⚙️Mechanics

Mechanics of FABNT Vaults: Unleashing the Power of Options Trading

FABNT Vaults revolutionize options trading by providing users with comprehensive buy-side strategies alongside traditional sell-side approaches. This section will delve into the mechanics of Long, Short, Close Now, and Close Upon Expiry trades within the FABNT Vaults ecosystem.

Short Volatility In FABNT Vaults, a short volatility position is represented by holding a Basic Vault LP Token.

• Short Call: Swap $XYZ for $XYZ-C on the AMM, where $XYZ-C represents a short call.

• Short Put: Swap $USDC for $XYZ-P on the AMM, where $XYZ-P represents a short put.

Long Volatility

Achieving a long volatility position in FABNT Vaults involves several steps within the v3 architecture.

Long Call:

1. Deposit $XYZ collateral into the v3 Lending Market.

2. Initiate a flash loan for $XYZ-C at a 95% LTV on the Lending Market, allowing borrowing up to 20 times the collateral value.

3. Sell the borrowed $XYZ-C for $XYZ in the AMM, thus establishing a long call position.

Long Put:

1. Supply $USDC collateral into the v3 Lending Market.

2. Execute a flash loan for $XYZ-P at a 95% LTV on the Lending Market, permitting borrowing up to 20 times the collateral value.

3. Sell the borrowed $XYZ-P for $XYZ in the AMM, effectively creating a long put position.

Insufficient Liquidity for Long Call or Long Put If there is insufficient $XYZ-C or $XYZ-P in the Lending Market, a long call or long put trade may fail.

Close Now FABNT Vaults empower users to instantly close their open positions through the Close Now feature.

Long Call:

1. FABNT Vaults will determine the venue with the best pricing by querying both the Basic Vaults (for Mint Price) and the AMM (for AMM Price).

2. If the AMM Price is more favorable, the user sells $XYZ in the AMM for $XYZ-C. The $XYZ-C loan is then returned to the Lending Market, and the initial $XYZ collateral is withdrawn.

3. If the Mint Price is more favorable, the user deposits $XYZ into the Basic Vault to mint $XYZ-C. The loan is returned, and the $XYZ collateral in the Lending Market is redeemed. Any excess $XYZ represents the user's profit or loss (P&L).

Long Put:

1. FABNT Vaults determine the venue with the best pricing by querying both the Basic Vaults (for Mint Price) and the AMM (for AMM Price).

2. If the AMM Price is more favorable, the user sells $USDC in the AMM for $XYZ-P. The $XYZ-P loan is then returned to the Lending Market, and the initial $USDC collateral is withdrawn.

3. If the Mint Price is more favorable, the user deposits $USDC into the Basic Vault to mint $XYZ-P. The loan is returned, and the $USDC collateral in the Lending Market is redeemed. Any excess $USDC represents the user's P&L.

Short Call:

Swap $XYZ-C to $XYZ on the AMM. If there is insufficient liquidity in the AMM to facilitate a Close Now, the user can instead choose to close the position Upon Expiry.

Short Put:

Swap $XYZ-P to $USDC on the AMM. If there is insufficient liquidity in the AMM to facilitate a Close Now, the user can instead choose to close the position Upon Expiry.

Close Upon Expiry

Users have the option to close their open positions at the end of the epoch through the Close Upon Expiry feature.

Long Call:

At the end of the epoch, the user deposits the $XYZ position into the Basic Vault to generate $XYZ-C. The generated $XYZ-C is used to repay any outstanding debt in the Lending Market. Any excess $XYZ represents the user's P&L.

Long Put:

At the end of the epoch, the user deposits the $USDC position into the Basic Vault to generate $XYZ-P. The generated $XYZ-P is used to repay any outstanding debt in the Lending Market. Any excess $USDC represents the user's P&L.

Short Call:

The user closes the Short Call ($XYZ-C) at the end of the Basic Vault epoch and claims the collateral after the epoch ends.

Short Put:

The user closes the Short Put ($XYZ-P) at the end of the Basic Vault epoch and claims the collateral after the epoch ends.

Considerations for Long Positions on FABNT Vaults

1. Theoretical Leverage: While the theoretical leverage based on a 95% LTV is 20x, the actual leverage on FABNT Vaults typically ranges between 15x and 20x due to factors like slippage, price impact, and fees on the AMM.

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