Why did DeFi Options Vaults appear?

First, we need to look back “Options” are a rather complicated product even for the traditional financial market which has a long history of development. Therefore, when applying the traditional Options model to the DeFi market, many problems have occurred, such as:

  • Liquidity fragmentation.
  • The liquidity used is not optimal.
  • It costs too much to maintain the position (for Traders).
  • Often causes heavy losses for Options Writers (Liquidity Providers or Market Makers) due to the “one-way” nature of the market.

Even on CEX exchanges, there are very few exchanges with Options related products due to demand and product design limitations. The Options product is difficult to deploy on both centralized exchanges and on DeFi. Especially for DeFi when the liquidity in this market is very “thin”. Therefore, when implementing DeFi Options Protocols, we will need to take new approaches like Everlasting Options or build an ecosystem of products around to support them.

What are DeFi Options Vaults?

Can be understood that DeFi Options Vaults (DOVs) are products built around the main Options Protocol to solve the problems faced by DeFi Options .DOVs will focus on solving problems related to liquidity and capital efficiency for Options Writers (or Liquidity Providers) on Options platforms like Opyn or PsyOptions. Options Writers will get a higher Yield while minimizing losses. Simply, DOVs will work like Yearn Finance in the Yield optimal array based on investment strategies but will operate based on Options Protocols.


The basic operating model of DOVs is as follows:
Users will first deposit their assets into the Vaults of the project.
Vault will then use that asset to provide liquidity (or Write Options) on Options Protocols according to different strategies.
In addition, these Vaults will also be designed to choose the most optimal Strike prices and expiry times.
The amount of Yield that Vault earns (mainly from Options fees) will be used to reinvest to help Users get the most optimal profit.

Why do Options Protocols need DOVs?

Exam: Hegic is one of the Options projects born quite early. However, with an unreasonable product design and no DOV integration, the platform is no longer a notable name. Hegic’s TVL has dropped more than 10 times from the $150M mark to just around $14M in November last year


Besides, as you can see, Hegic’s market share has decreased a lot and accounts for almost a negligible percentage at the moment. And the current market share has been dominated by Opyn and Ribbon (a DOVs product built on Opyn).
The TVLs of Ribbon and Opyn are quite similar, so a lot of Opyn’s liquidity is managed through Ribbon. This shows how important DOVs are to an Options Protocol.
Applying the same approach as Opyn’s ecosystem, PsyOptions – an Options platform on the Solana ecosystem has DOVs products built around the main protocol such as Friktion, Tap Finance and Katana.


The benefits that DOVs bring

First, DOVs bring a huge amount of “Organic Yield” to users .“Organic Yield” here you can understand that Yield is born from revenue-generating activities of the platform, not from Native Token inflation. A few examples that give a fairly high 2-digit Organic Yield level in the DeFi market today, I can mention such as Uniswap v3 with concentrated liquidity, Lending Pool of Leveraged Farming platforms (because the Utilization level is usually quite high) or mainstream as DOVs are an example.


Ribbon’s DOVs get quite high APY levels without resorting to token inflation. However, this is only the APY level calculated projected based on historical data, in fact, DOVs still have certain risks of causing losses for brothers
Secondly, DOVs will be an opportunity for Options products to be developed more widely with coins or tokens other than BTC and ETH.
CEX exchanges(notably Deribit) only offers Options products for BTC and ETH. This is quite modest compared to the demand of the market when other coins such as AVAX, LUNA, SOL,… They all have sufficient capacity in terms of demand as well as liquidity to design options products.

With the Decentralized concept and more efficient liquidity management of DOVs, having options products for other altcoins would be more feasible so the opportunity to develop depth for DeFi products. DOVs are the piece of the puzzle to overcome the current weaknesses of options protocols in the market.

Strategies commonly used by DOVs

Currently, most DOVs only apply 2 main strategies: Covered Call and Put Selling.The following is a PNL graph of a Covered Call strategy from Ribbon Finance as an example.

Covered Call

  1. User stake ETH into the vault.
  2. The Vault manager use the ETH as collateral, and mint decentralised call options of ETH at some strike price.
  3. The Vault manager sell the call options to some other party and the vault collects the premiums.
  4. If the call options are in-the-money, i.e. ETH price at expiry is higher than strike price, the collateralised ETH will be used to exercise the call options.
  5. If the call options are out-of-the-money, i.e. ETH price at expiry is lower than the strike price, nothing will need to be done.

Put Selling

  1. User stake USD into the vault.
  2. The Vault manager use the USD as collateral, and mint decentralised put options of ETH at some strike price.
  3. The Vault manager sell the put options to some other party and the vault collects the premiums.
  4. If the put options are in-the-money, i.e. ETH price at expiry is lower than strike price, the collateralised USD will be used to exercise the put options.
  5. If the put options are out-of-the-money, i.e. ETH price at expiry is higher than strike price, nothing will need to be done.


  • The vault manager is usually someone in the protocol team.
  • To mint the decentralised options, Ribbon Finance and Stake DAO uses the Opyn protocol, while Theta Nuts has the logic built inside their own smart contracts.
  • To sell the options, the protocol usually has an auction market to sell the options in batch, some uses the Gnosis protocol to achieve that. On top of that, Ribbon Finance and Stake DAO use AirSwap to do OTC trades with decentralised options market makers.
  • If the vault cannot sell the options, they just burn them.

Some current DOVs Protocol

  • Ribbon Finance: One of the first DOVs Protocol on the market and built on the Opyn platform.
  • Thetanuts Finance: Multichain DOVs platform, in addition to BTC or ETH Options, related DOVs, Thetanuts also develops its products on other Altcoins such as LUNA, ALGO,…
  • StakeDAO: Also a DOVs built on the foundation of Opyn, however, StakeDAO’s product has a few improvements when combining Yield from Options Premium with a few strategies to get more income from Trading Fees and Liquidity Mining.
  • Friktion Finance, Katana Finance, Tap Finance: DOVs on Solana ecosystem.
  • Opium.Finance: Protocol provides trading Options and DOVs.
  • Arrow Markets: Protocol provides trading Options and DOVs with a Bull & bear Spread strategy.

In terms of the ecosystem, currently, Ethereum and Ethereum’s L2s are still home to prominent names in the DOVs array such as Ribbon Finance, StakeDAO, or Dopex (Arbitrum).
Next is the Solana ecosystem – an ecosystem with a lot of Derivatives products with Tap Finance, Katana, Friktion Finance,…

In addition, on the market, there are still many other DOVs operating in Multichain such as Thetanuts Finance, Opium,…

Some figures of prominent DOVs in the market


As you can see, Ribbon is still the top protocol in the market with $262M TVL in its DOVs. Ethereum remains a pioneering ecosystem in DOVs products due to TVL of Multichain protocols such as StakeDAO or Thetanuts, TVL on Ethereum still accounts for the majority.

However, if we look at the Solana ecosystem, we can see a very rapid development of DOVs. Friktion and Katana Finance have only launched the product in a short time (compared to Ribbon) but have achieved quite impressive TVL numbers. Besides, the assets in vaults are also very diverse ⇒ Users have many options.

Taking into account the “projected” APY of vaults in DOVs, the majority will be stable in the range of 10%-40%, only a few special assets have a “projected” APY level at some point up to 3 figures.

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One point you need to keep in mind is that this APY level is just a “projection” based on past data on Vaults Performance. The actual level of yield you get may be as high or lower as that. In addition, this “projected” APY number may change over time.

I’ll take an example of Ribbon Finance’s T-AVAX-C vault, which uses a Covered Call strategy with a projected APY of 42.51%, implemented on December 17, 2021.

The current yield in USD of this vault is -0.59%, the yield (in USD) ATH is 16.12%.


According to AVAX, the yield achieved so far is 2.01% and is continuing the uptrend.


This Vault has negative performance (in USD terms) due to avax’s discount, Covered Call strategies are still earning yields quite well due to falling asset prices.

In short, although there is a high amount of “Organic Yield” up to two or even three digits, this does not mean that you will definitely be profitable when depositing your assets in vaults.

So Yield in DOVs is quite volatile, requiring you to understand the profitability and risks before using this product.

Necessary and sufficient conditions for the development of DOVs

Currently, as you can see, DOVs products despite the high level of “Organic Yield” but still exist there quite a lot of risks when the strategies in the Vault can completely cause losses accompanied by unstable amounts of APY.

Besides, DOVs strategies are still quite simple, not complicated enough to protect risks for investors. As far as I know, in addition to strategies such as Covered Call or Put Selling, there are many other complex strategies about options that can be mentioned as:

  • Bear Put Spread/Bull Call Spread.
  • Secured Put.
  • Protective Collar.
  • Long Straddle.
  • Long Call Butterfly Spread.

Another factor to be mentioned is that the demand and awareness of options products of the market must increase because this is the main source of Yield for DOVs. A few indicators/factors you can follow to evaluate this point:

  • TVL of Options Protocols, especially those such as Opyn or PsyOptions,…
  • Options trading volume.
  • The token launch goes along with Liquidity Mining A wide range of DOVs or Options Protocols.
  • The Trading Competitions that options protocols implement (as DYDX or Perpetual do when attracting users to use the product).

What are the opportunities to invest in this product?

And the last question we ask after we learn dovs is “What are the investment opportunities?” With this product, I now see three main approaches:

  • Become a user.
  • Token investment project.
  • Retroactive hunting.

By becoming a user of the project, you will directly receive the profit from the strategies in the Vaults of the DOVs.

As I mentioned above, the yield level received can be up to several tens or even hundreds of percent as the SBR vault in the Friktion platform as shown below.


That’s just “Organic Yield” and not to mention that when the project launches a token incorporating “Synthetic Yield” (from Liquidity Mining), the APY level will be even higher.

The second approach is the investment and token of the project. For this way, you need to have quite a lot of research skills, compare assessments as well as determine the value relatively to get the desired profit level.

And the final approach is also retroactive hunting. As you can see, there are quite a few DOVs (especially on the Solana system) that have not yet launched tokens, so this could be an opportunity for retroactive hunting brothers.

However, in my personal experience, retroactive above Solana is usually not as big as on Ethereum or Ethereum’s L2s. Therefore, when hunting Retroactive DOVs products on Solana, you also need to pay attention to learn carefully about choosing Vaults, capital management as well as becoming “real users”.

And in addition, with the rise of Ethereum’s L2s as it is now, it is very likely that in the near future there will be more DOVs developed on L2s and this can completely bring the opportunity “skin in the game” for you.

See ya in the next article !

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