Dopex v2 - Analyst Insight | Revelo Intel

Dopex v2

Last Updated: September 28, 2023


Options, as financial derivatives, have garnered immense popularity for their ability to provide exposure to underlying assets without direct ownership while managing risk through fixed-price agreements. The exponential growth of options trading in traditional finance has ignited the need for decentralized alternatives within the DeFi ecosystem. But in DeFi, options can be used for more than hedging or trading strategies. This is what Dopex v2 is set to do: use options in order to improve capital efficiency and the liquidity conditions of the underlying layer 1 or layer 2 ecosystem as a whole.

Dopex v2 takes conventional Concentrated Liquidity AMMs (CLAMM) to the next level. The vision is to improve liquidity conditions for the ecosystem as a whole. By improving liquidity conditions, all protocols and users of a given chain can benefit and make the most out of their capital. In the case of Dopex v2 this will be achieved by using existing pools to derive options out of the preexisting liquidity. As a result, the upgrade will not only optimize capital efficiency but also facilitate new venues for risk management. 

This report delves into the rationale behind Dopex v2, its sector outlook, and how it positions itself to become a market leader in decentralized options trading as well as significantly improve the liquidity conditions of the underlying chain.

Protocol overview

Dopex v2 is meant to be more than just a simple protocol upgrade. The new version represents a groundbreaking protocol on its own that aims to lay the foundation for a multitude of future protocols to build on top of. The fundamental objective of Dopex v2 is to create a versatile protocol that accommodates diverse options trading strategies while minimizing risk for liquidity providers.

Concentrated Liquidity AMM (CLAMM)

Central to Dopex v2’s architecture is the concept of Concentrated Liquidity AMM (CLAMM). Liquidity Providers (LPs) on any DEX have the opportunity to deposit their CLAMM positions or tokens into the protocol. This liquidity will be used to underwrite options.

  1. Liquidity Providers (LPs) from any DEX can deposit CLAMM positions or tokens into the protocol.
  2. The consolidated liquidity forms the underlying pool for writing options.
  3. LP positions remain within the CLAMM at specific ticks until a trader selects a position at a given Strike Price.
  4. LPs start accruing fees from the CLAMM until their positions are utilized by traders.
  5. Once the positions are bought by traders, LPs earn the premium associated with the written option.

Trader Experience and Unwrapping Positions

Traders interacting with the protocol can choose positions at desired strike prices, which can then be unwrapped from the CLAMM. 

Exercising options and settlement

An integral aspect of Dopex v2’s flexibility lies in the ability for traders to exercise their positions at their discretion. If an option is In-The-Money (ITM), traders can settle it whenever they choose or upon its expiry. 

In both cases, the LPs would not incur a bigger loss than if they were just simply providing liquidity on a DEX.

Strike Price

Dopex v2 employs strike prices based on predefined increments for each individual asset. Increments are determined based on certain criteria.

Strike price increments have upper and lower bounds, ensuring a defined range.

Example: For $ETH, with a spot price of $1,800, assuming increments are set at $50, and bounds are $1,200 (lower) and $2,400 (upper), options can be purchased between $1,200 and $2,400 in $50 multiples.

Options Expiry

Option expiry varies based on the product utilized:

These can be adjusted based on demand or via governance vote with veDPX

Premium Calculation

Premiums for options are calculated at the time of purchase using the Black-Scholes Model. Because of the complexity involved with an on-chain implementation of the full model, the following assumptions are made:

For users

There are two ways to participate in Dopex, either as an LP (more passive approach) or as a trader (more active approach).

Liquidity Providers

Dopex LPs, referred to as DV2LPs, provide liquidity for writing options using either idle tokens or CLAMM positions (Uniswap v3, Sushiswap v3, Trader Joe liquidity book…), functioning as Option Writers. As Option Writers, DV2LPs earn option premiums and fees when their positions are used for writing options. And when liquidity is available, LPs can withdraw at any time. 

The main benefits of being a liquidity provider in Dopex v2 are:

It is also worth noting that:


Purchasing options on Dopex v2 is a straightforward process, similar to Dopex v1. Traders choose strike prices and expiries for desired options and they will be matched with respective LP positions. In fact, Dopex v2 simplifies the process of buying options, streamlining strike price and expiry selection. Additionally, fixed upfront premiums eliminate the need for additional charges. 

Once matched, the underlying liquidity positions are unwrapped from the CLAMM and held within Dopex v2’s contract.

After settlement or expiry, withdrawn tokens are returned to the CLAMM as LP. And since positions are tokenized as semi-fungible NFTs, they can be traded for the intrinsic value of the option on the market. This enhances the user experience and significantly improves the capital efficiency of the platform. 

Buying call options

  1. Traders select an asset and its strike price and expiry to buy a call option.
  2. The premium for the call option is fixed and paid upfront at the time of purchase.
  3. The trader pays the quoted premium to the system, proportional to the number of call options they wish to purchase.

As an example,

  1. CLAMM positions corresponding to the tick where $ETH = 2000 $USDC are removed from the AMM.
  2. The underlying $ETH is transferred from the AMM to the Dopex v2 contract.
  3. The underlying $ETH is held in the Dopex v2 contract until the trader either closes the position or the option expires.The premium of the options is compounded as well.

This could result in the following outcomes:

Buying put options

  1. Traders choose an asset, its strike price, and its expiry to buy a put option.
  2. The premium for the put option is fixed and paid upfront upon purchase.
  3. The trader pays the system’s quoted premium, proportional to the number of put options they wish to buy.
  4. The trader pays the quoted premium to the system.

As an example,

  1. CLAMM positions corresponding to the tick where $ETH = 1000 $USDC are removed from the AMM.
  2. The underlying $USDC is transferred from the AMM to the Dopex v2 contract.
  3. The underlying $USDC remains held within the Dopex v2 contract until the trader chooses to close the position or the option reaches expiry.

This could then result in the following outcomes:

Why v2

The mission of Dopex v2 is to create a unified and user-centric platform for on-chain options trading. With a focus on aggregating liquidity and enhancing user experience, the introduction of a CLAMM (Concentrated Liquidity Automated Market Maker) offers a consolidated liquidity base, enabling users to deposit their tokens and participate in the options market seamlessly. 

Unlike traditional European-style options, Dopex v2 empowers users with the ability to exercise options at any time, fostering flexibility and responsiveness. Moreover, the implementation of margin accounts allows users to leverage their positions, magnifying potential returns.

Sector Outlook

In the advent of layer 2s, DeFi options markets have experienced a surge in demand due to their potential for high leverage and risk management capabilities. Especially in the Arbitrum ecosystem, we can observe a trend where more complex strategies become possible as more protocols deploy in the chain. The reason for that is that protocols can build on top of each other, allowing for delta-neutral strategies, funding rates arbitrage, and carry trades among others.

In the realm of DeFi, where composability is a driving force, options hold immense promise for the creation of complex and innovative financial products. Up until now, the existing landscape of decentralized option protocols has been restrained because of how fragmented liquidity has been, limiting the flexibility and efficiency of options trading.

Key differentiators and market leadership

The primary advantage of Dopex v2 comes from composability. By building on top of existing liquidity on CLAMMs, Dopex can recycle that capital to underwrite derivatives instruments. This turns the protocol into a versatile framework for future iterations and spinoffs. The reason for that is that flexibility is embedded in the protocol, enabling the PositionManager to lend CLAMM positions to upcoming iterations adhering to specific rule sets, such as:

Dopex v2’s differentiators lie in its forward-looking approach, diverse product offerings, integration of OTC and exchange-style trading, and its adaptability for future iterations 

Low Liquidity Conditions on CLAMMs

Benefits to veDPX holders

veDPX holders can get benefits with Dopex based on different tiers of their holdings:

veDPX holders can also vote on the parameters for the pools, such as:

 x% and y% will be also decided by veDPX holders.

Key Takeaways


Contrary to the crowded strategy of deploying a custom app chain built on the OP stack, Dopex v2 stands as a protocol poised to enhance options trading on-chain through composability. 

With an innovative Concentrated Liquidity AMM (CLAMM), Dopex v2 not only simplifies and streamlines the process of trading options but also enhances capital efficiency and risk management for both liquidity providers and traders.

By addressing the limitations of traditional options markets and the fragmented liquidity of existing DeFi options protocols, Dopex v2 empowers traders to customize their strategies while maintaining control and flexibility.


Revelo Intel

Other sources


Revelo Intel has been the recipient of a Diamond Grant and has a commercial relationship with Dopex.

Members of the Revelo Intel team, including those directly involved in the analysis above, may have positions in the tokens discussed.

This content is provided for educational purposes only and does not constitute financial or investment advice. You should do your own research and only invest what you can afford to lose. Revelo Intel is a research platform and not an investment or financial advisor.