How Advanced Blockchain synergized and built Panoptic

Advanced Blockchain is formally announcing the launch of its newest incubated blockchain project, Panoptic, a perpetual, oracle-free options protocol. Leveraging our vast talent and resources, Advanced Blockchain will develop, run and scale Panoptic in line with the vision as conceived by Professor Guillaume Lambert.

Advanced Blockchain (AB) is built on three pillars: capital investment, venture building, and research. As a venture incubator, we have built a team of over two hundred strong, with expertise in engineering, cryptography, marketing, and product development. AB has gained deep expertise in the blockchain and Web3 space through active engagement, and the deployment of resources in investment, research, and engineering in order to maintain this competitive advantage.

Panoptic demonstrates the ability of AB’s venture building and research arms, AB Labs and AB Research respectively, to align with dedicated entrepreneurs and help them execute their vision. In this way, we have the ability to take ideas, deploy a capable team, and run the business with the necessary tools and talent. As a venture builder, we are positioned to provide value to visionaries by helping them go to market at double-time speed. Panoptic is a prime example of these value-add efforts, as the project was conceived by Professor Guillame Lambert but also represents the alignment of AB resources, and the swift execution therein, to help build a cutting-edge product that enables the vision of decentralized options trading on any asset pool within Uniswap v3. Leveraging our labs, capital, and marketing teams, Panoptic is built and positioned to scale from end to end. Through our concerted efforts with Prof. Lambert, AB is running the project and supporting the growth with a venture capital network to help scale Panoptic while positioning the company to drive a paradigm shift in options trading within the DeFi landscape.

AB Research and Panoptic: identifying flaws and challenges of DeFi options trading

The options market in traditional finance is gigantic and while the DeFi sector is continuously growing, the options market therein is ant-sized in comparison to that of TradFi. In numbers, where TradFi options trading boasts a stunning $500B in daily options trading, BTC and ETH options trading reach around $400B in trading per year. We believe that the functionalities and solutions to enable seamless options trading need to be reimagined and upgraded, thus, Panoptic.

Our combined research led us to find that while options trading in DeFi was more accessible than in traditional finance (TradFi), where it required centralized exchanges and credentials, it still suffered from critical flaws that rendered it inferior. The movement of options on-chain was not a one-to-one transition. There were fundamental differences in how options trading would be conducted in DeFi as compared to TradFi, due to the addition of a blocktime, the decentralized nature of blockchain ecosystems, as well as gas fees on transactions. As a consequence, options trading in DeFi suffered slower transaction speeds which are especially harmful to options trading, greater difficulty in pricing, and additional expenses added to the cost burden. In addition, there is an underlying need for deep liquidity that is difficult to secure in DeFi generally, and Uniswap v3 specifically.

Our resources are thus being deployed to address these critical flaws and challenges through the building of Panoptic. These were complicated challenges without clear solutions, and Panoptic’s ability to innovate and solve them demonstrates the strength of AB’s incubation process.

Introducing the Panoptic solution

Panoptic enables DeFi users to trade options on any asset pool in the Uniswap v3 ecosystem, in a permissionless and non-custodial protocol. As such, it brings traditional finance (TradFi) options trading to DeFi, and takes advantage of the significant assets and liquidity already on Uniswap v3. Thus, Panoptic aims to eliminate the aforementioned gigantic difference in options trading that we see between DeFi and TradFi. DeFi options trading will also have several advantages to the TradFi model: there is no counterparty risk, instantaneous settlement is offered, and Panoptic is designed to remain fully collateralized at all times. Options will also be perpetual, meaning they lack an expiration date. Such options are less accessible in TradFi, and Panoptic democratizes access to these derivative instruments.

Panoptic works through the management of liquidity within Uniswap v3 pools. It functions as a set of smart contracts that handles the creation of long and short options through the movement of liquidity closer to, or further away from, the spot price. This is Panoptic’s key innovation. Options payoffs are replicated by the movement of liquidity closer to the spot price in order to represent a short position, and the movement of liquidity away from the spot price to correspond to a long option position.

As a consequence, Panoptic is able to offer DeFi users perpetual options trading on top of Uniswap v3. These options will have defined risk and capped profit, to ensure the long-term solvency of the protocol. Market makers on Uniswap v3 will also gain strong liquidity incentives through the collection of option premiums in addition to transaction fees, which will overcome any Uniswap liquidity challenges.

More information on Panoptic can be found on the website, medium, and twitter.

How Advanced Blockchain AG is building Panoptic

Assistant Professor of Applied and Engineering Physics at Cornell, Guillaume Lambert, conceived Panoptic and chose Advanced Blockchain as his build partner to run and realize his vision. AB’s venture building arm, AB Labs, has a robust ability to develop hypotheses, build teams, and test solutions that form scalable, value-generating companies. While AB’s research division, AB Research, is able to provide an unparalleled value in continued innovative idea generation. Thus, Panoptic was built through AB Labs and AB Research, and acts as proof of the long-term viability of this crucial aspect of AB’s operation and value as a team and partner.

AB Labs formalized a dedicated Panoptic team from our in-house experts, led by founder Guillaume Lambert, and joined by our Head of Research Dr. Jesper Kristensen. Panoptic is able to leverage a variety of talent and experience across DeFi from AB to solve the pressing challenges identified. Panoptic was able to overcome issues of speed and pricing and leveraged the novel concentrated liquidity on Uniswap v3, as well as its assets, to enable perpetual options trading.

Our team recognized that options could be replicated through the movement of liquidity between a Panoptic pool and the Uniswap v3 pools relative to the spot price. In addition, they adopted perpetual options, which would circumvent major challenges around pricing and transaction fees, and gave greater utility to users. A key innovation is the premium pricing model for perpetuals which converges to a Black-Scholes pricing model on average. Any price manipulation is removed by relying on the deep liquidity of existing Uniswap v3 pools - this is how we can tap into existing liquidity and essentially inherit all the TVL/depth of Uniswap v3.

After identifying the pressing challenges and flaws within the ecosystem, the Panoptic team then began the development stage of their incubation. They engineered the protocol’s design and incentives, its code, and backend mathematics and use-case within DeFi. The team focused on building, deployment, and constant iteration. They ultimately reached a novel conclusion: perpetual options through Uniswap v3’s concentrated liquidity mechanisms would remove the order book from options trading, just as automated market-makers had removed the order book from exchanges.

Panoptic leveraged AB’s marketing resources for brand principles, marketing collateral, and pitch decks to create effective communication of its vision for communities, partners, and investors.

When we created Panoptic, we had to re-invent the concept of an option from scratch. Our research allowed us to design a new type of DeFi-native option that is both simple and elegant while being orders of magnitude more user-friendly than what already exists in TradFi. AB’s support was invaluable in bringing the Panoptic team’s vision of a perpetual options protocol to life.  

Advanced Blockchain support entrepreneurs to build and run valuable DeFi protocols

Panoptic demonstrates that AB is able to incubate and deliver major DeFi solutions to the market. As Advanced Blockchain runs and continues to build Panoptic, its impact will help demonstrate the efficacy of the venture building and research dimensions of AB’s business model. As AB scales, it will continue to take incubated companies to the market and help improve the DeFi landscape in order to increase adoption, and better meet the needs of DeFi users.

Further information on Advanced Blockchain AG and our other projects and investments can be found at https://www.advancedblockchain.com/.