Squeeth x Sherlock: Secure Exposure to ETH²

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January 11th, 2022

The Sherlock and Opyn teams are excited to announce a collaboration to provide $10M of smart contract coverage for the launch of Squeeth, which will apply pro rata to all users of Squeeth at no cost. Both Sherlock and Opyn care deeply about taking the burden of security off of the user’s shoulders as much as possible, and this type of integration is another step towards making decentralized finance a more user-friendly place.

In addition to the $10M in smart contract coverage, Squeeth received a security assessment from top Sherlock security experts, and a $1M ImmuneFi bug bounty provided by Sherlock. Both teams see these amounts growing over time as Sherlock’s capacity increases and Squeeth becomes a critical part of DeFi infrastructure.

Sherlock is a risk management platform built on Ethereum and designed to keep end users protected by providing affordable and scalable coverage to protocols.

Opyn is building DeFi-native derivatives and options infrastructure. Opyn invented Squeeth, a derivative that has perpetual exposure to ETH². Squeeth launched on Ethereum mainnet on January 10th, 2022.

Opyn’s Security Practices

Sherlock's partnership with Opyn is exciting because Opyn prioritizes all of the attributes that Sherlock looks for when deciding to cover protocols. The Opyn team has been building in the space for many years and they’ve become grizzled veterans when it comes to security. They understand all of the risks, rewards and tradeoffs related to security which makes them great to work with.

The steps taken to secure Squeeth include:

  • Audits from Sherlock, Trail of Bits and Akira
  • $1MM ImmuneFi bug bounty provided by Sherlock
  • Rigorous peer review process
  • High test coverage
  • And of course, $10M of smart contract coverage at launch

The Opyn team has taken a very considered approach in regards to launching Squeeth. Starting January 10th, users are able to buy, sell, and LP Squeeth. On January 24th, the team will release the Crab Strategy, an automated Squeeth strategy that pairs short Squeeth with long ETH to create a position with an approximate delta of 0 to the price of ETH. Opyn plans to release automated bear and bull strategies in the future. Opyn has also focused on Uniswap v3 oracle manipulation risks and it’s been great to see them leverage contributions made by other Sherlock-covered protocols, such as Euler’s work on the topic.

While the steps taken to secure Squeeth are certainly exciting, what’s even more exciting is what Squeeth actually enables. Below is a short description of the power of Squeeth, but please check out the full primer written by the Opyn team.

A New Financial Derivative

Squeeth functions similarly to a perpetual swap on the price of ETH multiplied by ETH (also known as ETH²). It provides global options-like exposure (pure convexity, pure gamma) without the need for either strikes or expiries, effectively consolidating much of the options market liquidity into a single ERC20 token.

Squeeth makes options perpetual and is a very effective hedge for Uniswap LPs, all ETH/USD options, and anything that has a curved payoff. Even cooler, Squeeth has no liquidations on the long side.

How is it different than options?

  • No strikes, no expiries
  • No liquidity fragmentation
  • No need to “roll” positions, avoiding risks and costs such as gas and spreads paid to market makers
  • Constant gamma (curvature of payoff)

How is this different than perpetual swaps?

  • No liquidations on the long side
  • Compared to a 2x leveraged position, Squeeth will make more when ETH goes up and lose less when ETH goes down (funding rates for Squeeth are expected to be higher due to exposure to pure convexity)
  • The main difference between Squeeth and perpetual protocols is that Squeeth is a leveraged position (ETH² payoff) that is a fungible ERC20 token, enabling it to be traded separately (in uniswap pools, for example, or as collateral for loans). This composability is a major advantage to Squeeth’s design

What does Squeeth enable?

  • Squeeth makes options perpetual
  • Squeeth allows you to hedge Uniswap v3 LPs with almost no impermanent loss
  • Squeeth effectively takes options & removes strikes and expiries to create a single ERC20 representing the entire options chain
  • Squeeth is a hedging instrument for 𝑎𝑙𝑙 ETH/USD options. This is because it’s strike-less and expiry-less
  • LPing in the SQTH-ETH pool is similar to being long ETH^1.5, which is constantly rebalanced or continuous ETH 1.5x leverage
  • The price of Squeeth can be used as a volatility oracle, a predictor of how much volatility the market expects in ETH over the short term

Opyn is a great example of the type of security-minded team that Sherlock likes to partner with. We’re excited to watch Squeeth continue to grow and Sherlock will be there to provide more cover and other services every step of the way.

Keep up with Opyn:

Keep up with Sherlock:

  • Follow along and get involved on Twitter and Discord
  • See how Sherlock works
  • Keep an eye out for the V2 in early 2022!
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