Conclusion

In conclusion, the Diem AMM is a permissionless and decentralized Automated Market Maker (AMM) and the first step towards unifying option liquidity into a single collateral pool for multiple underlying assets and strike prices. It allows two-way option markets for daily expiry contracts across many different underlying assets in the same collateral pool. The Diem AMM is able to price daily options using a Black-Scholes model and hedges market delta by taking short futures positions through GMX’s GLP pool. This is enabled through determining the statistical relationship between the asset returns and the returns of Ethereum and hedging utilizing Ethereum futures positions. The Diem AMM is the first of its kind and will have significant implications for the future of option trading on-chain.