When people enter DeFi for the first time, one of the most common questions they ask is “where are the yields coming from?”. A huge driver for high yields comes from the fact that traders are significantly increasing their borrowing for leverage, as we enter a new bull market. Another huge segment of yield comes from new projects distributing their native asset to the community for providing liquidity.
When times are good, these numbers run high — airdrops can be worth over 6-figures and yield numbers can be in the hundreds of percent. However, as DeFi matures, these numbers are likely going to come down significantly.
At Ribbon, we are focused on building a protocol that supports the creation of financial products that generate sustainable yield through financial engineering, not unicorn bucks. Using smart contracts, anyone can combine any derivative contract under the sun into a structured product for anyone else to consume.
A few weeks ago, we introduced Option Vaults — a simple way for users to get exposure to an automated options strategy. One of the most popular ways of generating yield in the traditional financial system is through selling call options. By selling a covered call, users can exchange some potential upside in the future for guaranteed yield today. However, the complexity of structuring this strategy in a perpetual way (strike selection, expiry selection, rolling over positions) make it difficult for the average retail investor to participate. Furthermore, structuring a strategy for yourself on-chain will be an extremely gas-intensive endeavour, making it a non-starter for most.
Today we are launching Theta Vaults, a way to earn high yield on ETH through running an automated covered call strategy with one click. They are available here today.
The Theta Vaults contracts have been audited by Peckshield and is currently undergoing two more audits. However, because the Theta Vault is a first of its kind, we are capping deposits to a total of 1000 ETH for now. We will continue to raise this ceiling over time as we build a stronger track record of the contracts working as expected.
A Universe Of Option Vaults
As we scale up, we plan to launch a universe of option vaults. For example, we can easily create a WBTC Theta Vault or a UNI Theta Vault. We can also create a put-selling vault for ETH or WBTC, or even a combination of put and call selling — the potential strategies are only limited by one’s creativity.
We are going to create and manage the first few vaults, but will quickly transition to a model where community-developed strategies become the canonical strategies for the option vaults. If you are interested in implementing a new Option Vault, join our Discord and share some of your ideas.
Backed By The Best
To make the vision of bringing structured products onto DeFi, we have raised a seed round from some of the best funds and angel investors in the space. Our seed round was led by Dragonfly Capital, accompanied by Nascent, Coinbase Ventures, Scalar Capital, and more.