Future Use Cases Unlocked by the Composability of DeFi

Hedging NFT or Game Commodity Portfolios

DeFi's composability opens up a world of possibilities, and one such application could be in hedging NFT or game commodity portfolios. What's exciting is that our AMM doesn't necessarily need an asset for a spot price source; we can use an index, like a game commodity price index or an NFT index. This allows users to speculate on price increases of in-game commodities or NFTs, or more practically, hedge against price drops.

Consider this scenario: a user wants to dive into an on-chain game like Realms. To get started, they'll need to acquire some NFTs for gameplay. However, they want to safeguard their investment against potential losses and ensure they can sell their NFTs later when they're done with the game. Here's where Carmine Options AMM comes in.

The user can purchase a long-dated put on a Realms game commodity index, buying the assurance that they can exit their investment later at a price level of their choosing. Essentially, they're securing the future sale price of their investment, mitigating their risk exposure. This is just one of the many ways DeFi's composability can unlock future use cases in the world of blockchain gaming and NFTs.

No-Liquidation Loans

Another potential use case unlocked by the composability of DeFi is the concept of no-liquidation loans. Suppose you have a trading strategy that requires ETH as an input – perhaps for longer-term staking – but you don't want to be exposed to ETH's price volatility. Furthermore, you want assurance that you won't face loan liquidation during the tenure of your trading strategy.

Here's how you could accomplish this with Carmine Options AMM. You first deposit stablecoins into a money-market protocol such as Aave, Nostra, or Aura, and borrow ETH against them. To safeguard against potential liquidations, you buy a put option on ETH with a strike price slightly above the level that would trigger a liquidation.

Then, in collaboration with a money market protocol that accepts Carmine Option Tokens as collateral, you deposit this put option along with your collateral. This mechanism effectively creates a buffer against liquidation, ensuring the stability of your loan. It's an innovative way of leveraging DeFi's composability to offer greater flexibility and security in your trading strategies.

Hedging Impermanent Loss

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