A Comprehensive Guide to Ribbon Finance: Unraveling the World of Structured Products for Crypto Assets
Introduction:
In the rapidly evolving world of decentralized finance (DeFi), Ribbon Finance has emerged as a unique platform that offers structured products for crypto assets. This platform provides a robust system for users to generate yield on their digital tokens by employing specific strategies. In this article, we will delve into the details of Ribbon Finance, its background, working mechanism, and the role of its governance token, RBN.
Background of Ribbon Finance:
Ribbon Finance was founded in 2021 by Julian Joh and Ken Chan, two individuals with a vision to revolutionize the DeFi space. The platform has since then transitioned to Aevo, a testament to its continuous evolution and commitment to providing the best to its users.
Understanding the Working Mechanism of Ribbon Finance:
Ribbon Finance operates on a simple yet effective mechanism. Users can deposit their digital tokens into vaults, which then generate yield through two main strategies: covered-call option and put-selling option.
Covered-Call Option Strategy:
In the covered-call option strategy, the vaults mint weekly options using Opyn, a decentralized options trading platform. The optimal strike price for these options is selected algorithmically. These options are then auctioned to the highest bidder, with the premium earned from the auction representing the yield that the depositors earn.
The system profits if the options expire out-of-the-money, meaning the price of the underlying asset is lower than the strike price at the time of expiration. However, the system may suffer a loss if the options expire in-the-money, meaning the price of the underlying asset is higher than the strike price at the time of expiration.
Put-Selling Option Strategy:
The put-selling option strategy is another way for users to generate yield on Ribbon Finance. In this strategy, users sell put options for an underlying asset, with the obligation to buy the asset at the agreed strike price if the option is exercised. The premium earned from selling the put options represents the yield for the users.
The system profits if the put options expire out-of-the-money, meaning the price of the underlying asset is higher than the strike price at the time of expiration. However, the system may suffer a loss if the put options expire in-the-money, meaning the price of the underlying asset is lower than the strike price at the time of expiration.
The Role of RBN Token in Ribbon Finance:
RBN is the governance and fee-sharing token of Ribbon Finance. Holders of RBN tokens have the power to propose and vote on changes within the protocol, thus playing a crucial role in the platform’s governance.
Moreover, users can also lock RBN tokens to earn a portion of the platform’s fees. This not only incentivizes users to hold and lock RBN tokens but also ensures a fair distribution of the platform’s fees among its active participants.
Key Takeaways:
Ribbon Finance is a unique platform in the DeFi space that offers structured products for crypto assets.
It was founded in 2021 by Julian Joh and Ken Chan and has since then transitioned to Aevo.
Users can generate yield on their digital tokens by depositing them into vaults that employ specific strategies like covered-call option and put-selling option.
The platform’s working mechanism is designed to profit when the options expire out-of-the-money but may suffer a loss if they expire in-the-money.
RBN, the governance and fee-sharing token of Ribbon Finance, plays a crucial role in the platform’s governance and fee distribution.
Conclusion:
Ribbon Finance, with its unique offerings and robust mechanism, is a promising platform in the DeFi space. It not only provides users with an opportunity to generate yield on their digital tokens but also empowers them to participate in the platform’s governance and fee distribution. As the DeFi space continues to evolve, platforms like Ribbon Finance are likely to play a significant role in shaping its future.