MetalSwap's hedging swaps are close to being launched on the Optimism blockchain, making the dApp more efficient and competitive. With them, it will be possible to open hedging positions on the OP token. In this article, we will bring an example of a use case to reduce volatility for those who want to participate in the Optimism DAO without exposing themselves to the price of this asset.

What we will see in this article: 

• What is Optimism DAO and how does it work?
• The advantages of participating in this DAO
• Practical example
• Conclusion

What is Optimism DAO and how does it work?

The Optimism DAO is trying to promote a revolutionary DAO Structure, today it is divided into the Citizen House and Token House. Just like for MetalSwap, to participate in the Token House, you need to have the project's token in your wallet, in this case the OP token. However, OP is subject to market volatility. For example, in just the last three months, it has oscillated between $1.35 and $2.70. There are two ways to participate in the Optimism Token House: 

• Delegate your OP to a voter within the Optimism Agora and let them manage your voting power.
• Vote personally on the various proposals presented.

The advantages of participating in this DAO

As of today, we have over 40 million OP delegated to voters and the quorum for each proposal is 12.02 million OP. The benefits of participating in the Optimism DAO are mainly two.

The first is to have an active role within the project, influencing development through votes on various proposals and thereby indirectly bringing advantage and value to the blockchain and token in case development is positive.

The second, more speculative, is related to the next OP token airdrop. The Optimism team has already announced the arrival of another airdrop in the coming months. The criteria for being selected have not yet been communicated, but in the first airdrop, active DAO users received a portion of it as recognition for their contribution according to the team's judgment. The foundation stated: “We believe that active and engaged governance is crucial to scaling decentralized systems. Addresses that meet this criterion have actively chosen to contribute by participating in governance”.

DAO voters allocation

As already mentioned, the criteria that will be used for this future airdrop are not yet known, so the perfect strategy will be to vote for as many proposals as possible, which is why most addresses delegate their tokens to voters for even very long periods of time.

Practical example

It's time to give a practical example of how MetalSwap's hedging swaps can protect users who want to participate in the Optimism DAO without exposing themselves to asset volatility.

Let's take the example of a person who wants to participate in the Optimism DAO with 20k OP. This address is not interested in speculating on the OP token and wants the invested value to remain stable for the entire period of participation, let's say 1 month. At the time of writing this article, 20k OP equals $35,320 with a price of 1 OP at 1.766$, which will be the capital we want to protect. So, we will open a hedging swap with a target size of 20k OP and a 30-day expiration.

MetalSwap Op Dapp

The price for this Hedging Swap will be 2,345 OP; in addition to the premium the user has also to put the cover, that in this case will be at the 20%.

Now the user can participate in the DAO without any worry of losing value, while keeping an eye on the price not going beyond the predetermined cover and modifying it if necessary during these 30 days. If, for example, the token price drops to $1.15, losing 35% of its value in these 30 days, without the Hedging Swap, this user would have lost 12,362$, but thanks to MetalSwap, their value will always remain at $35,320 even if the price goes up.

As you can see from the screenshot, in the MetalSwap dApp, right now there is also the double liquidity reward, in addition to the classic XMT reward, opening an hedging swap on the Optimism blockchain will reward the users also with the OP token. The team is planning to give a buyback of the 25% of the premium paid in OP token, this metrics will change depending on the OP balance plan to be distributed.

For those curious about use cases, we have provided an embedded Google Sheet sandbox, where you can explore and experiment with different scenarios and parameters:

Conclusion

Thanks to MetalSwap's hedging swaps, it's possible, by paying a small premium, to protect one's capital and participate in the DAO of a project, in this case Optimism. In recent months, the team has published many use cases that can be useful, you can find them all on our blog.

Goodbye Volatility

To the MetalSwap!
… and beyond
-The DeFi Foundation

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✎ What is MetalSwap?

With MetalSwap we enable Hedging Swap transactions through the use of Smart Contracts, AMM style.