Introducing Ribbon Earn stETH
In the wake of the FTX meltdown, it appears that uncollateralized lending in crypto still has a long way to grow. Despite our strong due diligence resulting in no losses in our Ribbon Lend pools and ultimately in Ribbon Earn USDC, we are seeing investors growing concerns around the credit risk embedded in these products.
As market conditions have drastically changed in the last few weeks, marked by a loss of trust in CeFi institutions, DeFi appears as the safest way forward.
Ribbon Earn stETH - the Promise of DeFi Composability
Introducing, Ribbon Earn stETH, the pinnacle of DeFi composability at the service of crypto structured products. Ribbon Earn stETH uses yield generated from staking ETH, through Lido, to fund exotic options and enhance the yield earned on stETH.
This vault is an all-weather product denominated in stETH that generates yield for users bullish on ETH. This is designed to suit depositors who do not want to miss out on the recovery, while participating in a cost-effective way.
Ribbon Earn stETH lets you get exposure to ETH weekly upside moves up to a specific level. Each week, if the price level does not move, or exceeds the range in either direction, users will get back a rebate corresponding to 0.75% APY, as well as 99.5% of their principal back.
The terms and specifications of the product are as follows:
Deposit Currencies: ETH or stETH
Lockup Period: 7 days
Upside Barrier: 110% of initial ETH price
Strike: 90% of initial ETH price
Underlying Asset: ETH
Principal Protection: 99.5%
Rebate APY: 0.75%
Backtest
We investigated how the vault would have performed since the 30th April 2021, which is the first date where the Lido APR is available on Dune.
We find that depositors would have accrued 11.3% in stETH terms over the period while Lido accrued 7.9%.
The vault earned a positive payout 63.4% of the time, and the average payout in these cases was 9.5%.
Source: Ribbon Finance, as of 30Nov2022. Data from 30/04/2021 to 25/11/2022. Backtesting analysis for illustrative purposes only. Ribbon Finance provides no assurance or guarantee that the strategy will operate or would have operated in the past in a manner consistent with the above backtesting analysis. Backtest and/or past performance figures are not a reliable indicator of future results. All data backtested over the entire range.
Risks
The main risks associated with the vault are market risk, stETH/ETH price risk and the slashing risk. First, as each trade is 99.5% protected, if the option payout is 0, depositors can lose a fraction of their capital invested every week. Then, as the payoff is based on the ETH price but is paid in stETH, the actual quantity of stETH earned is dependent on the exchange rate between ETH and stETH.
Finally, ETH validators risk staking penalties, with up to 100% of staked funds at risk if validators fail. To minimise this risk, Lido stakes across multiple professional and reputable node operators with heterogeneous setups, with additional mitigation in the form of insurance that is paid from Lido fees.
Conclusion
We are very excited to launch this second product within the Ribbon Earn category. Ribbon Earn stETH sets itself apart from any other offering in the DOV space by using liquid staking yield to take a bullish view on the market, while remaining 99.5% protected.