DeFi Binary Options vs CeFi Binary Options
Why you should pick the decentralized alternative
Binary Options are a type of exotic option where the payoff is a fixed amount, they gained huge popularity in 2015 then declined in favour for Forex and Crypto trading. Some of the industry’s biggest scandals have involved Binary Options and in this article we explore the reasons why DeFi is the ‘CeFi killer’ for this type of product.
The Problem With CeFi
For years CeFi binary options platforms like Pocket Option, Quotex and Olymptrade have dominated the space admist hundreds of complaints and accusations. Let’s summarise the two most common below
- Blocked withdrawals; Clients report that if certain win amount or win rate threshold is met, the account goes under scrutiny and withdrawals get blocked pending KYC documentation requests or accusations of banned trading practices
- Bogus price data. Clients report vastly different quotes between platforms, especially during closed market hours or OTC markets.
- Denied wins; clients suggest that a trade which closed as a win was actually closed as a loss.
Most of the points above are pretty self-explanatory but lets talk about bogus price data. Many platforms offer OTC markets as you can see below
OTC means ‘over-the-counter’ this means that the offer is not coming from an exchange it is a direct deal with the broker. All OTC price feeds from binary options platforms are completely fabricated so you can see how easy it is for clients to get scammed. This is why traders always recommend to each other to trade during normal market hours when prices have to conform to some degree to the market price — but here’s where further tricks come in.
Spread
Brokers often use spreads and slippage to make it harder for traders to win. They execute the buy and sell price at unfavourable rates in order to limit your win rate and they do this without you being able to know what is going on behind the scenes.
Blocked withdrawals
There are hundreds of reports online about this, have a look at the account from this trader, visit https://www.reddit.com/r/binaryoptions/comments/138wd6d/my_experience_with_iq_option_a_warning_about/ to read the whole thing
Here we can see, IQ Option didn’t even attempt to come up with a ruse, they simply ignored his withdrawal request completely!
Enter DeFi!
The critical feature of DeFi and decentralised applications are their immutable code. When you write code to the blockchain it can not be changed so you can verify and validate it before running it. It’s also easy to audit and services like Certik publish these reports online. You can see OptionBlitz’s audit report here https://skynet.certik.com/projects/optionblitz
Having a decentralised application means that the app or ‘dapp’ must not give any privileges to any user(s) or at least have mitigations in place, for example in a trading platform, the operator may need to intervene if a third party dependency fails or to maintain risk management controls to deliver a decent user experience. But these privileges should always fall short of being able to access any user funds for example.
Not being able to access the users funds is important because that means funds are secure and can only be accessed by the user!
Trading operations are executed on the blockchain which means they cant be censored or blocked and in a DeFi app, you never deposit funds! On OptionBlitz there is an optional embedded wallet available if you don’t have an external wallet like Metamask but OptionBlitz does not have access to these funds! This embedded wallet is generated inside your browser and a keypair is created where you can transfer USDC to but it is always self-custodied. Only you can access this wallet with your private key which is decrypted when you login. For more information on this look up web3auth and Biconomy!
Price feed data
Decentralised applications use oracles to get prices, these oracles aggregate dozens of different price sources and transmit them to the blockchain application. OptionBlitz uses Pyth which is a low-latency price feed perfectly suited for DeFi binary options trading.
Pyth is an alternative to Chainlink which has been around for years. Because only real prices from real exchanges are published to Pyth, OptionBlitz does not offer OTC trading, you can only trade during market hours. You can also check against Pyth to see it matches but a quick read of the Certik audit report reveals how the codebase validates the Pyth price and performs the payoff functions depending on the outcome. This transparency is not available in CeFi.
Summary
If you are serious about funds security and trusted execution, making the leap to DeFi is the way forward. OptionBlitz is leading the way for DeFi Binary Options and constantly innovating to make trading safe and honest. You can visit the OptionBlitz trading app at app.optionblitz.co and for a deep dive into how OptionBlitz works and what features are available check out docs.optionblitz.co
TG: @planetblx
Web: optionblitz.co
