Ribbon Finance currently focuses on options trading. In the future, it plans to launch product modules such as betting on volatility, increasing returns, principal protection and compound interest.
Original title: “Cobo Labs” Investment Research Report: Ribbon Finance Project Analysis”
Written by: Ely, Alex Zuo (Left Changbai), the former is Cobo North America Research Director, the latter is Cobo Asset Management VP
Ribbon Finance launched the V2 version on August 24. As a new project launched on April 12 this year, it locked up more than 100 million U.S. dollars in just 4 months and created more than 4 million U.S. dollars in income for investors. . Cobo Labs carefully participated in the governance of the project. The following is our early internal analysis and does not constitute any investment advice.
Risk Warning
The departure fee for the T-USDC-P-ETH and T-YVUSDC-P-ETH pools in Put Selling is 1%; the departure fee for the other two pools is 0.5%;
10% of the weekly total funds is used as the withdrawal limit. If the withdrawal limit is used up this week, the withdrawal function will be disabled.
When the option is sold, it is settled on the chain with the OTC market maker outside the chain. Loss depends on the delivery price, and each pool provides users with an estimation calculator to estimate profit and loss.
Risk observation items include: price-feeding mechanism/ token usage/ unannounced roadmap, etc.
Item rating
Suggested strategies for mining: ⚠️High degree of centralization, unclear token appreciation logic, strong product innovation, leading option projects, it is recommended that high-risk fund BloodyFish (referring to high-risk products in the Cobo DeFi fund) participate in a small amount.
Basic situation of the project
Investment institution : Leading investor is Dragonfly Capital; participating investors are Nascent, Coinbase Ventures, Scalar Capital
Core team : The founder of Robbin Finance is Julian Koh, a former Coinbase software engineer. According to LinkedIn, Julian Koh worked at Coinbase from May 2019 to October 2020. In 2018, he served as a consultant for the cryptocurrency hedge fund MetaStable.
Code situation :
- GitHub link
- Number of code submissions: 199
- Number of code submitters: 8
product
Ribbon Finance’s first product, Strangle, has been deprecated (Strangle allows users to bet on the volatility of ETH to make a profit by combining put options and call options with different execution prices.) Currently, the project is ready to be upgraded to the V2 version. , The updated functions mainly include: decentralization of the vault; reconstruction of the vault accounting system; manageable vault parameters. The migration from V1 to V2 is being carried out gradually.
Covered Call
Theta vaults is a set of structured products focusing on the strategy of improving the return on assets. Currently, Ribbon Finance allows users to deposit ETH and WBTC in the Vault (treasury) to generate an annual rate of return of 20%-30% (depending on option pricing). In order to generate this APY, Ribbon Finance adopted a covered call (Covered Call) strategy, which is to sell out-of-the-money OTM options against the underlying asset to charge weekly premiums. The covered call strategy is suitable for investors who hold the asset for a long time. In options trading, this is usually seen as a neutral or slightly bullish strategy.
Put-Selling
This is an accumulation strategy for those who want to automatically buy on dips and/or generate income through their USDC. The fund pool runs an automated strategy to sell ETH put options and earn income from USDC deposits. The fund pool sells OTM put options on Opyn every week, earns a premium and reinvests every week to obtain a compound rate of return. If the option expires, the treasury is obliged to purchase the underlying asset at a predetermined strike price, that is, “buy on the bargain”.
future
According to the official website, in the future, Ribbon will launch four major module products: betting on volatility, increasing returns, principal protection and compound interest. Principal protection products will use a combination of fixed income and options to provide upside, while ensuring that investors receive their principal investment return. This is likely to be constructed using a combination of cryptocurrency native zero coupon bonds and call options on related assets.
In the next 1-2 months, one of the most exciting roadmap projects is the use of interest-bearing assets as collateral. As the founder Julian said: This is how DeFi ultimately wins for a long time. This is a useful psychological framework that applies to the entire track and why the open source composable protocol is so powerful. Our plan is to focus on Yearnytokens in the initial product. For example, imagine that your assets locked in an annual vault can generate an annual interest rate of 10%. Ribbon plans to use the assets that have already generated income and sell options on this basis to create the highest rate of return in all DeFi.
Economic model
Total tokens: 1,000,000,000 RBN
Token distribution
The Gitbook, which the team updated three months ago, also announced that the project will not have tokens. It only began to announce the details of token airdrops and mining rewards on May 25, and declared that the value of the tokens is not empowering. The current model is to distribute tokens through Mining and airdrop first, and then gradually announce the complete token economic model.
Airdrop : On May 25, 2021, 3% of the RBN token supply (30M RBN) will be allocated to the community.
Liquidity mining activity: officially ended on July 19, a total of 10 million RBN (1% of total supply) rewards were issued
Data source: Nansen
Community information
Is the project party active in answering questions: The activity on Twitter is not good, which is not proportional to the number of followers; Discord administrators are more active in answering questions.
Security sector
Safety rating: Intermediate risk (not disclosed here)
Risk observation items include: price-feeding mechanism/ token usage/ unannounced roadmap, etc.
compete
Track analysis: The market size of traditional financial derivatives is several times more than the spot trading volume. In contrast, the market size of cryptocurrency derivatives is still far smaller than DeFi spot transactions, so there is inevitably huge room for growth.
Among all derivatives, options should be the most dazzling rising star , based on two main reasons and potential:
Currently, the main active crypto investors or traders are more like speculators, who seek high leverage and high returns without considering high risks.
The violent volatility of cryptocurrency, or from a professional point of view, the implied volatility is quite high. This means that protection or hedging is a strict requirement of all types of cryptocurrency investors: miners, whale holders, professional or amateur level traders. In CeFi, the success of many financial institutions has proved the market’s demand for structured products.
Although Ribbon Finance’s overall plan is to make structured products of financial derivatives portfolio, the current products on the line are still the main option trading. Ribbon is a structured derivative based on option agreements such as Hegic and Opyn, so its scale and development are also restricted by the development of on-chain option products.
One of the most important differences between DeFi options projects is how to solve the liquidity problem. The order book seems to be one of the options for solving DeFi liquidity. OPYN v2, Auctus and Premia are currently exploring this path. The liquidity of OPYN v2 is built on the 0x order book, while Auctus, Hedget and Premia are building their own trading platforms, and how they develop and enhance the liquidity of the order book is worthy of attention. After experimenting with the order book liquidity model, Opium recently launched a centralized liquidity pool insurance model.
Another important way to solve liquidity is the flow cell model. In general, the solutions can be divided into two types: a liquidity pool that acts as an option seller, and an AMM liquidity pool for option transactions.
AMM (Automatic Market Maker) is one of the greatest creations in the DeFi field, and has also participated in the experiments of on-chain option trading as a liquidity model. OPYN v1, Primitive, and Siren are all platforms that rely on AMM solutions to buy and sell options, each with unique characteristics.
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