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Ribbon Finance combines different DeFi derivatives to achieve specific risk goals.
Written by: a poplar tree
In the past 2020, we have witnessed incredible DeFi innovation and experienced the explosive growth of the DeFi world. In particular, the DeFi development level covering decentralized transactions, lending, options, fixed income, algorithmic stablecoins, synthetic assets, etc., has become more and more diversified, almost following the pattern of traditional mainstream finance. .
These continuously innovative and iterative DeFi protocols have also created diversified new profit possibilities for ordinary people-lending assets, providing liquidity to automated market makers, casting synthetic assets, and so on.
The “Lego” attribute of DeFi is naturally suitable for constructing structured products that combine different protocols to achieve specific risk goals.
Structured products are essentially a combination of financial derivatives. It usually combines a series of derivatives to construct a “combined product” that achieves specific risk goals.
Its advantages are obvious, because although there are a wealth of derivatives tools that can play a combination advantage in trading, there are only a few experienced traders after all, and most people do not know how to incorporate derivatives into their overall portfolio strategy to improve Risk return, this is where structured products come in:
Packing multiple derivative products into one product, anyone can buy it without worrying about the complexity of the structure, in a broad sense, it can be understood as all financial products tailored to customers.
But this also brings a series of problems-extremely opaque, brokers may not be able to honor payments, investment channels are greatly restricted due to geographic location, and only high-net-worth individuals or financial institutions can use it.
This is exactly the vision of Ribbon Finance as an encrypted structured product-removing investment thresholds, bringing new variables to the structured product market, so that any investor with a Metamask wallet can easily participate in investing in structured products.
Because of this, Ribbon Finance chose to focus on creating encrypted structured products on DeFi, and by building new DeFi products that can be combined through cross-DeFi agreements, to help DeFi users obtain a higher risk-reward ratio.
Ribbon currently includes four major product categories, including betting on volatility, increasing returns, principal protection, and compound interest. Each category has a series of specific products to provide users with different risk-return goals with differentiated services.
The founder of Ribbon Finance is Julian Koh, a former Coinbase software engineer. LinkedIn personal information shows that Julian Koh worked at Coinbase from May 2019 to October 2020. In 2018, he served as a consultant for the cryptocurrency hedge fund MetaStable Capital.
Take the product of betting on volatility-Strangle option as an example. This is also Ribbon’s first product. It allows users to bet on the volatility of ETH for profit by combining put options and call options with different execution prices.
In order to build this combined product, Ribbon simultaneously obtains liquidity from the two major option agreements on Ethereum, Hegic and Opyn.
First, Ribbon will find the cheapest price for option buyers and sellers from Hegic and Opyn, and then purchase options on behalf of users and package them into smart contracts to build a portfolio of products that bet on ETH volatility.
At present, there are two contract options for Strangle options based on the expiration date-March 12 and March 16, corresponding to different contract costs and return profits.
However, the more frequent and greater the price fluctuation of ETH during the contract period, the more profit. This is also the first multi-protocol structured product betting on volatility on Ethereum.
The three product areas of revenue enhancement, principal protection and compound interest are currently under development and are expected to be launched later. The official has also confirmed that there are two main directions to proceed:
It is important to note that as of now, Ribbon Finance has not issued its own tokens, and tokens of the same name appearing on chains such as BSC need to pay special attention to risks.
In the traditional financial world, structured products are generally based on fixed-income investments, coupled with a combination of financial derivatives. Usually the financial assets that can be linked to derivatives include stocks, bonds, interest rates, foreign exchange, Various indexes, bulks, funds, etc. (commonly such as ABS, structured wealth management, structured deposits, etc.) have developed rapidly in recent years and have become powerful tools for asset management because they closely follow the individual needs of investors.
In the crypto market, there is also a “structured product” model that has been practiced for a long time-digital asset dual currency wealth management products, as a floating return non-guaranteed investment product, characterized by “one investment, two returns” .
The investor purchased a 10-day “BTC-USD dual currency wealth management” product on March 1. Assuming that the BTC quoted at US$49,200 on that day, other relevant parameters are as follows:
At the expiry date of March 11, there will be two possible settlement methods:
The investor bought an 11-day “USD-BTC dual currency wealth management” product on March 1. Assuming that the BTC quoted at US$49,200 on that day, other relevant parameters are as follows:
At the expiry date of March 11, there will also be two possible settlement methods:
In a nutshell, although the BTC-USD settlement price will change on the expiry date, investors will always get a 3% definite return. The only uncertainty is the type of funds returned (BTC or USD).
I believe everyone has discovered that the hedging and risk hedging characteristics of similar options above are more suitable for constructing diversified structured financial products than the “fixed income + derivatives” in traditional finance.
In the crypto world, with the help of smart contracts, liquidity can be obtained from various on-chain derivatives agreements (including option products such as Hegic), and they can be combined freely and efficiently to achieve certain specific risk goals. At the same time, 100% transparency is maintained at all times.
Especially when different track DeFi protocols are combined like Lego-when a variety of DeFi financial instruments (options, fixed income, futures, etc.) are combined, driven by automated algorithms, the value of the entire blockchain network will be more rapid The way is flowing, and the evolution based on various financial innovations will happen like a chemical reaction, thereby providing users with more powerful structured products to increase returns or reduce risks.
This is where the charm and imagination of encrypted structured products lie.
Disclaimer: As a blockchain information platform, the articles published on this site only represent the author’s personal views, and have nothing to do with the position of ChainNews. The information, opinions, etc. in the article are for reference only, and are not intended as or regarded as actual investment advice.