We’re extremely excited that with today’s Acrux release, binary options are now live on Synthetix.Exchange!
Binary options are a type of options contract that provides a fixed return based on a binary outcome in the future. They pay out on a certain date if the price of a chosen asset is above (or below) a level specified at the creation of the option.
This post will explain how this new feature works and how to get involved.Binary options explained
A binary option is a contract that allows someone to make a trade on a yes/no outcome. For example, a market could be created on the following statement:
BTC will be above 10k USD on 31st December 2020.
This statement will be either true or false. True is represented by “long” options and false is represented by “short” options. In “parimutuel” binary options — the kind that Synthetix uses — the each side of the market pays out the other side.
For example, if the “BTC over 10k” market attracted a total of 10,000 sUSD, where 33% of bidders went short, and the long side is correct, the long side splits the 3,333 sUSD from the short side. In this case, this market determined that there was a 67% probability that BTC would be above 10k on December 31, 2020, and therefore long bidders received 3,333 sUSD for the 6,667 sUSD they supplied. All binary options markets are denominated in sUSD, and that is the only currency used to purchase options.Floating auctions
Binary options use a floating auction mechanism, which means the price of each side is in flux until the Bidding phase is over. In other words, the state of the long and short skew at the time you make a bid does not affect what the payout will be when the market is resolved. What is relevant to the eventual payout is the long and short skew when the Bidding phase is over, and of course whether the binary option is true or false.
When you make a bid and purchase an option, you...