Knox Vaults Launch on Premia

What are Knox Vaults?

January 11, 2023

Welcome to a new risk-minimized, set-and-forget way of generating profits with DeFi options on Premia!

Knox Vaults provide users with automated strategies to achieve more predictable yields without having to worry about continuously managing their capital.

What are Knox Vaults?

Knox Vaults are DOVs built with an emphasis on risk management and predictability. Users can deposit with any asset to earn a yield on ETH or DAI, and withdraw at any time.

There are a few reasons to what makes Knox Vaults on Premia special.

Premia is the optimal platform to build on for strategies focused on security, predictability, and ease of use, Premia is the optimal platform to build on.

By combining the granular controls and specificity of our pool-to-peer architecture with a novel way of executing trades via auction, the next generation of vault strategies can be built.

Depositors will get the best of both worlds; more predictable yields, while still maintaining exposure to the upside (or downside) of an asset.

Buyers will get optimal prices, while never having to worry about overpaying for their options!

At first, Knox Vaults will launch with two strategies: covered calls, and covered puts.

If you’re unfamiliar with DeFi options, read our articles What are Options and DeFi Options 101 to catch up to speed.

Details on Knox Vaults

Here’s a TL;DR on how Knox Vaults generate sustainable yield:

  • Knox Vaults automate the process of selling options to generate sustainable yield.

  • Depositors can decide to either sell call or put options depending on their market sentiment.

  • A different option strike price will be determined each week before the auction starts.

  • Once pricing is determined, the options are sold via auction. The premium paid by the option buyers represents the weekly yield for depositors.

  • At the conclusion of the auction, the vault underwrites the options sold using collateral provided by depositors.

Risk Management in Knox Vaults

Unlike other DOVs, Knox Vaults provide built-in risk tooling.

You can exit your position at any time — granting the ability to take profits or reduce risk in the event of a position moving against them.

This is how instant withdrawal will work in practice:

  • You can withdraw your deposited assets at any time.

  • Usually, this share is in the form of short tokens that represent your collateral of the vault.

  • These short tokens can either be held until expiration, or sold back to Premia’s pools — assuming there’s enough liquidity.

Instant withdrawal can prove extremely beneficial in some situations.

Maybe something happens and you have to liquidate your assets immediately, or you want to take profits earlier; with Knox Vaults, you can do just that.

Or maybe the position starts moving against you, and you want to reduce further downside risk — with Knox Vaults, you can do that too!

Knox Vaults Architecture

For all the techies out there!

Every Knox strategy has its own vault — a smart contract responsible for holding collateral and writing options contracts.

Vaults are distinguished by their collateral asset (wETH, wBTC, DAI, etc) and delta (bullish or bearish).

They are accompanied by three other design components:

  • Queues act as liquidity buffers for vaults, holding user funds until they can be deposited

  • Pricers determine the strike price for options and auction pricing parameters

  • Auctions sell options using a Dutch auction format

Epochs

Together with the other design components, vaults work on 7-day schedules called epochs. They start and end every Friday at 8 AM UTC.

24 hours before the start of a new epoch, on Thursday at 8 AM UTC*, the strike price for that epoch’s auction is determined and the auction is initialized.

  • The epoch starts on Friday at 8 AM UTC.*

  • The auction starts on Friday at 4 PM UTC and lasts two hours.

  • The auction ends on Friday at 4:30 PM UTC* and options are written. Note, the auction may end earlier if all available option contracts have been sold within the allotted time.

  • Options expire at the end of the epoch, i.e. on Friday at 8 AM UTC.

  • If you’d like to learn more about Knox Vaults and option auctions, check out the Knox Finance docs.

Have questions about Premia?

Knox Vaults are launching very soon, are you excited yet?

If you have any questions about Premia or Knox Vaults, or just want to say hi, shoot us a question in Discord and we’d be happy to chat about it!

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