User Flow
Step 1: User Requests Quote
Users can go to https://www.arrow.markets/ to submit their Request-for-Quote (RFQ). Market Markers provide quotes at a regular cadence (also known as reference quotes). Once a user selects their desired parameters for the option, they then place a request for execution with a slippage tolerance on the Arrow platform.
Step 2: Market Maker Quotes
Once the parameters are selected, market makers are notified of this request through an API. Market makers are then given a certain amount of time to provide quotes for options contracts.
Step 3: Accepted Quote
The best quote is selected and the option contract(s) are created on-chain. Funds are transferred to the market maker.
Step 4: Settlement and Expiration
At expiration, settlement occurs at the request of the user and the smart contract collects funds from the market makers and distributes them to users in the case of outstanding liabilities.
Authorized third-party market makers will be the first to quote through our RFQ system. They will compete to provide users with competitive quotes. More information about our market-making partners will be available soon.
| Pros | Cons |
|---|---|
Network effects: RFQ systems consolidate market participation into a single venue. | Designated Liquidity Providers: Only designated market makers can provide quotes, not just any user. |
Better prices: RFQs improve the price discovery process, resulting in better prices for options contracts. | Managing Default Risks: RFQ system can depend on the “creditworthiness” of market makers which increases liquidity but comes with default risk that must be managed. |
Improved Liquidity: RFQs contribute to creating a more liquid market for options contracts. | Market Makers' Limitations in Quote Ranges and Underlying Assets: Many market makers are only willing to quote strikes and expirations in a certain range as well as for just a handful of underlying assets. |
Fast and Transparent Pricing: RFQs provide quick and transparent access to pricing information, which is essential for informed decision-making. |
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