Payout calculation
How it is calculated
- Up cover (pays if the rate rises): if the settlement rate ends above the strike, the gross payout is the notional multiplied by how far it ended above the strike, counted only up to the limit, divided by the rate at purchase. Otherwise nothing is paid.
- Down cover (pays if the rate falls): if the settlement rate ends below the strike, the gross payout is the notional multiplied by how far it ended below the strike, counted only down to the limit, divided by the rate at purchase. Otherwise nothing is paid.
- A payout fee of 2% is deducted from the gross payout; you receive the rest.
| Term | Meaning |
|---|---|
| settlement rate | The rate agreed by the oracle at expiry |
| rate at purchase | Today's rate when you bought, recorded in your contract |
| strike, limit | Your contract's terms |
The payout is measured against the rate at purchase, so a move of 60 naira on a 1,330 rate pays about 4.5% of the notional.
Outcomes for the example contract
Notional 10,000; rate at purchase 1,330; strike 1,360; limit 1,500.
| Settlement rate | Gross payout | Fee (2%) | You receive |
|---|---|---|---|
| 1,350 | 0 | 0 | 0 |
| 1,360 (exactly at the strike) | 0 | 0 | 0 |
| 1,420 | 451.1278195 | 9.0225563 | 442.1052632 |
| 1,500 (at the limit) | 1,052.6315789 | 21.0526315 | 1,031.5789474 |
| 1,600 (beyond the limit) | 1,052.6315789 | 21.0526315 | 1,031.5789474 |
Break-even
You recover your total cost when the net payout equals it. For the example (total cost 211.31), that happens at a settlement rate of about 1,389.
Open protection
For Open protection the limit is set from the pool's maximum payout: the strike plus (for an Up cover) or minus (for a Down cover) today's rate multiplied by the pool's maximum payout percentage.
kept between 0.5× and 2× today's rate. With a 30% maximum payout and today's rate at 1,330, a strike of 1,360 gets a limit of 1,759, and the maximum gross payout is 10,000 × 399 / 1,330 = 3,000 USDC.