Thread by @Panoptic_xyz

1/16 Did you know the "Father of Options" circumvented 19th century usury laws w/financial engineering to make $?

Let's dive into the fascinating story of how Russell Sage leveraged put-call parity to become a millionaire, and how put-call-LP parity revolutionizes DeFi options🧵

2/16 In this thread we'll:

• Show how Russell Sage made millions by subverting the law with options
• Use monkeys & bananas to explain put-call parity
• Explain why "put-call-LP parity" for DeFi options is as groundbreaking as put-call parity was for TradFi options

3/16 What's usury?

Usury, aka predatory lending, is charging an excessive rate of interest on a loan.

Historically, usury was defined as charging *any* interest on a loan and was condemned by major religions & prominent philosophers (Moses, Buddha, Muhammad, Aristotle...)

4/16 In 1867, Russell Sage was convicted of violating New York usury laws for charging an 8% annual interest rate on a late loan to a stockbroker.

The penalty for Russell was $250 in fines and 5 days in prison.

researchgate.net/publication/31…

5/16 However, this didn't deter him. Russell used his know-how of options to create synthetic loans.

He developed OTC options trading on such a grand scale that he was known as "The Father of Puts and Calls," "inventor of straddles & strangles," and the "Money King."

6/16 But how exactly did the "Money King"💰👑 create loans through options trading?

The answer lies in a fundamental concept found in every financial textbook called "put-call parity", which can be used to create synthetic loans.

7/16 Imagine a seesaw with 4 types of fruit: apples🍏, peaches🍑, cherries🍒, and bananas🍌.

In order to stay balanced, the seesaw must have a fixed ratio of apples🍏 + peaches🍑 on one side, and cherries🍒 + bananas🍌 on the other side.

8/16 Each fruit represents a financial instrument, and the fundamental relationship between the fruits is put-call parity.

🍏 = asset price
🍑 = put price
🍌 = bond price
🍒 = call price

Put-call parity: 🍏 + 🍑 = 🍌 + 🍒

9/16 "Mon[k]ey King"🐵👑 be like: "Me like loanshark — me want high interest rate!"

Buying 🍌(bonds) is a fancy way of saying: "Me lend you some money in exchange for interest."

→ So 🐵👑 can loanshark by buying 🍌(bonds — in this case, high yield ones)! 🤯

10/16 But 🐵👑 couldn't legally buy bananas🍌 (bonds — the high yield ones). 🚩🚩🚩🐵👑⛓️👮

Instead, he:
• Bought apples🍏(asset)
• Sold cherries🍒 (calls)
• Bought peaches🍑 (puts)
→ Effectively purchasing bananas🍌 (bonds) 🤯

11/16 Just as "put-call parity" is fundamental to options, "put-call-LP parity" is fundamental to DeFi options.

Panoptic begins w/ the simple observation that providing concentrated liquidity in Uniswap V3 is analogous to selling options in TradFi.

LP = -Put 🤯

12/16 Let's call this observation "put-LP parity":
LP = -Put
(🍋 = -🍑)

Which means:
-LP = Put
(-🍋 = 🍑)

→ Panoptic lets you buy peaches 🍑 (puts) by selling lemons 🍋 (LPs) 🤯

13/16 How do you buy 🍒 (calls)?
Answer: lab-grown synthetics!

Put-call parity: 🍒 = 🍏 - 🍌 + 🍑
Put-LP parity: 🍑 = -🍋
→ Combined: 🍒 = 🍏 - 🍌 - 🍋

→ You can buy 🍒 (calls) by buying 🍏 (asset), selling 🍌(bonds), and selling 🍋 (LPs)🤯

14/16 Panoptic Labs™ synthesized a new type of 🍑 and 🍒:
These 🍑 and 🍒 are shelf stable because they NEVER expire!

Panoptions are a novel type of options:
• Perpetual♾️
• Oracle-free🔮
• Permissionless🤠
• Made for DeFi🔑

https://twitter.com/Panoptic_xyz/status/1637861620838989824

15/16 Summary:
• Put-call parity describes the relationship b/t puts and calls
• Russell Sage took advantage of this to make high interest loans
• Put-call-LP parity describes the relationship b/t put, calls, & LP

Disclaimer: None of this should be taken as financial advice📢

16/16
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