MEXC Global Research: Structured On-chain Derivatives Protocol: Ribbon Finance (RBN) Market Analysis

I. Project Introduction

Ribbon Finance (RBN) is a structured on-chain derivatives protocol. The term “structured” refers to the direct provision of packaged financial products for users to invest in.

Behind these packaged financial products are the specific risk-return realized by the Ribbon team by using a derivative portfolio, such as investing in volatile options.

At present, Ribbon provides ETH, wBTC, and USDC options, and its 10000 ETH, 500 wBTC, and 20 million USDC funding pools are full. Among them, the USDC pool’s APY was 57.71%.

According to DeFiPulse, Ribbon currently has a TVL of $62.8 million USD, which is rank 6th among derivatives protocols which is higher than Hegic, Opyn, and others. Ribbon is also rank 40th among all the DeFi protocols in Ethereum.

On June 9, Ribbon initiated a chain proposal to start liquidity mining to increase the protocol’s TVL and complete the initial RBN distribution to facilitate community governance.

On July 17, liquidity mining officially started and continued until 20:00 on July 15, with 10 million RBNs as rewards, accounting for 1% of the token’s total supply.

Open the Ribbon (https://app.ribbon.finance/). In the “Products” at the top, you can see the structured derivatives provided by Ribbon. At present, only “Yield” is available.

Users participating in “Yield” can receive RBN awards by staking LP Token in the above “Staking”.

On June 9, Ribbon initiated an on-chain proposal to start liquidity mining to increase the protocol’s TVL and complete the initial RBN distribution.

Liquidity mining was officially launched on July 17 and will be rewarded 10 million RBNs, which account for 1% of the total token supply, until 20:00 on July 15.

Theta Vault

You will see “Theta Vault” in the Yield option provided by Ribbon.

Theta Vault is an automated covered call strategy that buys or sells call and put options weekly to generate revenue.

Options trading, simply speaking, is trading a right. Call option refers to purchasing the subject matter at a specific price, such as BTC’s $40,000 USD call option that expires on June 28, and buying, in this case, means buying BTC at the price of $40,000 USD on June 28.

Conversely, a put option refers to selling the subject matter at a specific price, such as a put option of $40,000 USD that expires on June 28, and buying means that the BTC is sold at $40,000 USD on June 28.

Regarding the current price of about $37,000 USD per Bitcoin, the BTC call option’s price that expires on June 28 should be 0, and the corresponding put option price is ($40,000 USD — Current Price — Option Fee).

In options trading, “Call” stands for bullish, “Put” stands for bearish, and the terms remain the same in Ribbon.

Buying call and put options give a kind of right position: the right to buy or sell the bids at a certain price. Correspondingly, selling call and put options give the obligation positions and is the opposite of rights. Since the earnings of the obligation positions are through the option fees and the theoretical earnings capacity of the rights positions is more than that of the obligation positions, Theta Vault performs a sell option operation similar to the market-making strategy.

Currently, Theta Vault options are mainly traded within Opyn. Opyn allows Theta Vault to create option protocols with more flexibility in terms of execution, date, and other parameters. Theta Vault expects a return of between 20 and 30%, which may be slightly lower due to transaction costs.

Financing Information:

Ribbon Finance has completed a seed funding round with Dragonfly Capital as the lead investor, followed by Nascent, Coinbase Ventures, Scalar Capital, and others as the participants.

II. Tokenomics

The total RBN in circulation is 1 billion, of which:

3% from airdrops were used for community governance, including 0.4% for Hegic, Opyn, Charm, and Primitive users, 0.05% for Option Strangles (Ribbon’s first product) users, 2.05% for Theta Vault users, and 0.5% for Discord community users who sent more than five messages.

More details to be disclosed soon.

III. Project Value Analysis

Analysis of the Practical Value of The Tokens and Buy-And-Sell Potential

RBN applications include: governance and protocol development, determination of fee charge model; Adjustment of the incentive mechanism of the protocol, and others. There will be more official improvements regarding the applications of RBN.

RBN’s buy potential mainly comes from:

1. Investors with good expectations for Ribbon

2. Governance requirements

3. Buy-in from secondary market investors

RBN’s selling pressure mainly comes from:

1. Cash-out by airdrop and community members

2. Cash-out by team and investors

3. Cash-out by secondary market investors

Project Value and Prospects

1. Professionalism is Ribbon’s moat. Structured derivatives are currently a relatively cold field in the industry, with high professional requirements and high threshold.

2. Coinbase’s investment boost from which brought forth the expectations of being listed on Coinbase.

3. Ribbon is more popular than what the TVL indicates. Whenever there is a new option pool quota in Theta Vault, it will be snatched up quickly, and the USDC pool’s 50+% APY is high. Currently, Ribbon only launched Theta Vault module products. According to the official website, Ribbon will launch 4 module products in the future.

4. Options trading is an important category in the traditional market. Under certain conditions, option volatility is greater than futures and swaps. Once the spot price crosses the option’s delivery price threshold value, options products with an original value of 0 can directly increase in the spot price, reaching tens or hundreds of times of return or return to zero. Future options have great potential in the cryptocurrency circle.

Since last year, the mainstream trading platform of the cryptocurrency circle has started to launch option products, and Binance has also invested in the options trading platform. However, user education is still a problem at present, and users still need time to get familiar with the options trading operation.

5. Ribbon is a structured derivative structured based on option protocols such as Hegic and Opyn. Hence, its scale and development are also, to a certain extent, subject to the development of on-chain options products.