Vyper Bytes #3: introducing Vyper OTC

Vyper Protocol
7 min readOct 7, 2022

Gm Snakes 🐍

In a previous article we hinted at the release of our no-code interface allowing anyone to create custom derivatives. We are proud to announce today Vyper OTC.

Vyper OTC is the first ever trustless OTC platform allowing you to trade a large number of instruments that were simply not possible before, while remaining completely permissionless and non-custodial.

How does it work?

Vyper OTC is a peer-to-peer marketplace, where users can create, trade and any kind of derivatives.

OTC means over-the-counter and refers to a trade happening away from exchanges, made directly between two counterparties. In TradFi, most trading activity happens OTC, trading trillions (with a T!) in volumes every day

Creating a new contract is as simple as selecting the payoff, the contract parameters and expiration date. Once the contract is created, you can fund whichever side you want (e.g. long) and once the other side is funded as well the trade will start and eventually settle in a permissionless way.

Which payoffs are supported?

To simplify the process and avoid confusion, we decided to start with just one payoff and then add more as we see demand for it, eventually allowing people to even write their custom payoff in a no-code way (deploying new ones can be very quickly, please reach out if you’re interested in a specific one).

To start off, in Vyper OTC you will be able to trade the Forward Contract.

The forward is the prototypical derivative contract, usually the first which is taught in Finance 101 courses. It has the following payoff:


  • N is the notional/size
  • S is the underlying price at expiry
  • K is the strike price

It allows people to go long or short on any asset and having exposure to its price. To make an example let’s assume you trade a Forward contract on SOL/USD with N=10 and K=$30 with expiry 10 days. If at expiry SOL/USD is $40, the long side makes 10 * (40–30) = $100, while the short side loses that much.

Why use the Forward Contract?

You may be thinking, I already have lots of ways to go long/short on tokens, why should I use the Vyper OTC Forward?

There are in fact several reasons why our Forward contract is a superior choice in many situations, buckle up…

#1 Trade Anything

With popular underlyings you have many choices on where to trade, be it CEXs or DEXs. However, this is not the case with many other assets, which is most of them. On Solana alone, there is a large amount of SPL tokens, but only a tiny fraction are traded on Serum, and even less have a perpetual listed.

Moreover, what if you want to trade something that is not normally traded and can’t be easily represented as SPL token? That could range from Solana TPS to volatility indices, from temperature in London to pre-IDO tokens. Even without considering liquidity (more on this below), for the most part you have no way to speculate or hedge on those prices.

With our Forward Contract instead you can trade on anything. As long as you can find a suitable Switchboard or Pyth feed to represent its value, you can trade it! This opens the door to a plethora of assets, from FX to any crypto, from sports events to NFT prices and more! Everything becomes ready at your fingertips to be traded!

#2 Short Season is Open

A common issue with many tokens is that there is basically no way to short them. The only way to do that is by borrowing, which however has has many challenges.

At the time, borrowing OHM was almost impossible or prohibitively expensive

For a concrete example let’s consider $DUST, the native token of the DeGods ecosystem.

Ahead of the y00ts mint in September 2022, DUST increased by more than 100% which prompted many people to claim it was overvalued.

However, there was no easy way to short it, except for a Solend permissionless pool. Let’s see how the pool looked:

With a 50% LTV it meant that you needed to provide $100 to be able to short only $50 of DUST! That is quite capital intensive, and very inefficient. Moreover, there were only around 25k DUST available to borrow, while the actual token was trading millions in the spot market! This is a key limitation, as people with DUST needed to deposit in the pool first, so that other people could borrow to short. But not a lot of people deposited, either because they were not aware of it or because they didn’t like someone shorting their bag. This also pushed the borrowing cost up, decreasing the profitability of the trade.

Even while being one of the most popular permissionless pools, the DUST pool TVL represented only a tiny fraction of the total volume. So when DUST dumped post mint, not a lot of people benefitted from it, unless they actually held the token and managed to sell it at the top.

This is a perfect case for our Forward contract! Indeed, the token was trading a lot in the spot market, which means that a reliable oracle could be used for the settlement price. In a similar situation, people can simply create a Forward contract based on DUST/USD, and settle everything in USDC. So you can have full exposure to DUST without even having to hold the token or worry about finding liquidity to sell it on Serum! The only requirement is to find a counterparty for the trade willing to take the other side, and then you’re good to go!

This means that trading activity on the Forward can be done without any action needed from actual DUST holders and can easily scale 100x the volume without any liquidity issue! That is actually common in TradFi, where derivatives markets are orders of magnitude larger than the underlyings.

DUST aside, borrowing pools are also one of the very few ways to do pair trading between risky tokens, examples include ETH/BTC, SRM/ORCA or FTT/BNB. However the issues mentioned above are still very much present. With our contract the underlying is completely up to the user to choose, so any pair can be used, while still settling the trade in USDC.

The Art Of Pair Trading, by GCR

#3 No Liquidation

Another risk of lending pools and leveraged trading in general is that if the price goes the wrong way, you may get liquidated even if you are eventually right about the trade! That can be extremely annoying, imaging you made the right call and predicted where the price would end up, but because of collateral issues you lost all your money.

We feel you Ari

With our Forward contract, that can’t happen. This is by design, since our OTC architecture computes the settlement only at the end of the trade. So the price may even do 100x before crashing and you can still make money!

#4 No Liquidity Needed

A common issue with thinly traded tokens is that even if you can borrow them, you don’t have the liquidity to short them. If you still try to sell them you can incur in very high slippage and lose money.

Low liquidity and high slippage are issues for most tokens

With our Forward Contract, the underlying token doesn’t even need to be traded as long as you can find an alternative pricing source to feed in the oracle! This can be anything really, from a buyback price from the DAO issuer, to a NFT floor on Magic Eden, it’s completely up to you!

#5 Free Leverage

“People want leverage” we keep hearing, but leverage is usually expensive. What if we told you that we can give you extra leverage for free?

Let’s look again at the formula above:

N is essentially a leverage multiplier and it’s completely up to you to choose it while setting up the contract! As long as you can find someone who’s also happy with the same leverage, you can trade it! So in the example above if you set N=100 your profit would have been $1000 instead of $100 (and a larger loss for the short side).

#6 Don’t Hold a Shitcoin

Because our contract is synthetic, you don’t need to hold any of the risky underlying tokens and everything can be settled in USDC. In the future we’ll even let you choose the collateral of your choice, from other stables like cUSDC or UXD, to any other tokens like SOL or GMT!

In summary:

  • Trade on anything that you want
  • Use whatever collateral you want
  • Choose the leverage that you want
  • Don’t worry about being liquidated, only the final price matters

Where can I trade this?!

We’re still working with alpha testers to polish the platform, and we plan to make a first devnet release in the next weeks. If you’re excited and can’t wait to test this out reach out or join this chat! In the meanwhile, here’s a sneak peek 👀



Vyper Protocol

A DeFi primitive allowing users to create, trade, and settle any kind of on-chain derivatives 🐍 vyperprotocol.io