How can we reward people for creation when financial tooling and vocabulary are purposely exclusionary? We believe the answer lies within properly designed protocols. Let's dive in.

What are covered calls?

Let's back it up. First, we need to understand what a call option is.

Call Option

A call option is simply the ability to buy a predefined number of a specific asset at a specified price sometime in the future. The ability to buy 100 shares of TSLA stock at $850.00 per share on December 16th, 2022, equals one call option. For this capability, the open market currently values this call option at $113 per share, or $11,300. There are two main types of call options; we will be focusing on European call options.

1. American - Redeemable anytime before expiration
2. European - Redeemable only at expiration

Covered Calls

Personally, this should not even need to be clarified. A covered call means that whoever is selling the call option owns the underlying asset. To continue the previous example, a covered call of 100 Tesla shares implies that whoever is willing to sell it must possess a minimum of 100 Tesla shares. A naked call means that you do not have the underlying asset - a bluff.

Inspiration

2008’s financial crisis.

Celsius' insolvency.

Robinhood halting trading.

Bad actors.

Introducing Pismo Protocol

Pismo Protocol: Cove

Cove will be the first Pismo Protocol product. Users can use collateral ETH to create two financial products and sell them on the open market while earning sustainable, on-chain yield.

Let’s discuss.

On-Chain Yield

It is critical to understand precisely how Pismo earns and passes on the yield. The protocol incentivizes TVL through three main income streams.

1. Aave, 1inch, Curve - A yield-bearing protocol for users' deposited funds. (exploring liquid staking)
2. direct sale - revenue from the creation and sale of the covered call
3. royalty revenue - a percentage of resale values for your created call option

Existing Protocols

Currently, a few mechanisms are present for representing the covered call positions. ERC-20s form the basis for financial situations at the current moment. My theory states this is due to skeuomorphic design principles- or the belief that innovative products replicate the previous iteration for user comfort, then reveal a more profound innovation later. The traditional world of finance uses the following naming method for options products.

• TSLA Call Option Name: TSLA221216C00850000
• ERC-20 Call Option Name: TSLA221216C00850000

NFT Composability

I believe this is due to people not understanding the actual value behind programmable NFTs. After 2021, many people are hesitant to see NFTs tangible use cases - a fair assumption after the seemingly endless production of profile picture NFTs. However, NFTs are highly composable assets - making them an ideal way to represent specific financial positions - something Pismo Protocol will leverage. (much like UniSwap v3)

What sets Pismo Protocol apart?

Incentivize Creation

You - not the institution - create the financial products.

You - not the institution - should reap the reward.

Tradition Finance vs. Pismo Protocol

To answer this question, you must look at the revenue streams possible within traditional finance. Let’s look at the revenue streams created when you write a covered call on an app like Robinhood.

1. Sale of the call option
2. Potential asset appreciation/depreciation to strike price

In return for these two revenue streams, your capital remains idle on the platform, and you cannot earn interest. The user is trusted to hold the collateral used to write the option because they could get liquidated if they do not.

Enter Pismo.

What sets Pismo Protocol apart?

We take the trust out of the traditional options market. Pismo has the unique opportunity to require a user to lock the underlying collateral rather than trust the user. The new question becomes more interesting. How do we further compensate the user for proving they hold the underlying collateral? Enter the additional revenue streams.

1. Sale of the call option
2. Potential asset appreciation/depreciation to strike price
3. The yield on the sale of the call option
4. Sale of Dynamic Bond NFT… including:
   1. Strike * Collateral or ETH*collateral 
 when strike price > current eth price
   2. The yield from interest bearing protocol (equal to collateral * duration)
5. Royalty from all resales of the option
6. Royalty revenue from all resales of the bond

In return for locking the underlying collateral on our protocol, Pismo can promise yields from the call option because there is no more trust behind where the collateral truly lies.

Our community ask

I am a recent graduate from university; my team consists of students. We're building - but do not have all the tools. If this works out, there is a chance to bring back trillions of dollars that TradFi monopolizes - placed right back into the hands of the users. All crowdfunded money will go to finance more developers, obtain proper licensing, and fulfill legal requirements. The crowdfund token has no intrinsic value and does not represent any affiliation with Pismo Protocol. We will note the addresses which help support, but the underlying token does not have future value.

Or donate here:

ETH: 0x6482F789Fd1229Ec86962690234256B68b15cA92

ENS: pismoprotocol.eth