I am trying to generate USDC and am willing buy tokens at a discount.
Conditional agreements allow you to generate USDC yield for creating an agreement to buy a token only if it goes below a certain price. This is different than a downward limit order because you are a) agreeing to it for a period of time (defined by you), b) receiving upfront USDC for selling the agreement, and c) by getting USDC upfront for buying tokens at a certain price - you actually buy them at a discounted price compared to using a limit order.
Example 1
Example: Fred writes an agreement to generate $4,000 USDC
If you pay me $4,000 USDC today, I am willing to lock $12,000 USDC for 3 months. Additionally, if $UNI goes to $10 per token (33% drop) I will be willing to buy 1,200 UNI at that price within the 3 month period.
In this example, Fred is taking 12,000 USDC and deploying it in this agreement. When his agreement is purchased, he will receive 4,000 USDC upfront and his 12,000 USDC will be locked for a maximum period of 3 months (33% USDC upfront yield!). In that time, three things can happen:
1) The price of UNI never reaches $10 per token in that 3 months. Fred keeps his 4,000 USDC and unlocks his 12,000 USDC (132% effective APY on USDC!).
2) The price of UNI goes below $10 and the agreement is activated. Fred still keeps his 4,000 USDC and purchases 1,200 UNI at $10 per token.
3) The price of UNI goes below $10 and the agreement is NOT activated before it expires. Fred loves keeping his 4,000 USDC and unlocks his 12,000 USDC.
To make these contracts work, we take an old idea of financial options and apply it to specific DeFi needs. For this particular strategy, we use a Put Option. In the next section, we'll discuss how to create and share your own Put Option.
Copy link