TAP-11 Ribbon Finance Whitelist

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Summary: Seek authority from the community to whitelist Ribbon Finance for depositing of reserve assets.

Background: Recently the DAO has been accumulating additional ETH reserves assets such via OIP-15: Add ETH to the Treasury or wBTC via OIP-35: Add WBTC to the Treasury. The DAO is now seeking the ability to utilize Ribbon’s vaults for reserve assets to further increase the backing of OHM.

Motivation: Whitelisting Ribbon Finance will allow Olympus to earn yield on reserve assets to help bolster the backing of OHM and grow the treasury. The DAO will adhere to the treasury framework of no more than 5% of excess reserve assets to riskier strategies in options vaults. However, this is just a limit and the DAO will assess the optimal distribution on a per asset per protocol.

Description from https://docs.ribbon.finance/: Ribbon Finance is a new protocol that helps users access crypto structured products for DeFi. It combines options, futures, and fixed income to improve a portfolio's risk-return profile.

Theta Vaults: Theta Vault, which is a yield-focused strategy on ETH and WBTC. The vault earns yield on its deposits by running a weekly automated options selling strategy. The vault reinvests the yield earned back into the strategy, effectively compounding the yields for depositors over time.

The Theta Vaults run two options strategies to generate yields:

Covered call - Vault writes out of the money covered calls.
Put selling - Vault writes out of the money puts.

Risks: There is inherent smart contract and platform risk involved with managed vaults. Ribbon utilizes Opyn as a settlement layer so there is composability risk with use of multiple protocols. The strategies vary in risk and they also incur the potential risk of loss from being in the money at expiry.

Protocol Analysis: Using a risk analysis framework developed by the DAO, the Policy and Partnerships teams have attempted to score various protocols based on some subjective and non-subjective data. Ribbon scored a 7.2 out of 10 which is medium to high risk. This is due to inherent risks associated with option vaults and inherent protocol risks not only of Ribbon but also where the assets are deployed to.

The following risk analysis shows the outcome of the Treasury Team's holistic assessment of the proposed platform and intended strategies. Lastly, one final reminder that this score is an average that was derived from an generalized assessment of the platform which includes TVL, audits, protocol age/risk, targeted investment and strategy type.

Ribbon Finance

Request for comment: https://forum.olympusdao.finance/d/1157-request-for-comment-ribbon-finance-whitelist

IceCream

Would be a grave mistake to put any amount of treasury assets into Ribbon vaults.

Ribbon sells weeklies a close % from market price, and their vaults have a reputation for blowing up often because an automated strategy like that has way too much exposure to tail events, which are all too common in crypto.

Further, the APRs displayed on their UI are highly deceptive. Their BTC vault currently shows 23% APY, however their vault performance tells a different story—0.77% returns since September 12, or 1.3% annualised.

Let me repeat that—Their vault says it has a 23% APR, but their returns are actually 1.3% APR. That too before Ribbon's 2% TVL and 10% performance fees. Olympus would have lost money had it been in this vault for the past year.

Ribbon's stETH vault is a similar story. 22% APR displayed, when in reality the yield is NEGATIVE!

Even worse, all of Ribbon's automated put/call selling vaults blow up very frequently. Olympus would have lost over 20% had it deposited in Ribbon's ETH vault since early November.

All in all, Ribbon runs strategies with a track record of blowing up, at best breaking even, and depositing any amount of treasury assets in Ribbon vaults would be a mistake. If you would like to learn more on why Ribbon's vaults are an extreme no-go, read this paper by Ledger Prime: https://www.research.ledgerprime.com/p/a-quantitative-analysis-of-defi-option?s=r

Ledger Prime concludes that it is best if "parties don’t systematically sell the same weekly deep OTM covered calls", which is unfortunately EXACTLY what Ribbon does across ALL of its options vaults.

abipup

IceCream

The very first sentence of your comment should be a disclaimer that you're a cofounder of Jones DAO, and it's completely disingenuous to not have that disclosure.

You also conveniently cropped out the ETH | USD selector on your screenshot, showing the USD returns from a November starting point when ETH was at $4k.

Further, your tweet here shows a complete lack of understanding how the Ribbon protocol fees work. The returns are in fact shown after fees. It's borderline FUD and it's totally unprofessional.

As stated in the proposal, depositing into options vaults (including your own protocols) is not risk-off, and the size of any deposit made into a Ribbon vault would take that into account.

Atlas-

The underlying point of the Ice's thread was the way Ribbon's UI is inherently and purposefully misleading, and this speaks broadly to their credibility. Their "sticker" APY Ribbon advertises is essentially a projection of a projection - if the options we sold expire out of the money this week, and if the premium/TVL ratio remains stable for a year, here's the APY.

If you're going to criticize Ice for showing the return denominated in USD in his initial tweet, you should also be criticizing Ribbon for not specifying in their UI that the sticker APY they show is denominated in the deposited asset (this also, of course, is intentional). You have to dig to find their historical performance; we lead with historical performance. The idea that yield on selling weekly calls as tight to the money as they do is "sustainable," which is bolded on their landing page, is also sketchy.

Jones max risk is tight, compared to Ribbon's theoretical 100%, and the composable yield through jAssets is a substantial boost to yield. Ribbon's "structured products" are so basic and risky because they don't actually have a quant team built to design anything more complex.

See here, ad for "head of trading" whose responsibilities will include building that team. Also worth noting that anyone involved in finance will recognize that the salary is peanuts for someone who is going to be responsible for handling 300mm AUM, building a trading team, and then managing that team: https://angel.co/company/ribbon-finance/jobs/2019377-head-of-trading

For non-finance natives, the salary is roughly between what a 25 year old 2-3 years into an investment banking career earns for PowerPointing and doing basic financial modeling.

If the intent is to make directional bets on the market with a specific time horizon and thesis, Ribbon's vaults are a viable avenue for that. If the intent is to drop some ETH and wBTC in and let it ride indefinitely, that may not yield the desired results.

abipup

Atlas-

I'm only going to comment on the last paragraph. Read through the linked risk analysis in the proposal, and you'll see we're considering Ribbon Treasury which allows for much more custom strategies than the standard vaults.

Cc2

I also think that since September, many of these DOV protocols have considerably changed their operating model. Their put/call strikes selection has drastically improved over time.

If it was not already done by the treasury team, I think that an assessment of other DOV protocols should be added, so that we choose the best suited for us in terms of risk/returns.

31415r

Totally in favour, I have personally been using Ribbon's vault for quite some time and I found that APY display in the UI are in line with actual realised returns. Not sure why so much hate from IceCream… Peace ✌

0xbetty

I don't think whitelisting Ribbon is a great idea. Their automated strategies have and will statistically get blown up over time.
IceCream's points are absolutely valid and I don't see them as cherry picking.
The proposal talks about using ribbon to increase OHM backing which means profit is calculated in USD terms.
Although past performance is not indicative of future one, we can clearly see using Ribbon's vaults has not been a great strategy since the protocol's existence.

It's pointless to argue about past performance and cherry picking data.
The main point is: Ribbon's strategies favour market makers and not the vault users.

abipup

0xbetty

Welcome to the forum. ETH backs OHM too so it's fine to calculate profit in ETH terms.

bubbidubb

forgive me I am not options expert, so read my statements as questions ..

Partaking in Ribbon is on one hand like buying a product, and on one hand selling volatility.
Ribbon is pricing the options with Black & Scholes.. so they will be priced to perfection…
Of course, crypto is known for tail risk or super high volatility. I got my own BTFD's set at daily 20-30% swings by the way for BTC and ETH … And that hits now and then. Not sure what swings like that do to volatility sellers…
But lets assume the options are priced to perfection and take these blowout swings into account… (olympus will be an eternal volatility seller, so would ofc get wiped eventually ? ) … In regular markets, there is a bit of commission on options. In the case of Ribbon, since Olympus is buying a product and not really selling the options (but taking the full risk of it) there is an annual fee of 2% on capital deployed plus 10% fee on weekly performance gain. If B&S is normally pricing to perfection - does the added 2/10 fees still allow for sufficiently attractive risk/reward for Olympus? I mean, in traditional markets is this kind of commission really competitive?

Selling options is like being the bank. Selling options is like the green 0 in roulette. Like odds should be stacked to our favor. But buying this product does not put Oly in that position. Ribbon remains the bank. And their RBN token price is stable at 50MUSD since November. If this concept is really good.. Would it not be more attractive to buy RBN token itself instead, and actually be the bank who owns the green 0 ?

bubbidubb

Since nobody answer my above concerns and the vote is in a few hours; I must assume this proposal is unprofitable to Olympus and would be another bleed point for Olympus added on top of all our other bleed points.

The 2% annual, 10% weekly performance fee skews risk/reward to where it is not a justifiable investment.
The operator takes a 10% perf cut weekly because they know it would not be profitable to apply it annually.
Crypto is extremely volatile. This kind of investment cannot be judged based on some months historical APY. Go back 12-24 months and see what volatility situations occurred and how that would have impacted APY.

Its a no from me. I hope it does not pass. Olympus in general really need to stop bleeding.

json

bubbidubb

Thanks for your questions. Owning RBN is not profitable directly for Olympus unlike more ETH, wBTC or stables. Governance tokens do not help any current initiatives. It is more beneficial for tangible backing with tokens that retain true value.

There will be performance fees for all managed investment opportunities, that's just the industry.
Same as above.
Yes, that's why it's imperative to minimize risk and to allocate when it makes sense. This has been laid out in the treasury framework. A lot of your comments are contradictory to it so I would suggest to check it out!

It is also important to note the opportunity costs of partnerships and integrations, I don't think you're factoring it in this at all.

Also, overall the treasury has been bringing in 10s of millions in revenue a month so I am unsure what you mean by bleeding in general.

bubbidubb

json

Yes. I think this industry's fee level makes it unjustifiable to white-list participation in any such protocol.

2.
- May 19, 2021: ETH OHLC = 3377/3444/1860/2443 … a daily swing of 54%
- Aug 31, 2021: ETH Open @ 3229 modest rip to 4030 … a modest 4-day rise of 25%
- Dec 3, 2021: ETH 2-day swing of 25%
How would Olympus option position fare on days like these?

2Gurleys1Kupp

With the poll ending in favor, 71%/29%. Is it aa simple as that, or is that one piece that's factored when deciding whether to whitelist ribbon?

hodlmao

I'm a long time user of ribbon theta vault, deposited my first 1.5 ETH a year ago, then I've added another 4 ETH eight months ago and my current holding is almost 6.2 ETH … so Idk how you guys got it's not profitable…