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Option Skews, Ribbon’s Divergence, & Transactional Traction

Dec 15, 2021 · 3 min read

By Genevieve Yeoh

Option Skews Don’t Look Too Hot

  • Implied volatility for near-term options are skewed towards puts, indicating that market participants have concerns, and are either buying protection or speculating that price will deteriorate further. Option expiries slightly further out at the end of the year (Jan. – Feb. 2022) are less skewed, indicating a more neutral price outlook over the mid-term.
  • A key reason short term skews lean bearish could be the upcoming FOMC meeting. Both traditional and crypto markets are expecting a more hawkish fed, and this sentiment has been weighing down on risk assets.
  • A tweet by options exchange Deribit also stated that most option premiums have been from call writing followed by put buying, indicating that investors are generally betting on downside.
TVL in Option Protocols Grow, but Hegic Declines
  • While we’re talking about options, DeFi options protocols have grown in TVL over the last few months, due to the emergence of new primitives such as Dopex, FODL, and Premia amongst others.
  • Opyn and Ribbon account for over half of all on-chain options TVL, and have been growing since Ribbon vaults launched earlier this year.
  • Options protocol Hegic suffered from an onslaught of new competition, with TVL declining over 80% since its peak in Jan. 2021. Over the last few months, it’s continued to lose TVL and market share.
RBN Price Diverges from Ribbon’s Revenue
  • Ribbon has traded more than $3B in option volume (notional) from its inception in April. In Ribbon v2, the protocol introduced management and performance fees which accrue to the protocol treasury.
  • Revenue has been increasing as Ribbon added more option vaults and increased deposit limits. The project also plans to expand cross-chain and have just launched on Avalanche today.
  • However, price has been trailing Ribbon’s progress. Ribbon’s governance token, RBN, has been trending down since its TGE in October. This is likely caused by airdrop recipients and liquidity mining participants who offloaded their rewards.
  • There are currently plans to revamp Ribbon’s token economics to a veCRV-like model where token holders who lock their RBN for longer periods get greater governance power, and thus a higher proportion of protocol revenue.
Fantom and Polygon Lose Steam, Avalanche Steadies On

  • Daily transactions on Ethereum have largely stayed range-bound since the middle of this year as a result of constant congestion and exorbitantly high fees.
  • Other EVM-compatible chains such as Fantom and Polygon have experienced periods of high transactions, particularly after incentive programs attracted users to the respective chains. However, the incentives seem to be less attractive now, as daily transactions on both chains are trending downwards as the hype faded.
  • Avalanche is still showing signs of growth with daily transactions in an uptrend over last couple of weeks. It remains to be seen is this activity is sustainable or whether it’ll wind down once Avalanche Rush incentives dry up.
Notable Tweets

A thread on Solana’s ecosystem

MEV and constructing the most profitable blocks

Global inflation is on the move

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