Premia and the ERC1155 standard for option minting

Premia reported last Monday, March 15, through her Twitter account, that she uses the ERC1155 standard for minting options.

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Image about Premia’s post on Twitter

“While Premia was exploring ways to implement our vision, the ERC-20 and ERC-721 standards were unfortunately not flexible enough for our needs. Fortunately, we have extensive knowledge of the ERC-1155 token standard, and we are pleased to share the reasons why we built our launch features around this standard”, he said through an article posted on the Medium platform.

Secondary market needs

According to the company, to create a liquid / fungible secondary market for option contracts, ERC1155 was best suited for its purpose.

“The ERC1155, traditionally used for transferable and fungible game assets and illustrations, enables a single smart contract to generate a multitude of tokens with various levels of specifications. It allows many unique tokens (options in our case) to be created from the same smart contract, however, it allows each contract to have its own unique parameters / identifications that adapt to the different options contract”, he explained.

Pseudo securitization

Premia indicated that it uses ERC1155 for securitization of covered option contracts where the collateral of the token is locked with the smart contract until expiration, exercise, or early cancellation (if not sold). “The Premia Options Minter was built to be able to write options for any Denominated Token in DAI / WETH / WBTC. At launch, we will have whitelisted many Tokens selected from the well-known DeFi Protocols written against the DAI denominator”, he highlighted.

In his view, by using the ERC1155 token standard, the company can verify that each minted option is uniform for all other similar options of its type, that is, it maintains the same expiration / exercise price and can be exercised for a similar amount. of the underlying asset as considered within the specifications of the options contract.

“To address the lack of divisibility that the ERC1155 standard inherently maintains, we have created a simple mathematical logging function that maintains a low barrier to entry in write option contracts that is set at the token level”, he noted.

Also read: Blank launched Liquidity Program on Uniswap

Gas cost reduction

Premia indicated that one of the benefits of ERC1155 is that it allows them to be written, transferred, traded, exercised, etc. of multiple contracts in a single transaction, which saves gas costs and allows improvements in the quality of life of all users of the platform.

Another benefit of the ERC1155 standard is that it allows new types of contracts to be minted (provided they conform to the specifications of the standard) without the need to implement any additional code or smart contracts. “The first contract will cost 300k in gas to store variables in EVM Storage, with all the concurrent options created at a cost of ~ 100k gas per transaction. We believe this is the best approach for end users in terms of usability and reduction of transactional gas costs”, he said.

External Marketplace Support

The company assured that it will provide a market at launch to trade these options, however, because its option contracts adhere to the ERC1155 standard, they can also be sold in other markets that support ERC1155 such as OpenSea.

“Although not a priority at launch, our token metadata can be easily retrieved so external Storefronts can gather the necessary options contract details to display on their site. (The specifications of our options contract are kept within the smart contract itself, which other secondary markets must be calibrated to retrieve, so we will provide JSON files that they can use to retrieve this information easily)”, he specified.

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