Today’s post is a review of Squeeth.
Squeeth is an Ethereum-based ERC-20 token for options trading.
It gives users high leverage and eliminates the need for strikes, liquidations, and more.
Squeeth was developed by the team at Opyn, the first DeFi protocol to allow users to trade partially collateralized options.
In this post, I did a full review of Squeeth and how to trade it.
Post Summary
This is what I will cover:
- Overview Of Squeeth?
- Features Of Squeeth Contracts
- How To Trade Squeeth?
- Squeeth Strategies
- How To Earn LP Tokens on Squeeth
- FAQs
- Conclusion
Let’s dive in!
1. Overview Of Squeeth?
Squeeth is short for Squared ETH (ETH²).
It is also called the power perpetual of ETH i.e ETH to the power of 2. This is how it works:
- If ETH’s price gains double, Squeeth goes up by 4x
- If ETH’s price gains triples, Squeeth goes up by 9x
Technically, Squeeth gives traders perpetual exposure to ETH².
It is a novel leveraged system for trading options.
oSQTH (Opyn Squeeth) is a symbol that represents Squeeth.
Opyn invented Squeeth to let traders conduct highly leveraged trades with low risk while trading options.
Opyn is a DeFi- based options trading platform on the Ethereum blockchain.
“Squeeth contract” is the collection of contracts that lets you trade Squeeth.
Read on to learn more about Squeeth!
2. Features Of Squeeth
Its significant features include:
- No strikes, no expires
Squeeth contracts are perpetual options, so they have no expiry date.
In addition, they have no strike prices.
A strike price is a set price at which a derivative contract can be bought or sold.
- Leverage without liquidation
Squeeth itself is a highly leveraged token.
This makes it impossible for options contracts to be liquidated when in a “Long position“. (More about this later).
- Concentrated liquidity
Squeeth contract generates enough oSQTH liquidity.
Therefore, oSQTH can be traded separately e.g in Uniswap pools.
Also, it can be used as collateral for DeFi loans.
- Regular Yield
Squeeth LP offers a regular yield to liquidity providers (more about this later).
- Reduced risk
With Squeeth, gains increase exponentially while losses are curbed.
As earlier discussed: If ETH’s price gains double, Squeeth goes up by 2² i.e. 4x.
On the other hand, if ETH’s price drops, your losses will be the reverse of the value of Squeeth i.e. 1/2² = 1/4x
For example:
Let’s say you bought $1000 worth of Squeeth tokens.
And after a while, the price of ETH increased by 3x from $3000 to $9000.
It means that the value of your $1000 squeeth token will rise by 3²x, which is $1000 x 3² = $1000 x 9 = $9000.
On the other hand, if the price of ETH drops, your squeeth token will drop, but at a reversed rate.
That means the value of your $1000 squeeth token will reduce by 1/3²x, which is $1000 x 1/9 = $111.11.
Continue to the next section!
3. How To Trade Squeeth?
There are 2 ways to trade Squeeth.
- Long
- Short
– Long
First off, if you “Long Squeeth,” it means you believe that the price of ETH will go up, so you can profit from the Squeeth token.
Now, Long gives you a leverage position with no liquidation.
Another advantage is that you make a windfall profit when ETH increases and lose less on the downside, as earlier stated.
In addition, when you “Long” you have to pay a funding rate (i.e a fee deducted periodically from your balance to maintain your position).
To “Long” Squeeth, simply do the following:
- Go to Squeeth and connect your wallet, then proceed to buy oSQTH from Uniswap pool. Make sure you have funded your wallet with enough ETH.
- Select “Long” and “Open” beneath it.
- Next, pay ETH to buy oSQTH.
To sell oSQTH for a profit, continue with the next 2 steps:
- Under “Long” select “Close”
- Sell the oSQTH for ETH.
– Short
When you “Short Squeeth,” it means you are bearish on the price of ETH.
Also, you get to profit from the funding rate paid by traders who “Long Squeeth.”
“Short” Squeeth is collateralized in ETH.
This implies that you must first deposit some ETH as collateral and use it to mint Squeeth to earn the funding rate.
This is how to Short:
- Go to Squeeth and connect your wallet. Make sure you have funded the wallet with enough ETH.
- Select “Short” and the “Open” button beneath it
- Deposit ETH as collateral for minting oSQTH. It will be sold afterward on Uniswap
To unlock your collateral and close your position, continue to the next step:
- Select “Close”
- Buyback oSQTH and close position
Because “Short” Squeeth is collateralized, it means that you can be liquidated if ETH drops below a certain threshold.
Read on!
4. Squeeth Strategies
Only one of Squeeth’s three strategies—the “Crab strategy”—is functioning at the time of this review (August 2022).
– The Crab Strategy
Crab is an automated strategy that allows you to earn funding rates without shorting Squeeth.
In addition, the strategy stacks ETH if the price drops and sells ETH when the price increases for profit.
You only need to deposit ETH, and the strategy will manage itself by rebalancing in the best optimal way possible to make you a profit.
Below is how the Crab strategy works!
- When you deposit your ETH into the Crab strategy, it mints oSQTH. The strategy then goes on to do the following:
- Adjusts mix between ETH collateral and oSQTH to offset as closely as possible the impact of changes in ETH price.
- Adjusts hedge by conducting an auction to trade ETH for oSQTH (or oSQTH for ETH) if time or price triggers are reached.
The Crab strategy performs best in sideways markets or ranging markets.
However, it also involves some risks which shall be discussed later.
Continue to the next section to see how to earn oSQTH by becoming a liquidity provider.👇
5. How To Earn LP Tokens on Squeeth
You can earn LP tokens for providing SQTH-ETH liquidity on Uniswap.
There are two ways to provide liquidity:
- Buy Squeeth to LP
- Mint Squeeth to LP
– Buy Squeeth to LP
Here, you buy oSQTH with ETH, afterwards, you deposit oSQTH and ETH into the Uniswap liquidity pool to earn yields passively.
Typically, it allows you to take a “Long ” position while also earning fees from trading fees on Uniswap.
However, there is a catch, your oSQTH leverage is calculated by ETH1.5, instead of ETH².
The reason is that you have to give up some of your oSQTH upsides in exchange for trading fees.
You also have to pay funding rates for taking a long position.
– Mint Squeeth to LP
Using this method, you can mint oSQTH by depositing ETH as collateral.
Afterward, you deposit it with its ETH equivalent into the liquidity pool to start earning passive yields.
You enter this position neutral to squeeth exposure.
This is because you could end up being “Long” and exposed to funding or “Short” depending on ETH price movements.
In addition, it gives you a 1x long ETH leveraged position.
This leverage will reduce if the price of ETH moves up but will increase if the price moves down.
We’ll wrap it up after the FAQ section.👇
6. FAQs
At the time of writing, it has a zero fee.
Every product on Squeeth carries a risk, just like any other financial instrument. See the risks below:
Long: Traders who “long” pay funding rates, which reduce their position size. Also, if they hold the position for a long period without an increase in ETH’s price, they can lose a sizable sum of money.
Short: You can be liquidated if the value of your collateral drops below 150%.
Again, this position becomes unprofitable if ETH’s price increases significantly.
Strategies: You are also at the risk of liquidation. It can become unprofitable depending on how the market performs.
Buy and LP: It has the same risk as “long,” which is funding rates.
Mint and LP: You enter this position neutrally. This means you could be exposed to funding rates or liquidation depending on the market conditions.
According to the team “Squeeth smart contracts have been audited by Trail of Bits, Akira, and Sherlock“.
However, note that smart contracts are vulnerable to bugs even after audits.
There is also a possible risk on your end if your wallet or your device is compromised. Only invest money that you can afford to lose.
Hey!
You can also join our Telegram community at https://t.me/ctmastery.
7. Conclusion
Squeeth raises the value of ETH to the power of 2, which means exponential profit for the long traders if the price of ETH happens to go up.
On the other hand, the short traders bag the gains when ETH underperforms. Impressive!
Squeeth offers a great way to earn from ETH’s price movement. However, there are risks involved.
We have reached the end of this post.
It is time to get your response. What do you think about Squeeth?
Do you find the concept impressive?
Have you traded Squeeth before? Tell us about your experience.
Put your thoughts in the comment section and I will reply.
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