Defi Llama defines the Options category as ‘Protocols that give you the right to buy an asset at a fixed price’.
Generally, options buyers have the right but not the obligation to buy or sell the options underlying asset at the strike price by the expiry date.
- Call option – option to buy
- Put option – option to sell
In general options can be used to hedge risk, leverage capital and/or generate yield. Cryptocurrencies protocols use different strategies to minimize risk, auto-compound investment s and provide leverage .
Opyn, an options protocol, even suggests that Options can even help reduce impermanent loss in Crypto :Stablecoin pools using trading techniques known as straddles (put and call with same strike) and strangles (put and call with different strike).
There are many differences & similarities between the protocols & how they tackle options. Let’s take a quick overview:
Vaults & Pools
– these can vary but essentially one vault for one strategy and the entire liquidity in the vault gets used for that option strategy (call or put).
- divide their strategies into Bull, Crab, Bear or focused on specific yield types (stable yield or crypto yield).
- reinvest their weekly yield back into the vault or some form or auto-compounding.
- have strike prices algorithmically determined to maximize returns and minimize the chance of options being exercised.
- will incentivize vault deposits with APY in their own token
Ribbon Finance not only reinvests its yield but takes it a step further and converts the profit into yvUSDC effectively compounding the returns.
Opyn uses what call Long squeeth (ETH²) which is a leveraged position with unlimited upside, protected downside, and no liquidations. This is a financial derivative developed by their team, and they consider it to be a Power Perpetual. Friktion also uses a different power perpetual but to my understanding this is still in development.
– protocols provide individual options contracts similar to TradFi.
• give users advance stats like implied volatility, the greeks, the risks involved etc. this depends on the protocol and how noob friendly it is.
• can create option contracts as NFTs.
• have gas free trading opportunities
Some protocols like Chest Finance & Buffer Finance Gamefy options via NFTs & Game-like features like influencing yield based on NFT rarity.
- Ribbon Finance – Etherum, Avalanche, Solana
Theta Vaults: yield focused options vaults
Earns yield on its deposits by running a weekly automated options selling strategy based on an “algorithmically” derived strike prices.
Two options strategies to generate yields from different cryptos:
- Covered call - Vault writes out of the money covered calls.
- Put selling - Vault writes out of the money puts.
The vault reinvests the yield earned back into the strategy into yvUSDC, effectively compounding the yields for depositors over time.
RibbonDAO – Main Governance
Uses RBN as their governance token.
veRBN is used for escrow voting. The only way to obtain veRBN is to lock RBN. A user’s veRBN balance decays linearly as the remaining time until the RBN unlock decreases. You can unlock it at the time of expiry or unlock it at the cost of paying it. NOTE: Works similar to the Delta token in the core ecosystem but I wonder how similar is its codebase.
- Opyn – Avalanche, Ethereum
Gamma Protocol offers European, cash-settled options that auto-exercise upon expiry.
Allows for partially collateralized options, spreads, flash minting oTokens (ERC-20), operators & more.
For Future Development: with partial collateralization you can create a smart contract into which a user deposits a part to collateralize the option and the other part can earn interest in Yearn.
Users can go long or short on an index, and funding is charged either from the long or short, based on the market price relative to the index.
There aren’t any liquidations for long positions and allows the long position to be a ERC-20, oSQTH.
To short squeeth you need to put down collateral mint oSQTH sell them in a uniswap pool. The contract they developed takes care of this.
They also have vaults for Crab Strategy, Bull Strategy, Bear Strategy. - Found this interesting. Only Crab strategy working right now.
- Friktion – Solana
Has 4 main vaults called volts. This is a relatively new comer to the space.
Volt #1 Generate income. Automated Call options selling strategy. Algorithmic strike and expiry selection. Auto-compounds. Option strikes and expiries are algorithmically determined to maximize your returns and minimize the chance of an options being exercised.
Volt #2 Sustainable stables. Automated put options selling strategy. Algorithmic strike and expiry selections. Auto-compounds. Generates yield on stable deposits. Automated cash secured put strategy. Option strikes and expiries are algorithmically determined to maximize your returns and minimize the chance of options being exercised.
Volt #3 Crab Strategy. Automated delta-neutral volatility harvesting strategy. Generate returns in range-bound markets. a delta-neutral automated volatility harvesting strategy. This vault earns funding payments by putting on a short Power perpetual position on entropy.trade while delta hedging with a long perp position.
Volt #4 Basis Yield. Harvest basis premium via a stable delta-neutral strategy. Profit from periods of negative funding rates. a delta-neutral basis trading strategy. The USDC deposited by users is deployed into a long basis position on Mango. The position longs SOL-PERP and shorts SOL to delta-hedge. Epochs are resolved every Wednesday night (UTC). Large balance changes require a longer rebalance period. Learn more in our strategy documentation.
- Dopex -Arbitrum, BSC, Avalanche, Ethereum
Has Single Staking Options Vaults in which deposits are used for one strategy per vault.
Rate Vaults that supply liquidity to an options vault in order to collect premiums from purchases and earn rewards.
OTC does Options directly like in traditional finance
DPX is the limited supply governance token. It accrues fees and revenue from pools, vaults and wrappers.
rDPX is the rebate token for options writers. It can be used to mint synthetic assets such as indices, stocks etc.
veDPX is escrowed (locked) DPX which can be used to earn yield, protocol fees and vote in the protocol. DPX can be locked for upto 4 years, locking 1 DPX for 4 years will get you 1 veDPX. veDPX earns a yield from incentivized DPX rewards and protocol fees altogether
- Thetanuts Finance – Ethereum, Avalance, BSC, Fantom, Polygon, Boba, Aurora
Stronghold earns yields by running an automated index of options strategies. Earnings are auto-compounded. Stronghold earns yields by running an automated index of options strategies. Earnings are auto-compounded. Thetanuts does not collect any performance or management fees but Thetanuts takes swap fees on liquidity provided on Thetanuts Stronghold between the Stronghold Index tokens and the underlying pair.
Thetanuts Finance is the premier DeFi structured products protocol for diversified, organic yield generation. The platform is designed to provide treasury management for DAOs and help retail traders earn yield on their tokens.
Thetanuts’ vaults simplify the process of options trading, making previously complex instruments easy for any investor to access, empowering users to monetize volatility in a risk-adjusted manner.
- FODL - Ethereum
Allows “leverage for their trades without paying a funding rate”.
Margin your collateralized asset to yourself through Aave or Compound; pay no funding rates, only the platforms interest rate.
Deposits work like NFT Uniswap v3 positions.
Trading earns FODL governance token.
- Hegic – Ethereum, Aribtrum One
Peer-to-peer Options for ETH or wBTC.
TVL in Option Protocols
Defined as Total Valule Locked in protocol in all available products.
I found the TVL to be an interesting statistic to take a look at because this is one of the things that CORE excels in due to its permanently locked liquidity & networking effects.
Important to note that DefiLlama & other tools just like many other tools might not be entirely accurate as developers update their protocol or some other error might occur. Furthermore, take these numbers as an estimate. Also they do not take the weight of the tears from all the investors who lost money during these tragic times.
- DeFi lost around ~70% of its TVL from its peak. If you lost close to this number or a lower number you outperformed the market. As of today an estimate of $2 6 0M TVL in the top ten protocols of the Options Category in DefiLlama and in all 30 or so protocols there is close to ~$ 300M. In other words out of $87B there is $300M in Options products.
MC refers to the total value and relative size of a protocol by multiplying the total number of coins in circulation by their current price.
MCs taken from CoinGecko, they might be estimates.
- DeFi Lost an approximate of 30% of market cap from peak to today. If your protocol lost equal or less than 30% in Market Cap it outperformed the market.
- Had a similar peak of $190 in Oct 2021.
- Could not find info on Opyn
There is no market ATH indicator so I’m using ETH & BTC ATH as comparison.
Edit (July 2022): Fixed some incorrect numbers on Delta
TVL taken from:
3.1M Stable yield
6.4M Sushiswap Pool
1 Protocols that are still in the Top 5 offer something more than normal options vaults and token staking. Either compounding rewards, leverage, vaults with strategies. I think that NFT based options also have potential especially combined with the latter.
2 Taking a look at the numbers of the CVault ecosystem, CORE outperformed the entire market. Also comparing it to other protocols that are not mentioned here.
Delta Financial did not outperform the market, in fact its performance was subpar. However, if you compare it to other options platform Delta’s performance was not bad.
3 Yearn Finance. I like the idea of changing USD into yvUSD from Ribbon Finance. Because it auto-compounds the profits generated from the strategy. I wonder if CORE can do something wild with its floor like exchange its DAI for an interest bearing asset like yvDAI or some other Curve liquidity token like Curve 3-Crypto, or 3Crv (which is DAI, USDC, and USDT and USDN?). The underlying floor would be earning rewards in Yearn Vault strateges while earning Core rewards for coreDAO on top of it.
I think it might be possible to compound CORE’s APY + Yearn’s APY using this strategy. The highest Yearn Vault is around $99M which means if CORE changes its entire floor to yvDAI we could have a large portion of the pool. Exit loans could be in yvDAI an asset that you would be generating interest in. The floor price will increase with the rewards from the LP and the locked Core with transactions.
Investing in a protocol like Yearn Finance might also increase our exposure to Yearn investors, which already understand defi. Also we know that Yearn vaults are battle tested and mostly hack free however we should still be careful when deciding the vault.
I can see some limitations of this, including putting too much risk on protocols like Yearn, and the underlying protocol that the yearn vault uses. However I think CORE can do its own version of this eventually and this might be the original plan. Also explaining the Core ecosystem to a noob would be a nightmare.
I think this is a viable short term solution (less than a year) for a period where development is slow or will take +3months.
Also X7 has pointed out that he plans on doing Frax vault maybe there is something in the works or this could all fit together nicely even as a short term solution to increase APY.
There are also some limitations to having DAI because of its exposure to USDC, take a look at this discussion in makerdao forum
Edit: if this gets interest from the coredev team and community ill make a formal proposal.