Ribbon Finance is an options-based structured wealth management product protocol. Ribbon uses the assets deposited by users as collateral, mints options contracts with low exercise probability through the decentralized options trading platform on Ethereum, and sells them to specific buyers (such as V1 version market makers, V2 version bidders participating in options contract bidding, etc.) to earn premiums as users' profits. Currently, Ribbon has included two parallel running versions of V1 and V2, providing users with four different types of structured products based on USDC, ETH and WBTC, and the annual return rates range from 30.96%-53.7% (Oct 9, 2021).
After the users deposit their assets, all the user's funds are regarded as a unified position. Ribbon uses 90% of the unified position funds as collateral to cast an ERC-20 standard options contract token (known as O-Token) in Opyn, a decentralized options trading platform on Ethereum. The strike price, expiration date and other relevant parameters of the options contracts are set by Ribbon team members. The options contracts are minted every Friday and expire one week later. The options contract strike price is usually far away from the current price to ensure that the options exercise probability is low (usually less than 10%), thus obtaining stable premiums for users. Ribbon V1 specifies a series of whitelist market makers to reduce the risk of options sales. The Ribbon team will determine the options contract price under the chain with the market maker and sell the contract token on the chain. The remaining 10% of the funds in the unified position are used to meet the withdrawal demand, and Ribbon charges users a 1% withdrawal fee. Users can initiate cash withdrawal at any time until the withdrawal reserve of 10% of the unified position is insufficient to meet the withdrawal demand, and the withdrawal function will be temporarily closed.
Ribbon Finance launched the V2 version in Sept 2021, improving the V1 version for its high degree of centralization, high withdrawal fees, and single strategy.
- Decentralized solution: In the V2 version, options contracts are minted by smart contracts instead of Ribbon team members setting parameters. In addition, the minted options contracts will be publicly auctioned through Gnosis Auction. Compared with V1, where the buyer only includes white-list market makers, the options contracts in the V2 version support anyone to buy.
- Cancellation of withdrawal fee: Ribbon V2 cancels the withdrawal fee, but the user cannot withdraw cash at any time, and can only withdraw cash after the options expired. Instead of a withdrawal fee, Ribbon will charge 20% of its weekly earnings as an administrative fee.
- More revenue strategies: In the V1 version, users can only choose one product at a time based on a single strategy, and all policies are based on Opyn implementation. In the future, Ribbon plans to integrate the original products to make composite strategy products for users to choose from and expand the decentralized trading platforms supported by Ribbon's products, such as Hegic, Lemma Finance, 88mph, etc.