Writer economics
Where the pool's edge comes from
| Source | How it shows up |
|---|---|
| Spread | 150 bps around mid by default. Earned on every buy and every sell back, whatever the outcome. |
| Vol markup | Pricing vol is realized vol times a per-market markup. Over many rounds, the pool earns the gap between priced and realized moves. |
| Jump premium | The model adds a jump component, which raises the price of wings. |
| Matched flow | When Up and Down on one band are both sold, collateral nets to one W and the pool keeps the spread with no market risk on that band. |
The protocol fee is 0. All of the pool's edge is in the price.
Payoff of the pool on one band
The pool keeps the opposite leg of what it sells. Per unit, with premium p:
| Pool sold | Pool holds | Pool P&L at settlement |
|---|---|---|
| Up | Down (P) | p − min(max(S − K, 0), W) |
| Down | Up (N) | p − (W − min(max(S − K, 0), W)) |
| Both, matched | Nothing | p_up + p_down − W = the spread |
Best case per unit is the premium. Worst case is p − W, and W was locked at sale.
Example
Band 84,000 to 84,600 (W 600). Pool sells 1.0 Up at 119.39.
| BTC at settlement | Up pays | Pool P&L |
|---|---|---|
| ≤ 84,000 | 0 | +119.39 |
| 84,119.39 | 119.39 | 0 |
| 84,300 | 300 | −180.61 |
| ≥ 84,600 | 600 | −480.61 |
Scenario model
A seed-pinned Monte Carlo of a pooled covered-call writer on a high-vol name, writing weekly, fully collateralized. Under its stated assumptions on implied over realized vol:
- Annualized writer yield of roughly 15% to 85%, central case in the 40s at full utilization.
- About −63% annualized excess return on an adversarial path: no vol edge, tight strikes, sustained rally.
- No insolvency on any path.
It models the physical covered-call writer, not the daily cash-settled pools, and it is a model, not observed returns.
Capital
Full collateral costs capital. On a band, the writer locks W per unit instead of the underlying. At a 5× multiple on a BTC band, that is about 600 USDG per 1.0 BTC of band, against roughly 84,000 for a covered call. Under-collateralized designs would free more capital and bring back liquidation.