Interview: Julian Koh
We have seen an explosion of Decentralized Option Vaults (DOVs) over the last year. DOVs are effectively structured products that execute Options strategies on your behalf. They allow someone to harness the power of Options without having to interact with them directly. When any crypto native thinks of DOVs they immediately think of Ribbon Finance - Ribbon was the first to do it and do it well, but what are they exactly?
According to Ribbon’s website, "Ribbon uses financial engineering to create structured products that deliver sustainable yield. Ribbon's first product focuses on yield through automated Options strategies. The protocol also allows developers to create arbitrary structured products through combining various DeFi derivatives.”
We have been following the DOV space from the beginning, so we were pretty excited when we got a chance to ask Ribbons co-founder and CEO Julian Koh a few questions. Hope you enjoy it!
Julian
Can you give us a bit of your background, what did you do before Ribbon?
Before Ribbon, I was a software engineer at Coinbase working on staking & blockchain integrations. I dropped out of college in the depths of the bear market to work there — which was in hindsight a great decision.
How did you hear about crypto?
I stumbled upon Ethereum in 2016, but really only got into crypto during the ICO mania of 2017. Much like other people, I made a bunch of money (for a teen) and subsequently lost it all over the next 6 months.
What made you want to enter the crypto space?
Crypto was the most interesting thing I had stumbled upon in 2017, and I knew I had to break into the industry as quickly as possible. At that time, I was a college freshman with no skills, so I had to hustle like crazy to get my first crypto job, which was interning at Numerai.
What are the best and worst aspects of crypto in your view?
I really enjoy the sense of empowerment that devs get in this space. Small teams of highly motivated people can build projects which scale super quickly and attract billions of $$$ of capital. Other software businesses (Fintech or SaaS) are generally the opposite — you need an army of salespeople to beg customers to use your product.
I dislike the ponzinomics and overcomplicated mechanism design that has become prevalent in the last year. Many of these mechanisms are completely unnecessary, and shoehorned in to pump a token’s price.
Can you give us a short summary of what Ribbon is?
Ribbon is the first and largest structured products protocol in DeFi — this means that we use smart contracts to structure complicated financial products and make them accessible to everyone. The most popular products today are income-generation strategies, where users can sell call options against their collateral (ETH, BTC, etc.) or sell put options.
Who are Ribbons core clientele? (Hedge Funds, retail etc..)
Ribbon’s main users are retail users. The median deposit for users is approximately $10k the last time I checked.
Where do you see the Crypto Option Market 5 years from now?
Hopefully much bigger than it is today!
Do you have any thoughts on Crypto regulation? Are regulation net positive or negative? Why?
Crypto reg is probably necessary — it is still extremely difficult for projects to truly go mainstream without conforming to the old world. Although I was and still am attracted to the cypherpunk values of this space, I’m also pragmatic and realize that projects that have the ambition to scale globally to millions or billions of people need to conform to regulation.
What impact do you see decentralization having on the derivatives space in the future? What do you think about DEX’s? Will decentralization have a major impact on traditional financial markets?
It is still fairly difficult to trade derivatives in a decentralized way. There are a few protocols now which let users trade futures on-chain, but they are still somewhat clunky and not as fully-featured as an exchange like FTX or Binance. This is even worse in the Options space, where there are zero venues to trade liquid crypto options in a decentralized way. I think we will inevitably see a “decentralized FTX”, which offers every derivative product that people want to trade.
What are your thoughts surrounding DOV’s? What is the Future of DOV’s? Will structured products fundamentally change crypto?
I am obviously bullish on DOVs, having created the first ones. They significantly simplify the experience of selling options into a form factor that is suitable for DeFi retail users. Fundamentally, the current DOVs primarily differentiate on two axes:
Strategy
Execution
Currently, many DOVs are following Ribbon’s strategies (1-week expiry 10delta options, but have varying execution methods. We’ve spent a ton of time improving and iterating on our auction mechanism, and I think we have the best and fairest execution in the industry.
I think DOVs will start to differentiate on strategy soon — different strike selection methodologies, tenors, assets, and so on.
Finally, what is something you have learned over the last couple years while starting Ribbon? And do you have any advice for someone looking to enter the crypto space?
Simplicity is always underrated — for all the products that we have launched, and all the chains that we live on, most of the TVL still accrues to the “flagship” 2-3 products. Overengineering new types of products or deploying on 10 different chains does not actually drive value — it could even make the product experience worse when there is too much complexity or choice.
For someone looking to join the space, I think you should focus on joining great teams with a strong track record of shipping products!
Option vaults aren’t perfect and they might have a long way to go in becoming the preferred retail product, but the swift evolution has been nothing short of impressive. The fact that someone without Options knowledge can deposit tokens in a vault and start collecting premiums from different Option strategies is powerful (of course, one should educate themselves on different strategies and their associated risks).
It will be interesting to watch as these products expand their offerings to allow for more flexibility as it’ll only open up the market to a broader range of clients. We have been saying this for over a year, but in our opinion, the future of DeFi is in structured products.
