Introduction to Ribbon Finance
Theta Vaults, also known as DOVs (DeFi Options Vaults), were invented by Ribbon in 2021. At its core, a Theta vault is a yield-oriented strategy that proposes that depositors trade volatility on their underlying by selling European options with weekly expiration. The sale value of these options, or "premium," is set through auctions and determines the vault return. The vault reinvests the premiums earned back into the strategy, effectively compounding them for depositors over time.
There are two types currently active:
The R-Earn vaults employ fully funded strategies to capitalize on the intra-week ETH movements, while also ensuring their capital is protected. The vaults earns a base APY and uses the remaining funding to purchase weekly options.
There are currently two vaults available:
- 1.Earn USDC: it employs a twin win strategy through which depositors can capitalise on the intra-week ETH movements in either direction;
- 2.Earn stETH: employs dolphin strategy through which depositors can capitalise on the upside ETH movements.
Ribbon Treasury are private Ribbon Theta vaults built specifically for DAOs to run covered calls on their native tokens. These private vaults are segregated from the main Ribbon vaults, and run a custom strategy for each DAO. Each vault has a few unique parameters:
- Strike Selection Methodology DAOs can choose how aggressive they want to be with regards to the strike selection methodology.
- Tenor DAOs can choose how often they want to run the strategy. The current Ribbon Vaults run a weekly strategy that automatically re-rolls, but DAOs can choose longer tenors.
- Premium Currency DAOs can also choose what currency they want to receive the premiums in. For example, a DAO could elect to receive premiums in USDC or ETH, depending on their treasury diversification goals.
Ribbon Lend can be described as an uncollateralized Aave, allowing depositors to lend unsecured to KYC/AML’d institutional market makers of their choosing with high liquidity. Ribbon Lend offers the best of both worlds between TradFi and DeFi:
- High yields from unsecured lending
- No lockups from Aave’s money market model
- Off-chain enforcement / credit underwriting
- Built-in insurance