being functional for whatever reason, a user could always interact with the Thales smart contracts directly through a blockchain explorer like Etherscan.

Creating a binary options market on the Thales marketplace

Anyone can create a Binary Options market on the Thales marketplace. The only requirement is an Ethereum wallet with a minimum of 1000 sUSD (minimum market funding amount).
Supported assets for market creation are a wide range of cryptocurrencies, equities, commodities, indexes, and forex currencies:
Cryptocurrencies
Commodities
Equities
Indices
Forex
BTC (Bitcoin)
ETH (Ethereum)
XRP (Ripple)
LTC (Litecoin)
EOS (EOS)
BNB (Binance coin)
XTZ (Tezos)
XMR (Monero)
ADA (Cardano)
LINK (Chainlink)
TRX (Tron)
DASH (Dash)
ETC (Ethereum Classic)
SNX (Synthetix)
KNC (Kyber Network)
AAVE (Aave)
1INCH (1inch)
YFI (Yearn)
DOT (Polkadot)
REN (Ren)
COMP (Compound)
UNI (Uniswap)
RUNE (Thorchain)
CRV (Curve)
USDT (Tether USD)
XAU
(Gold)
XAG
(Silver)
OIL
(Oil)
FTSE
(FTSE 100 Index)
NIKKEI
(Nikkei 225 Index)
AAPL
(Apple)
FB
(Facebook)
GOOG
(Alphabet)
NFLX
(Netflix)
AMZN
(Amazon)
CEX
(Centralised Exchange tokens index)
DEFI
(DeFi tokens index)
AUD
(Australian Dollar)
CHF
(Swiss Franc)
EUR (Euro)
GBP (Pound Sterling)
JPY
(Japanese Yen)
USD
(US Dollar)
KRW
(Koren Won)
When creating a market, the creator is required to provide the following inputs:
  • Choose an asset to create a market for
  • Input a strike price for the chosen asset
  • Choose and input a market maturity date and time
  • Input the amount of sUSD to fund the market with. The current minimum amount required for market creation is 1000 sUSD.
When the market is created, for every sUSD deposited as the market funding, the creator gets 1 sLONG and 1 SHORT binary options tokens minted to his wallet. The creator is then free to put sell orders for the acquired options tokens on the order book, and in that way provide initial liquidity for the created market.

Sports and custom markets

The unique mechanism of the Thales protocol allows for the creation of unique exotic markets, but only if there is a sufficiently robust oracle to be used for market resolution. A clear example of this are the 2020 Olympic games markets on Thales, for which Chainlink provided the results data feeds for market resolution. For the duration of the Olympics, you could trade binary options on Thales marketplace for markets such as: winner in total gold medals, winner in men's basketball and winner in men's volleyball.
Any immutable on-chain data feed can be potentially implemented to Thales protocol and used for a binary options market.
Regarding potential markets that do not have on-chain data feed, Thales is currently exploring the possibility of creating a framework where exotic binary options markets could be resolved by the elected Thales Council.

Minting options tokens

For liquidity provision, Thales protocol uses a minting model. Anyone can mint options for any market by depositing sUSD. For every sUSD deposited in a certain market, the user gets 0.99 sLONG and 0.99 sSHORT binary options tokens for that market, as there is a 1% minting fee. A minting fee of 1% is shared 50%:50% between the protocol fee pool and the market creator. For example, If someone deposits 1000sUSD in a certain market, he gets 990 sLONG and 990 sSHORT binary options tokens for that specific market.

Trading binary options on the Thales marketplace

Anyone can trade options on the Thales marketplace. On the Thales dapp front page, there are always a plethora of markets in the trading phase. The trading phase is a time duration between the market creation and the expiry date of the certain market. In this phase, the integrated 0x order books are open for options trading. Each market has two dedicated order books: one for trading sLONG options and the other for trading sSHORT options. Users can set sell orders for their options tokens or put buy orders for options tokens they wish to acquire with their sUSD.

Exercising binary options on the Thales marketplace

The term "to exercise Binary options" means to convert your winning sLONG or sSHORT tokens to sUSD in a 1:1 ratio during the maturity phase of the specific market. Depending on if the market resolved short or long (below or above the strike price on the time of market expiration), the winning options tokens can be converted to sUSD while the losing options tokens are worth zero. The default time limit for people to exercise their options on the Thales marketplace is 6 months from the expiry date of the said market. After this, the market is removed from the protocol.

Thales governance structure

As a project born to be a part of the Synthetix ecosystem, the Thales protocol strives to inherit the same virtues of a decentralised governance made out of co-existing and intertwined decentralised autonomous organisations. This battle-tested concept is regarded throughout Defi as a revolutionary solution to the ever present problem of governing a censorship resistant, decentralized protocol.
The Thales protocol governance is made out of three core DAOs:

- Thales council

Thales council is a governing DAO composed of members elected by the community of token holders. Thales council's main responsibilities are conducting TIP reviews, interviewing the TIP proposers, debating the implications of proposed changes and coordinating with the Protocol DAO regarding the technical implications and implementations. TIP is an abbreviation of Thales Improvement Proposal, and it represents an artifact used to describe proposed changes to the core Thales protocol.

- Protocol DAO

Protocol DAO is a decentralized autonomous organization assigned to be the owner of the Thales protocol core smart contracts. Its main responsibilities are upgrading and releasing new contracts (on behalf of the Thales Council), implementation of TIPs and operational security.

- Thales DAO

Thales DAO is a DAO with the purpose of managing the treasury of the protocol. It is responsible for properly incentivizing the other governing bodies and to support further developments of the protocol. All of the DAO roles are paid a certain stipend by the Thales DAO.
Each of the DAOs has its own set of responsibilities and all of them together share the same mission of enabling the most optimal, efficient and censorship-resistant way for the Thales community to be the main driving force of the project.

Thales smart contracts

This contract manages all markets of the Thales marketplace.
Main use cases of BinaryOptionMarketManager.sol contract are:
  • Manages each market creation.
  • Manages all of the sUSD transfers so that users only need to approve the manager contract.
  • Resolves the markets.
  • Has specific read methods that enable external integrations of the Thales markets.
In case of new manager deployment, the old manager can be invoked to transfer ownership of all the markets to the new manager.
This contract is called by the BinaryOptionMarketManager.sol contract to create new markets using the Minimal Proxy pattern, described in EIP-1167. This pattern greatly reduced the gas costs for creating a market from 5,000,000 gas to 1,000,000 gas.
This contract describes the Thales binary options market.
Main use cases:
  • Stores sUSD that is used as collateral for the market
  • Stores all of the information for the market such as: asset, market dates and strike price.
  • Mints sSHORT and sLONG options tokens for the deposited sUSD. Minting is done via the Minimal Proxy factory to reduce gas cost.
  • Handles all of the fees associated with minting.
  • Manages exercising markets where winning options can be redeemed for sUSD in 1:1 ratio and the losing options can be burned.
ERC20 token contract representing a LONG or SHORT position on a BinaryOptionMarket.sol contract.
Used for extracting information such as markets data and parameters, account options balances. Mainly used as a frontend helper.
Last modified 3mo ago