Overview
Opyn is one of the earliest DeFi options protocols, founded in 2019. The protocol went through multiple iterations: Opyn V1 offered protective put options on ETH, V2 (Gamma Protocol) provided European-style options with physical settlement, and the Squeeth product introduced the first power perpetual to mainnet Ethereum.
Squeeth (squared ETH, or oSQTH) provides perpetual exposure to ETH² — when ETH moves up or down, Squeeth moves by the square of that percentage change. This means Squeeth provides pure convexity (gamma exposure) without the complexity of traditional options: no strikes, no expiries, no implied volatility curves. It's funded through a continuous in-kind funding mechanism, similar to how perpetual futures maintain their peg through funding rates.
The theoretical framework comes from Paradigm's research on power perpetuals, and Opyn brought this to production. The Squeeth product enables traders to buy convexity (long oSQTH for leveraged upside with bounded downside) or sell convexity (short oSQTH to earn funding by providing insurance against large moves).
Opyn's contributions to DeFi derivatives infrastructure are significant — the Gamma Protocol contracts were used by multiple projects (Ribbon Finance, ThetaNuts) to build structured products. The team's technical capability is high, but translating that into adoption has been challenging.
Smart Contracts
Opyn's smart contract quality is among the best in DeFi derivatives. The Gamma Protocol contracts (V2) implemented a full options settlement system with margin management, oracle integration, and physical settlement — a complex system that operated without major exploits.
The Squeeth contracts manage oSQTH minting (short positions), trading (via Uniswap V3 pool), funding calculations, and collateral management. Short Squeeth positions require ETH collateral with a minimum collateral ratio, enforced through liquidation mechanics. The funding rate calculation — based on the Mark (oSQTH price) vs Index (ETH²) spread — is implemented on-chain with normalization factors that compound continuously.
The Crab Strategy vault automates delta-neutral Squeeth trading — selling oSQTH and hedging the directional exposure with ETH to isolate the funding income. This structured product contract adds another layer of complexity but has been well-implemented.
Security
Opyn V1 experienced an exploit in August 2020 where an attacker used a double-spend of oTokens to drain ETH from the protocol. The team handled the incident professionally, conducting a white-hat rescue of remaining funds and compensating affected users. This early incident informed the more rigorous security approach in V2.
The Gamma Protocol (V2) and Squeeth contracts have operated without major exploits. The contracts have been extensively audited, and the Gamma Protocol's use by third-party structured products (Ribbon, ThetaNuts) provided additional security scrutiny through those protocols' own audit processes.
The Squeeth liquidation mechanism is a potential concern — during extreme market moves, liquidation cascades could create feedback loops where Squeeth price deviates from ETH² tracking. The Uniswap V3 pool dependency means Squeeth liquidity is subject to LP behavior and pool concentration.
Trading
Squeeth trading occurs primarily through the Uniswap V3 oSQTH/ETH pool, which provides continuous liquidity for buying and selling oSQTH. The user experience for Squeeth is simpler than traditional options — no strike selection or expiry management — but the concept of "squared exposure" still requires significant education.
Trading volume has been modest. The primary use cases are: (1) leveraged long ETH with bounded downside (long oSQTH), (2) selling volatility/convexity for funding income (short oSQTH), and (3) structured products like Crab Strategy that automate delta-neutral approaches. Each use case has a small but dedicated user base.
The lack of a native order book or concentrated liquidity management means trading efficiency depends entirely on the Uniswap pool's liquidity depth, which can be thin during low-activity periods.
Adoption
Opyn's adoption has not matched its technical innovation. The Gamma Protocol found indirect adoption through structured product protocols (Ribbon Finance was its largest consumer), but direct user adoption of Squeeth has been limited. The total oSQTH market cap and Crab Strategy TVL are modest.
The fundamental challenge is that power perpetuals, while theoretically elegant, solve a problem most traders don't know they have. Standard perpetual futures (GMX, dYdX) provide leveraged exposure with simpler mental models. Options protocols (Deribit, Lyra) serve traders who want defined payoffs. Squeeth occupies a theoretical middle ground that few traders actively seek.
The Opyn team has pivoted focus multiple times — from protective puts to general options to Squeeth — suggesting ongoing search for product-market fit.
Tokenomics
Opyn does not have a widely circulating governance token with significant market presence. The oSQTH token is a derivative product, not a governance/utility token. This limits the protocol's ability to incentivize adoption through token rewards but also avoids the extractive tokenomics that plague many DeFi protocols.
Revenue generation through the protocol is limited — Opyn earns from Crab Strategy management and protocol fees, but volumes are insufficient for meaningful revenue. The team has raised venture capital, providing runway independent of protocol revenue.
Risk Factors
- Complexity barrier: Squared ETH exposure is difficult for most traders to understand and use effectively
- Adoption plateau: Despite years of operation, Squeeth has not achieved mainstream derivatives adoption
- Uniswap pool dependency: All Squeeth trading depends on one Uniswap V3 pool's liquidity
- Historical exploit: V1 exploit, though handled well, is part of the protocol's history
- Competition: Simpler derivative products (perps, options) serve most trader needs
- Team pivots: Multiple product pivots suggest unresolved product-market fit questions
Conclusion
Opyn represents some of the best technical work in DeFi derivatives. The progression from simple protective puts to a full options protocol to the production deployment of power perpetuals demonstrates exceptional financial engineering capability. Squeeth is a genuinely novel financial instrument — the first power perpetual in production — and the Gamma Protocol contracts powered some of DeFi's most successful structured products.
The 4.6 score reflects high marks for smart contract quality and security (post-V1), balanced against the persistent adoption challenge. Opyn's products are technically excellent but commercially niche. The protocol has proven that power perpetuals work in practice but has not yet demonstrated that the market wants them at scale.