DeFi has created a new era in financial innovation, with many ground-breaking financial primitives and solutions. Entire new markets have been bootstrapped with hundreds of billions in volumes every day.
Many DeFi protocols are about derivatives, in some way or another. Most protocols decide to develop from scratch their own infrastructure, targeting a specific use case. While this approach can speed up development in the short term, it has many drawbacks:
  • Poor reusability: the codebase is not adaptable to changing market conditions
  • Longer time to market: easily go in the 6-12 months range
  • Increased entry barriers: due to higher costs and overheads
  • Stifled innovation: use cases with unclear use cases from day 1 are not pursued
Moreover, TradFi is built on the existence of customizable derivatives (often traded OTC) which can be adapted to specific needs. However, this is only accessible for a selected few actors such as investment banks, who can afford the extremely expensive legal and technological setups.
One of the main promises of DeFi is to take legacy financial concepts and institutions and bring them on-chain to dramatically cut down costs and increase transparency and accessibility. With regard to derivatives market, we believe that so far DeFi has severely underperformed. This stems primarily from what we see as a key issue in the current DeFi landscape: a lack of a common derivative infrastructure.
To solve this and many other issues, we propose Vyper, the first protocol to create, trade, and settle on-chain derivatives.

What makes Vyper unique

Vyper is unique in that it provides a common infrastructure for on-chain derivatives, while remaining agnostic with regards to the specific use cases. Vyper achieves this thanks to a modular architecture which allows it to scale and adapt to different situations.
Specifically, Vyper can support virtually any type of underlyings and collateralized payoff. Vyper therefore creates a one-stop infrastructure which enables quick prototyping as well as interoperability across protocols, thanks to the existence of a common interface.
We believe that several aspects of our approach make Vyper a fundamentally different and innovative solution:
  • Built with modularity in mind: our architecture is plug-and-play, allowing extreme flexibility
  • Transparent and open-source: Vyper Core is open-source from day 1
  • Customizable: most parts of Vyper can be customized and adapted to specific use cases, allowing entire new protocols to be built in matter of days instead of months
Vyper creates a common layer which benefits different stakeholders by making the overall ecosystem more innovative, increasing transparency, and decreasing costs. By being able to quickly prototype new payoffs and use cases, entire new ecosystems can be created, for a fraction of the costs.
Vyper can replicate most of the existing derivatives in TradFi and, thanks to its flexible approach, also many DeFi-native payoffs with no TradFi counterpart.

Derivatives unchained

Derivatives markets are a key component of every financial ecosystems and the financial primitive innovation in DeFi is remarkable.
A key challenge of decentralized markets is to ensure that two counterparties in a transaction honor their commitments when the market moves against them, complicated by the fact that there is no possibility of legal recourse. A number of risk-management techniques have now become established, such as auto-liquidations and over-collateralization.
Vyper Core is built fully collateralized, thus considering the collateral deposited as effectively the max PnL of the trade. At the same time, Vyper enables Application Layers to be quickly built on top of the core primitive, thus allowing more sophisticated and capital efficient solutions to be deployed, including for example a margining system.
With this perspective several existing and new applications can be implemented using Vyper:
  • Smart-contract exploit and stablecoin de-peg insurance
  • Impermanent loss protection for yield farming
  • Fixed-to-float swaps on top of lending deposits
  • Principal and yield stripping of yield-generating-assets
  • NFT collateralized obligations
  • Custom exotic options
...and more.
Vyper thus creates a generalized framework for derivatives, limited only by the fact that the maximum gain/loss needs to be capped at the full collateral deposited.