Ethereum-based DeFi project Ribbon Finance, a new DeFi project focused on creating structured products in DeFi, has gone live on mainnet on Monday, February 15.
Ribbon Finance announced the news in a blog post on Monday, February 15. Ribbon Finance is an Ethereum-based DeFi platform that aims to offer structured products and lets users long ETH volatility.
The DeFi systems like decentralized exchanges, lending protocols, and derivatives have created new ways for regular people to make money by lending out assets, providing liquidity to an automated market maker, or minting synthetic assets.
According to Ribbon Finance, these DeFi systems have created a community of people that earn “enhanced yields by combining these protocols in interesting ways, a.k.a “yield hacking”.” Simple yield hacking strategies still produce high returns with most of them revolving around passively providing liquidity to farm token incentives, then selling those tokens back for the original asset.
According to the platform, yield hacking will run out at some time and yield hackers will have to use more powerful tools like derivatives to drive returns or reduce risk. Several derivates protocols like perpetual swaps, zero-coupon bonds, options, and others exist in the market but, according to Ribbon:
“While sophisticated traders are able to leverage these tools to their advantage, most people do not know how to incorporate derivatives into their overall portfolio strategy to improve risk-return.”
This is where structured products that Ribbon Finance will offer come in. These structured products will package multiple derivatives products into a single product that anyone can buy according to his risk-return goals.
In traditional finance, structured products are only available to high net worth individuals or financial institutions. Ribbon Finance wants to change that by making these structured products available to everyone by using Metamask wallet.
Ribbon will offer its user four categories of structured products: Volatility, Yield Enhancement, Principle Protection, and Accumulation.
With the mainnet launch, Ribbon is starting with Volatility, which is an on-chain ETH Strangle option. Volatility product lets users bet on ETH volatility, by combining a put and call option. To construct this Strangle Option, Ribbon sources liquidity from two of the leading options protocols, Opyn and Hegic. Describing the working of Volatility product, the announcement reads:
“Ribbon finds the cheapest prices on both venues for the put and call option, then purchases the options on the users’ behalf and packages them within a smart contract. This is the first multi-protocol option construction on Ethereum.”
Following the launch, the Ribbon team has started working on its second Yield Enhancement product, a perpetual structured product to earn a yield on ETH through selling options. The product is still in the research phase and will offer returns of over 50% APY.
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