Decentralized Finance, or DeFi, is transforming the global financial landscape by offering a transparent peer-to-peer blockchain-based system that removes third parties and centralized institutions from financial transactions.
If we travel back to the 90’s, the traditional financial market mainly depended on structured products like options, bonds, and derivatives, first introduced to users, to enable easy and low-risk access to equities and earn handsome returns.
The DeFi sector is evolving with several new products. Ribbon Finance is a DeFi platform that uses derivatives, lending, and various structured products to adjust risks. It also bridges the gap between traditional finance and blockchain technology.
In this article, we will discuss the basics of Ribbon Finance, history, how it works and its key components and functionalities. In addition, know about its native RBN token’s utility and the future of Ribbon Finance.
What is Ribbon Finance?
Ribbon Finance, now known as Aevo, is a new protocol that offers various decentralised finance structured products for crypto investors. Its services include options trading, lending, and other financial instruments that are designed to give maximum returns with minimum risks.
Aevo is a rebrand of Ribbon Finance, which is different from other DeFi platforms that focuses only on lending and borrowing. Ribbon Finance has new features which include Theta Vaults and some other innovative mechanisms for crypto users to earn yields in automated derivatives trading. The main aim of Ribbon Finance is to provide a risk-free yield solution to the users.
Ribbon Finance operates on Ethereum blockchain and utilizes smart contracts for financial strategies. It uses complex financial engineering to create well-thought-out products that generate sustainable yield.
How Ribbon Finance Works?
Ribbon Finance works to simplify financial strategies by clubbing them into vaults that work automatically with predefined strategies. Here’s how Ribbon Finance works:
- Crypto users deposit their assets into a specific vault which includes T-SAVAX-C, T-ETH-C, T-RETH-C, T-AAVE-C and others.
- Then this vault executes options strategies such as selling calls or puts, lending, or structured trading.
- After which, the smart contract automatically reinvests the profit earned from the option trading.
- Users benefit from compounded earnings without participating in active management.
Key Components of Ribbon Finance
Vaults, also known as DOVs (DeFi Options Vaults), were invented by Ribbon Finance in 2021.
Theta Vaults
It is the most important feature of Ribbon Finance. These Theta Vaults (DeFi Options Vaults) run an automated European options selling strategy, which earns yield on a weekly basis through writing out-of-the-money options and collecting the premiums. The profits are reinvested by smart contracts to earn compound return. There are mainly two types of Theta Vaults which are as follows:
- Covered Call Selling: Under this type of vault, users deposit their assets and the vault sells out-of-the-money (OTM) call options to earn profit.
- Put Selling: Under this type vault, users deposit stablecoins such as USDC, and then the vault sells OTM put options to collect profits and maintain liquidity.
Ribbon Earn
Ribbon Earn vaults are components that are developed for stable yield generation through structured derivatives strategies and use fully-funded options with strategies like:
- Earn USDC: It implements and uses a strategy that allows users to get returns regardless of market fluctuations.
- Earn stETH: stETH, Staked Ether, vault uses a unique dolphin strategy that makes profit on ETH price’s upward movement while limiting downside risks.
Ribbon Treasury
Ribbon Treasury are private Ribbon Theta vaults, mainly useful for institutions and DAOs. Ribbon Treasury helps them access customized yield strategies to manage treasury funds effectively. Ribbon Treasury is used by many DAOs to diversify their holdings and generate passive income.
Ribbon Lend
Ribbon Lend is a DeFi marketplace for institutional unsecured loans. It offers yield without the need of collateral lockups. It is different from the traditional DeFi lending platform which relies on over-collateralization. Ribbon Finance incorporates off-chain credit enforcement and underwriting to reduce risks.
History of Ribbon Finance
Ribbon Finance was co-founded by Julian Koh and Ken Chan in 2021. The main objective behind the launch of Ribbon Finance is to provide crypto-structured products. This platform became popular because of its automated options strategies which provide a new way to earn returns.
Key milestones include:
- 2021: Launch of Theta Vaults (DOVs), specializing in automated options selling in the DeFi ecosystem.
- 2022: Ribbon Finance expanded itself into institutional DeFi protocol with Ribbon Treasury and Ribbon Lend.
- 2023: Ribbon Finance DAO voted to approve the merger of Ribbon Finance into Aevo, a derivatives exchange.
Features and Functionalities
Ribbon Finance has various features which differentiate it from other DeFi Platforms. These are:
Automated Yield Strategies
This feature allows users to earn passive income through crypto into Ribbon’s vaults and thereby, it automatically gets traded.
Derivatives-Based Yield Generation
This feature differentiates Ribbon Finance from other DeFi projects because it allows its users to earn profit through options trading.
Institutional-Grade Treasury Management
With the help of Ribbon Treasury, institutions and DAOs can deploy their assets into custom yield strategies which reduce risk while increasing profit.
Decentralized Lending
Ribbon Finance offers an unsecured lending option which permits to earn yield without collateral requirements.
Ribbon Finance’s Native RBN Token
RBN Token is the native governance token of Ribbon Finance, which is currently trading at $0.2145 with a market cap of $20.93 million. The token plays a crucial role in the decision-making of Ribbon Finance and serves various utility functions.
Key Utilities of RBN Token:
- Governance: RBN token holders can vote on protocol upgrades and several decision-making processes.
- Staking and Rewards: RBN token holders can stake their tokens to earn rewards.
- Incentives: Ribbon Finance uses RBN token to incentivize liquidity providers and vault users.
Future of Ribbon Finance
Ribbon Finance is becoming a leader in structured DeFi products with various upcoming innovations that are aimed at enhancing its offerings. Expanding with a decentralised options trading exchange Aevo, Ribbon Finance protocol plans to improve liquidity and efficiency in DeFi derivatives trading.
Furthermore, Ribbon Finance is integrating multi-chain support and Layer-2 solutions like Arbitrum and Optimism to lessen gas fees. It focuses on building advanced risk management tools to decrease risk elements and provide greater sustainable Ribbon vaults. As the DeFi ecosystem is evolving, Ribbon Finance is increasing its emphasis on lending options with Ribbon Lend and Ribbon Treasury in order to be a key player in the emerging DeFi ecosystem.
Conclusion
Ribbon Finance is reshaping the DeFi landscape by offering numerous structured products for crypto users that combine derivatives and lending. Moreover, it helps users to earn passive income through an automated options strategy.
With further developments like the merger with Aevo, expansion into institutional DeFi, and Layer 2 inclusion, Ribbon Finance is all set for long-term growth. The DeFi protocol is useful for retail users as well as for institutions who wish to earn maximum returns with minimum risks.
