Ribbon Finance

What is Ribbon Finance (RBN)?

Ribbon Finance is an Ethereum-based DeFi (decentralized finance) platform that allows users to earn sustainable yield through decentralized options vaults and lending.

The Ribbon protocol uses financial derivatives, primarily options, combined with a proprietary on-chain options exchange to allow users to deposit their assets and let the platform do the rest.

Ribbon aims to be a one-stop shop solution for users who want to improve a portfolio’s risk-return profile.

How Does Ribbon Finance Work?

One of Ribbon’s key pieces of technology is the Theta Vault. Invented by Ribbon in 2021, the Theta Vault is a yield-oriented strategy that proposes that depositors trade volatility on their underlying by selling European options with weekly expiration.

The sale value of these options, or “premium,” is set through auctions and determines the vault return. The vault then reinvests the premiums earned back into the strategy, effectively compounding them for depositors over time.

Ribbon’s Theta Vaults currently feature covered call selling, where the vault issues out-of-the-money (OTM) call options on all deposits, and put selling, where it issues OTM put options on all deposits.

The vault fee structure consists of a 2% annualized management fee and a 10% performance fee. If the weekly strategy is unprofitable, there are no fees charged.

Then there’s Ribbon Earn, which employs fully funded strategies to capitalize on intra-week ETH movements while also protecting capital. These vaults earn a base APY and use the remaining funding to purchase weekly options.

Ribbon Earn also has two available vaults. The first is called “Earn USDC” and employs a twin-win strategy through which depositors can capitalize on intra-week ETH movements in either direction. The second, “Earn stETH,” employs a dolphin strategy through which depositors can capitalize on upside ETH movements.

Ribbon has two more major offerings, called Ribbon Lend and Ribbon Treasury. Ribbon Treasury consists of private Ribbon Theta Vaults specifically built for DAOs to run covered calls on their native tokens. These are segregated from the main Ribbon vaults and run a custom strategy for each DAO.

Ribbon Lend, meanwhile, is often described as an “uncollateralized Aave.” It allows depositors to lend unsecured funds to KYC/AML complete institutional market makers of their choice with high liquidity.

What makes Ribbon Finance Unique?

Ethereum is often considered an expensive blockchain to use, especially for smaller transactions, thanks to gas fees. However, Ribbon’s Theta Vaults have a solution for this as well.

Instead of doing a handful of transactions per week per user, the Vault will do that same number of weekly transactions for thousands of users at once, effectively socializing gas costs.

They also allow depositors to choose when and when not to participate in the weekly strategy through a pause and resume function. Option strikes, meanwhile, are selected by an algorithm at the last minute before the corresponding option auction. The strike calculation algorithm is based on the Black&Scholes model with appropriate adjustments, while historical volatility is derived from Uniswap, and implied volatility is determined by a proprietary closed source algorithm.

Thanks to the weekly option strategies, expectations can be adjusted more frequently, and returns can be compounded quicker for depositors.

Ribbon is also unique thanks to Aevo, its high-performance, order-book-based DEX (decentralized exchange), which comes with all the features a pro options trader needs. It is in closed beta currently and built on a custom EVM (Ethereum Virtual Machine) rollup designed for scale.

Aevo has over a hundred instruments for users to trade, with a range of strikes and expiries. It also has deep liquidity thanks to partnerships with some of the world’s top options trading firms and features instant onboarding by depositing USDC from any EVM-compatible chain.

How is the Ribbon Finance Network Secured?

As an Ethereum-based protocol, Ribbon is beholden to the Ethereum blockchain for much of its security, beyond the robustness of its smart contracts. The RBN token is also deployed on the Ethereum blockchain.

Ribbon Finance itself has been rigorously audited and has an ongoing bug bounty on ImmuneFi with a value of up to $250,000.

What is the Use of RBN?

The RBN token is primarily used for governance voting. It is vote-escrowed to mint veRBN tokens, which then boost RBN rewards earned on staked vault tokens, grant a share of protocol revenue, and are used in governance and gauge voting.

How Much RBN is In Circulation?

RBN has a maximum supply of 1 billion tokens, with over 525 million tokens already in circulation.

49% of the RBN supply was allocated to the community treasury, controlled by RBN governance. This allocation is used, with vote approval, to incentivize liquidity mining programs, provide grants to developers, and make other protocol improvements. 20% was unlocked immediately at genesis, with the remainder vested for 3 years beginning on May 24, 2021.

23% of the token supply is reserved for current and future Ribbon team members. The entire allocation is subjected to a 3-year vesting period with a 1-year cliff. Investors with a 15% share follow the same vesting schedule.

The company behind the development of the Ribbon protocol took 8% of the RBN supply, with the tokens reserved for advisors, future fundraisers, and future employees.

How Do You Buy RBN?

RBN is a DeFi project, so there’s no better way to buy the token than on an Ethereum-based DEX like Uniswap. It’s also possible to buy RBN on a handful of centralized exchanges, but there’s very little point in keeping them there since all of the RBN token’s utility is on the Ribbon platform.

How Do You Store RBN?

You can use any Ethereum-compatible wallet to store RBN tokens. Browser-extension wallets like Metamask or the GameStop Wallet tend to be very popular for tokens like RBN because they make connecting to DeFi dApps and platforms like Ribbon itself very easy.

Is RBN a Good Investment?

Options are an often misunderstood and extremely risky type of financial instrument, but Ribbon may, in fact, be bringing some measure of safety to them by utilizing blockchain technology.

Thanks to the immutability, transparency, and almost instant settlement of blockchains like Ethereum, the risk of foul play from counterparties is at the very least diminished. In TradFi, thanks to slow settlement, payment for order flow, fails-to-deliver, internalization of trades, and dark pools, retail options traders are often guaranteed to lose.

In fact, options counterparties often leave nothing to chance, with popular options gambling subreddit Wallstreetbets’ head moderator coming under the microscope for allegedly having attended Citadel Securities’ annual retreat.

Ribbon also takes away the complexity of options and automates most of the strategy, so depositors can simply lock in their funds and reap the rewards. While still subject to risks, the Ribbon model is a compelling one, and the RBN token gives holders a unique opportunity to share in the platform’s success.