OpenZeppelin ChainSafe Systems
OpenZeppelin ChainSafe Systems
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Last updated: Aug 16, 2023
The Ribbon Finance protocol aims to improve the risk-return profile of a portfolio by combining options, futures and fixed income. The platform provides different yield-focused automated options strategies aimed at long-term returns, consisting of products such as Theta Vaults, which earns yield on their deposits by running one of the already mentioned strategies. The yield earned by vaults gets reinvested back into the strategy, to compound the yields for depositors over time.
Ribbon Finance utilizes the Covered Call strategy – where users earn yield for selling the potential upside of an asset. Vaults sell weekly call options to adjust for asset price movements and compound premiums more frequently.
Theta Vaults rely on Opyn ERC20 oTokens which are a representation of an options contract with each of them having a strike price and expiry. Owning oTokens gives holders the right to redeem some of the amount of the underlying asset if the strike price is hit.
To facilitate the need to mint and short oTokens, the protocol uses assets deposited by its users to lock collateral into Opyn and mint oTokens, which are then sold for a premium. All the collateral in a vault is used to pay off oToken holders in case of options expiring “in the money” - a term used in options trading to refer to an option that has value in a strike price that is favorable in comparison to the prevailing market price of the underlying asset and is locked until the expiration of the oToken.
Each Vault has a Manager role intended to run week-by-week operations and includes responsibilities such as – selecting parameters like strike price and expiry to oTokens and signing oToken sales OTC on behalf of the Vault.
The platform sells options minted by Theta Vaults through Open Auctions, which are batch auctions conducted on the Gnosis Auction platform. This means there is only one clearing price and allows for price discovery on-chain, ensuring the option sale process’ decentralization.
The workflow of an Open Auction is as follows: first, the auction participants place their bids for the option, then the auction is concluded, no new bids are accepted, and no orders can be canceled. After that, the bids are sorted from highest to lowest, following which the protocol goes through the bids from the highest price and counts the number of options to be sold. Once the target sell volume is hit, the final price settles at the last volume. Through these mechanics, Ribbon Finance ensures everyone gets a single clearing price.
The Ribbon Finance app utilizes a series of automated option selling tactics that its users can take advantage of to participate in the platform’s weekly payouts as long as they are successful. The four alternative trading techniques of the Ribbon Finance app are available through its Theta Vaults.
When connecting to the Ribbon Finance app, users need to choose their desired blockchain and unlock their wallet for interacting with the dApp. The Ribbon Finance wallet support for the Ethereum and Avalanche networks includes Metamask, Coinbase wallet, and all wallets integrating the Wallet Connect protocol. Solana users can interact with the Ribbon Finance app through the Phantom and Solflare wallets.
Ribbon Finance fees include a 10% performance fee and a 2% management fee.
The initial use of RBN was purely for governance and allowed its holders to vote on proposals including changing fee models, treasury funds utilization, creation of liquidity mining programs, and other ideas. However, in Q4 2021, Ribbon Finance announced their “Ribbonomics” plans for their native token. The platform aims to provide staking programs to its users where RBN holders can stake their tokens in exchange for sRBN which gives them the voting power and “other superpowers”.
The sRBN token uses the Governor Bravo governance system which includes a third voting choice unlike the typical DAO model with only YES and NO voting options. Voters in the new system can also add text strings to their vote thus being able to convey more information. The strongest side of Governor Bravo is said to be the ability to upgrade governance parameters in the contract, such as proposing submission threshold, quorum threshold, voting delay, and voting periods. Users’ voting power increases the longer they hold sRBN tokens, which also boosts future RBN rewards.
Stakers of the token are considered to be playing a role in backstopping “black swan” events which include smart-contract exploits and huge vault losses. The platform modeled its strategy to put RBN stakers on the hook in cases of unexpected losses of funds, such as exploits, after the Aave Safety Module.
The company’s vaults are exposed to huge market downturns as they earn yield through selling risk. In order to make the vaults more attractive to depositors, the platform introduced a new backstop feature in which RBN stakers insure losses beyond a certain threshold. For sharing the risk, stakers are rewarded with additional RBN tokens.
During the Ribbon Finance airdrop, the community discovered that an analyst from Divergence Ventures had obtained $2.5 million in RBN tokens by creating dozens of identities fulfilling the minimum requirements established by the Ribbon Finance team to be eligible to participate in the RBN airdrop.
Recently, Ribbon Finance announced their collaboration with Avalanche and called the partnership their “first step into Ribbon’s multi-chain future”. The first product launched on the blockchain was an AVAX Covered Call vault.
Investors in the project include Dragonfly Capital, Nascent, Coinbase Ventures, Scalar Capital, FreeCompany, Joseph Lubin, Defi Alliance, and Kain Warwick.
RBN can be traded on Coinbase Pro, Uniswap (v2), Uniswap (v3), Gate.io, MEXC Global, Hotbit, and Poloniex.
The project is working on launching new vault deposit incentives, and permissionless vaults. This will allow anyone to create their own Ribbon Vault supporting asset or strategy.
With the launch of staking and due to the Governance Bravo system implemented in the latest version of the protocol’s token, the long-term RBN stakeholders will have more power and gain more rewards.
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