🧑🏫 Tuesday Tutorials: Playing Both Sides of Anchor & Options Selling on Ribbon Finance
Hello Defiers! Here’s what we’re covering today,
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Kraken, consistently rated the best and most secure cryptocurrency exchange, which can get you from fiat to DeFi
Aave, an open-source and non-custodial liquidity protocol where users can earn interest on deposits and borrow assets.
The DeFi Pulse Index, a capitalization-weighted index that tracks the performance of selected DeFi assets across the market.
Anchor savings has no minimum deposits, account freezes, or signup requirements - it can be used by anyone in the world with access to the internet. Anchor's money market is a Compound-inspired lending protocol for lending out deposited Terra stablecoins to borrowers. Anchor sources its deposit yields from bAsset-collateralized loans, where rewards of their bAsset collaterals are utilized to subsidize the deposit rate.
This is a weekly tutorial on the most compelling opportunities to consider yield farming, written by our friend DeFi Dad, an advisor to the Defiant and the Chief DeFi Officer of Zapper. The goal is to expose more Defiant readers to new DeFi applications and their associated liquidity mining programs.
Background on Protocol: Ribbon Finance is a new structured products protocol in DeFi for earning yield. Ribbon’s first product focuses on earning yield through automated options strategies. The protocol also allows developers to create arbitrary structured products by combining various DeFi derivatives.
In traditional finance, structured products are pre-packaged investments that include assets linked to interest and often one or more derivatives. Structured products are normally designed to achieve highly customized risk-return objectives. The closest thing to a structured product in DeFi has been Yearn Finance vaults. I would personally classify Yearn vaults as a parallel to structured products and so it’s exciting to see a new Yearn-like approach to automating options strategies through Ribbon. Pioneering options protocols like Hegic and Opyn will benefit from Ribbon which will likely provide easier exposure to more powerful options selling strategies.
The first 3 products by Ribbon Finance are:
An automated ETH put selling strategy (T-USDC-P-ETH)
An automated WBTC covered call strategy (T-WBTC-C)
An automated ETH covered call strategy (T-ETH-C)
As of writing this morning, Ribbon coincidentally just launched a governance token RBN, distributing 3% of the RBN supply to 1620 early adopters the last month since launching on April 12th. Anyone who meets the following criteria can go here on Ribbon to claim their RBN tokens, which are valueless as of today because they are non-transferrable, meaning you cannot sell or transfer them.
Past & existing users of Ribbon products
Active Ribbon Discord members
Users of various options protocols on Ethereum including Hegic, Opyn, Charm, and Primitive
I would anticipate that one of the first governance votes with RBN will aim to allocate more RBN to subsidize more users to try Ribbon Finance products.
Opportunity: In light of the recent market volatility in the markets, Ribbon Finance is one way to sell options and hence short volatility by gaining exposure to automated options selling strategies with USDC, WBTC, or ETH. Since volatility is cyclical like price action, this is potentially a promising strategy (but not guaranteed) for someone who’s short volatility and already holding USDC, WBTC, or ETH.
TLDR Crypto markets went haywire last week and while extreme volatility is expected from most tokens, stablecoins are the one category designed to peacefully weather the storm. The stablecoin issued by the Terra network, UST, got mixed marks as it dipped well below its peg.
VOLATILITY UST dropped to as low as $0.89 on May 19, or 12% from $1, and hovered between $0.99 and $096 from May 20 to May 24, before climbing back to $1 today. The drop was the biggest in CoinGecko data going back to October 2020. Comparatively, the USDC stablecoin fluctuated between $0.99 and $1 in that time, with only one drop lower to $0.98 on Jan 4.
SO WHAT Terra’s UST volatility raises questions about the viability of so-called algorithmic stable assets –– or pegged tokens that are designed to keep their stability via protocol incentives and mechanisms, rather than by having collateral backing them. While the most liquid stablecoins, USDT and USDC, are backed by US dollars held in banks, algorithmic coins have emerged in the past year with the promise of offering stability without having to rely on third parties or fiat currencies.
LUNA PLUNGE UST’s drop was in part driven by a sell-off in Terra’s native cryptocurrency LUNA, which plunged by as much as 80% to $4.18, the lowest since Feb 27. That’s because UST relies on LUNA for its stability: The Terra protocol acts as a market maker, making sure that when the supply of UST goes up, the LUNA supply goes down, and vice versa.
[UPDATED 5/25 AT 4:40PM EST TO CORRECT THE LUNA DECLINE]
TLDR In a week where the entire market was gapping down, a curious case was how Index Coop’s indexed token ETH 2x – FLI did not reflect this price action proportionally in relation to its methodology, i.e. if ETH is up X, this index token should be up 2x, while if it’s down X, the FLI product should be down approximately 2x.
WHY THIS HAPPENED The amount of ETH 2x FLI tokens was capped 400k and required a governance vote to increase supply to 600k. The lack of new supply meant that the leveraged token was seen trading anywhere from a 30-45% premium to NAV because a lack of new issuance meant that the new indexation pricing could not be discovered. The supply essentially prevented bots from minting new tokens.
TLDR The defacing of the website for DeFi100-Rebase, a Binance Smart Chain-based index token, has sparked a flurry of speculation about a possible heist and a brazen rug pull.
CONFLICTING MESSAGES On May 22, a message materialized on the DEFI 100 website homepage reading: “WE SCAMMED YOU GUYS AND YOU CANT [sic] DO SHIT ABOUT IT HAHA.” On May 23, the DeFi100 Twitter account posted that their website had been hacked.
RUMORS SWIRL It didn’t take long for rumors to swirl on crypto Twitter about what went down. Mr. Whale, a self-styled contrarian crypto analyst, reported that DeFi100 “runs away with $32 million” in investor funds, although he didn’t provide details or a source for that claim.
Generating passive income using DeFi is one of the most attractive things for a newcomer. The interest rates of these protocols are often promoted to be in the range of hundred to thousands % APY, putting the bank interest rates to shame –– but that’s somewhat misleading as returns are calculated on an annual basis, when the reality is, they often evaporate in a matter of weeks. That’s where swaps come in, a huge market in TradFi but an entirely new segment in DeFi.
“Uniswap, the largest decentralized exchange, had volume of $36.6 billion in April, compared with $110 billion at Coinbase, Messari data show. Hayden Adams, a 27-year-old Brooklyn, N.Y., native, built the first version of Uniswap after being laid off from his job as an engineer at Siemens AG.”
“To bootstrap Ribbon Governance, we are airdropping 3% of the RBN supply to the community today. We are airdropping these tokens to the following people:
Past & existing users of Ribbon products
Active Ribbon Discord members
“What if I told you about a business with strong network effects and 200x YoY revenue growth that was preparing to offer a 25% dividend and implement a permanent share buyback program? Is that something you might be interested in? That’s pretty much Ethereum. It’s one of the most fascinating and compelling assets in the world, but its story is obfuscated by complexity and the specter of crypto.
“We recently closed 1confirmation fund III, a new $125M venture fund. The fund allows us to continue investing in the companies, cryptocurrencies and NFTs empowering people around the world to have more control of their lives.”
“The goal of this report is to demystify DeFi. It describes the basic attributes of DeFi services, the structure of the DeFi ecosystem, and emerging developments. A forthcoming Decentralized Finance Policy-Maker Toolkit will offer guidance on risks and policy approaches for governments navigating this new space.”
✊ Head to THEDEFIANT.IO for more DeFi news 📰
🧑💻 ✍️ Stories in this newsletter were written by Dan Kahan, Owen Fernau, Eugenio Croitoru, and DeFiDad, and edited by Camila Russo and Edward Robinson. Videos were produced by Robin Schmidt and Alp Gasimov. Podcast was led by Camila, edited by Alp.
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access, while free signups get only part of the content. Click here to pay with DAI (for $100/yr) or sub with fiat by clicking on the button above ($15/mo, $150/yr).