Bracket Protocol is a new Defi derivatives primitive network. Bracket Labs developed this project, aiming to simplify structured products and other traditional options to suit the current Web3 landscape. Brackets are actually various ranges of payoff. While they look like out-of-the-money option spreads, the team implemented several features into one product. Optimized for blockchain, these features will prove very beneficial to their users.
The company divided markets between Funders and Buyers. The first ones are the sellers of bracket contracts, providing stablecoin collateral, and the second ones are the contract buyers. The transaction starts after the Funders make offers. Then it becomes a bracket contract once the customer buys the offer. The platform sets its prices based on the market spot price at the moment of purchase.
As a Buyer, the user will purchase either a long or short contract. The latter is linked to the price of an underlying asset. According to the team, long contracts will profit when an underlying asset’s price soars. Meanwhile, short contracts profit only when prices drop.
The platform defines two prices, the” max price” and the”strike price” When the bracket has reached its maximum value, that’s the max price. The maximum value is typically a multiple of the premium paid for the asset, like 10x or 50x. Customers will achieve a leveraged return by investing in premiums. They will receive a multiple of that premium in exchange. Consequently, the Buyer’s return can potentially grow linearly from $0 at starting price to its maximum claim value at the max price. On the other hand, the strike price is the value at which the bracket starts trading.
Do the brackets have time limits?
The company stated that every contract has an expiration date. The bracket owner will have one opportunity to claim the contract prior to expiration. They can do that at any time during the term. However, after expiration, the system will automatically claim the bracket for the buyer.
The platform will use the funder’s stablecoins to pay for all claims. The protocol locks these stablecoins at the time of contract purchase. Brackets do not have strike prices or uniform expiration. The company sets expiration dates according to the time of purchase. It also calculates strike and max prices based on the spot at the time of purchase.
Moreover, Funders will make stablecoin funds available as collateral. The company will link the latter to a contract at the time of purchase. At the time of contract purchase, it will lock the full max claim amount for the duration of the contract. If the contract expires worthless or a user claims it for an amount less than the max claim amount, the platform will unlock unclaimed funds and return them to the Funder as available funds. Bracket Labs monitors and controls the offers to ensure the customers will get fair terms and service.
Purchasing a bracket is quite simple. Customers should select the underlying asset (e.g., BTC, ETH, or other coins) as collateral. After that, they will need to select either a SHORT or LONG bracket, along with the desired payoff multiple (there are options of 5x, 10x, 20x, and 100x). According to the team, the strike and max claim prices will be different for the underlying assets. Users will be able to specify the amount of value they would like to buy.
How does the company create the contracts?
Once the buyer confirms the transaction, they will receive their bracket contract, and the platform will create an ownership NFT. The customer who has ownership of NFT will also get full rights to the contract. Thus, the payment from the claim will be theirs.
However, not all brackets are available. That depends on Funders making offers in assets, as well as payoff-multiple combinations. Thus, some offers may have poor pricing. In this case, users will need to wait for a better offer.
Meanwhile, funding brackets involve receiving a one-time authorization to enable the bracket smart contract to suggest various USDC transfers. Each transfer out of the user’s USDC wallet requires the latter’s explicit consent. Customers will have to transfer some amount of value from their USDC wallet. As a result, they will become available candidates to fund offers in the underlying asset. Such a system allows a Funder to control an asset’s exposure.
Furthermore, Funders can make any offer they choose within the set of possible combinations. Brackets don’t have uniform expiration, so their end date is set relative to the time of purchase. Besides, the platform shows strike and max prices as percentages.
The team underlines the fact that customers’ funds become locked and are no longer available when a Buyer purchases one of their brackets offers. But the platform will lock only the amount required to fund the contracts. And it lasts only for the duration of the contract. Other funds remain available, and users can use or withdraw them at any time. While there are many Funders and Buyers, each Bracket will match only one Funder and one Buyer.
What is iBNFT, and how does the company use it?
iBNFT is the platform’s ERC-721 token. The team plans to link this non-fungible coin to each bracket contract. The company believes that using NFTs makes the contracts easily tradeable.
Currently, users can do that via P2P. However, Bracket wants to launch a secondary exchange for the trading of contracts in the future.
In addition, the company will provide simple downside price protection. To ensure that, it will enable a one-click buying feature. As a result, customers already using popular custodial or non-custodial applications will be able to get access to downside protection. Meanwhile, those who use Defi apps like DEXs, staking services, portfolio management products, and others will get high-level in-app protection.
The company also stated that while the Bracket Protocol is already available, the team constricts the offers to SHORT ONLY for now. In such a way, a Buyer receives downside price protection for a specific number of days. Meanwhile, integration partners can decide what offers to show. This platform will be available on mobiles as well as on the Web. Overall, it has interesting products and strong potential.