Introduction

DeFi options have failed to take off. While we can point to the success of dYdX as a blueprint for perpetuals, or GMX for synthetic margin trading, there is no single DeFi options venue that has achieved scale in a meaningful way. Options trading is currently dominated by centralized exchanges (CEXs), specifically Deribit, with a small percentage of trading being executed on-chain.

Options are a key financial derivative that allow investors to effectively manage risk by buying them or earn premiums by selling them. However, the sophisticated nature of options can be daunting for those unfamiliar with them.

Ribbon Finance started out as an asset management protocol that specialized in simple structured products. They initially gained traction for their decentralized options vaults (DOVs) and have since diversified into various products like R-Earn and R-Lend. Ribbon also has an upcoming product called Aevo which is a derivatives DEX built on top of its own rollup.

In this report, we will dive into Ribbon’s business model, examine why decentralized options vaults cannot be their final objective, and look into Aevo.

The Ribbon Ecosystem

The graphic above illustrates Ribbon’s suite of products. Here’s a brief overview of each:

DOVs are Ribbon’s main product. They allow for automated option selling on behalf of depositors. The two main DOV strategies are selling covered calls and cash-secured puts.
R-Earn offers principal-protected vaults that use a small portion of capital and/or yields earned for various options strategies to drive higher-yield returns. Currently, R-Earn offers vaults for USDC and stETH.
- The USDC vault utilizes uncollateralized lending to market makers and allocates a portion of the yields towards the purchase of straddle-like ATM knock-out barrier options, allowing depositors to profit from intra-week volatility.
- The stETH vault utilizes stETH’s base yield and 0.5% of deposits to purchase weekly call-like ATM knock-out barrier options.
- For more on principal-protected vaults, you can read our report here.
R-Lend is Ribbon