RFQ Flow

The RFQ (Request for Quote) system enables users to trade options directly with the Main Market Maker (MMM). Unlike the limit order book where users trade against each other, RFQ provides instant execution at prices quoted by professional market makers.

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Overview

RFQ trading combines off-chain quoting with on-chain settlement:

Key Benefits:

• Instant execution — No waiting for order book matching
• Professional pricing — MMMs provide competitive, market-aware quotes
• Atomic settlement — Positions created in a single transaction
• Flexible sizing — Partial fills supported

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Participants

Main Market Maker (MMM)

The MMM is a privileged address that:

The MMM is registered by the protocol owner and can be queried via the PositionManager.

User (Quote Taker)

The user:

1. Requests quotes from MMM off-chain (via API, chat, etc.)
2. Receives a signed quote with price, size, and expiry
3. Submits the quote on-chain to execute the trade
4. Pays or receives premium based on trade direction
5. Receives a long or short position

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Quote Structure

An RFQ quote contains all parameters needed for on-chain execution:

Quote Fields

Series Parameters

The quote also includes full series parameters for lazy registration:

Series ID Verification:

$$\text{seriesId} = \text{keccak256}(\text{pairId}, \text{strike}, \text{optionExpiry}, \text{isCall})$$

The contract verifies that the provided seriesId matches the hash of the series parameters. This prevents the MMM from accidentally signing for the wrong series.

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Execution Flow

High-Level Flow

Off-Chain Phase:

1. User requests a quote from the MMM (e.g., "I want to buy 10 ETH-USD calls, strike $3000, Dec 31")
2. MMM calculates the price, creates a quote (e.g., $150 per contract, size = 10), and signs it with EIP-712
3. MMM sends the signed quote to the user

On-Chain Phase: 4. User submits the quote to the RFQ contract 5. Contract validates: signature is from registered MMM, quote not expired, series not expired, nonce matches MMM's current nonce, fill amount ≤ remaining quote size, and taker is authorized (or quote allows anyone) 6. Contract executes: registers series if new (lazy creation), mints positions (long to buyer, short to seller), transfers premium from buyer to seller, and collects RFQ fee from taker 7. Emits event with fill details

Validation Steps

The contract performs these checks before executing any trade:

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Trade Direction

The takerIsBuying flag determines who gets which position and who pays:

Taker Buys Long (takerIsBuying = true)

The MMM mints a pair, gives the long position to the taker and keeps the short. The taker pays the premium to the MMM.

After trade:

• Taker: holds long position, paid premium
• MMM: holds short position, received premium

Taker Buys Short (takerIsBuying = false)

The MMM mints a pair, gives the short position to the taker and keeps the long. The MMM pays the premium to the taker (compensating them for taking on the obligation).

After trade:

• Taker: holds short position, received premium
• MMM: holds long position, paid premium

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Trade Examples

Example 1: User Buys Calls

User wants to buy 10 ETH-USD $3000 calls at$150 premium each. Before the trade, the user has no position and $2,000 USDC; the MMM has no position and$50,000 USDC.

After the trade (takerIsBuying = true, fillAmount = 10):

• User receives +10 position (long), MMM receives -10 position (short)
• Premium: 10 × $150 =$1,500 flows from User to MMM
• After: User has $500 USDC, MMM has$51,500 USDC

Example 2: User Sells Puts

User wants to sell 5 ETH-USD $3000 puts at$200 premium each (user takes short, receives premium). Before the trade, the user has no position and $5,000 USDC; the MMM has no position and$50,000 USDC.

After the trade (takerIsBuying = false, fillAmount = 5):

• User receives -5 position (short), MMM receives +5 position (long)
• Premium: 5 × $200 =$1,000 flows from MMM to User
• After: User has $6,000 USDC, MMM has$49,000 USDC

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Premium Calculation

The premium transferred is calculated from the quote price and fill amount:

$$\text{premium} = \frac{\text{price} \times \text{fillAmount}}{10^{18}}$$

Buyer always pays seller:

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Fee Structure

RFQ trades have a dedicated fee rate separate from limit order fees.

Fee Calculation

$$\text{rfqFee} = \frac{\text{premium} \times \text{rfqFeeBps}}{10000}$$

where rfqFeeBps is the RFQ fee rate in basis points (1 BPS = 0.01%).

Fee Flow

The premium flows from buyer to seller. Additionally, the RFQ fee is always paid by the taker to the feeRecipient, regardless of trade direction.

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Nonce Management

Each MMM has an independent nonce counter for replay protection.

How Nonces Work

Quote Cancellation

Individual quotes cannot be explicitly cancelled. To invalidate quotes:

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Partial Fills

Quotes support partial fills—the taker can fill less than the full quote size.

Fill Tracking

A quote can be filled multiple times by the same or different takers until fully filled.

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Lazy Series Registration

RFQ supports lazy series registration—if the series doesn't exist, it's created automatically.

When filling an RFQ quote, the contract first checks if the series exists. If yes, it proceeds with the fill. If no, it validates the series parameters (verifying the hash matches seriesId, pairId is registered, optionExpiry is in the future, and strike > 0), then registers the series and proceeds with the fill.

This enables trading of new strikes/expiries without upfront admin setup.

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Security Considerations

Signature Replay Protection

MMM Verification

• Only registered MMMs can have their quotes executed
• Signature must match the mmm address in the quote
• MMM status is checked on every fill

Taker Restriction

This allows MMMs to provide exclusive quotes to specific users.

Premium Direction

The takerIsBuying flag creates unambiguous payment direction:

• Buyer always pays premium
• Seller always receives premium
• No ambiguity about who pays whom

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Contract Integration

Storage

Dependencies

The DiffusalOptionsRFQ contract integrates with:

• DiffusalOptionsPositionManager: For isMMM(address) to verify MMM registration, and updatePosition() to mint long/short positions
• IERC20 (Collateral Token): For premium transfers between buyer and seller, and fee collection to feeRecipient

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Summary

The RFQ system provides:

• Instant execution — No need to wait for order book matching
• Professional pricing — MMMs provide competitive quotes
• Atomic settlement — Positions created in a single transaction
• Flexible sizing — Partial fills supported via fillAmount
• Security — EIP-712 signatures, nonce protection, taker restrictions

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Contract Implementation

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Related

• Order Book — Peer-to-peer limit order trading where anyone can be a maker
• Options Creation — How series are lazily registered on first trade
• Margin System — Collateral requirements for positions