Ribbon Earn USDC V2 is Live
Today we are super excited to re-launch Ribbon Earn USDC, our very first principal-protected product, in partnership with Backed Finance!
Ribbon Earn USDC V2 is an all-weather product that generates yield by purchasing Backed IB01 $ Treasury Bond 0–1yr tokens with an average YTM of 4.64% (as of April 10), then enhancing that by purchasing ETH exotic options to get exposure to short-term volatility in the market. Depositors can get upside exposure to the crypto market and remain principal protected. Read more about the strategy here.
The vault is now live on Ethereum mainnet. We have capped the TVL at 7.5M USDC for the first epoch and the strategy will be deployed this week on Friday April 21.
Deposit here to earn up to 9.91% APY!
V2 Upgrade
We are making two key changes in the upgrade:
Risk-Free Rate: Instead of sourcing funding by lending USDC open-term to market makers like Wintermute and Folkvang in V1, V2 sources funding by purchasing Backed IB01 tokens which represent ownership of the tracker certificate for the underlying iShares $ Treasury Bond 0–1yr UCITS ETF.
ETH 10-delta Knock-Out Barrier: Instead of maintaining fixed % knock-out barriers for the exotic option in V1, in V2 the barriers will be fixed at the 10-delta levels and thus move dynamically with volatility.
Risk-Free Rate
At the same time that we saw deleveraging across the board by market-makers post-FTX collapse, U.S. treasury bill rates were rapidly rising. T-Bills, or short-term U.S. treasuries, are considered the risk-free rate and are secured by the full faith and credit of the United States government. Today, a 6 month T-Bill yields 4.93%. This led to the proliferation of companies like Backed Finance (and others) who have tokenized U.S. treasuries on-chain.
The purchased Backed bIB01 tokens are 100% backed by the Blackrock-managed ETF, which is a portfolio composed of US Dollar denominated government bonds issued by the US Treasury, with remaining maturities between zero and one year.
Bankruptcy-remote
The issuer (Backed Assets GmbH) is a bankruptcy-remote, special purpose vehicle (“SPV”) with the sole business purpose of the issuance of financial instruments, such as the IB01 tracker certificate. Assets are ringfenced from the parent company’s (Backed Finance) balance sheet which limits financial risk and further protects the entity’s obligations towards the token holders.
Off-Chain Transparency
Backed Finance is integrating with Chainlink’s Proof of Reserves to enable seamless, decentralized, and autonomous proof of reserves attestations by verifying collateral amounts and posting that data on-chain. This ensures that the bIB01 tokens are indeed backed 1:1 by securities in the custodian bank.
ETH Knock-Out Barrier
Adjusting to a 10-delta barrier strike for both the lower and upper barriers makes the barriers move with volatility. This means that:
If the market anticipates low volatility, we don’t have to pay extra for wider barriers that will not be useful (as the probability of hitting them is very low so price goes up)
Barriers level will move with how spot has been moving historically
Keeps participation rate more stable from week to week as option price doesn’t vary as much
What’s Next?
In the coming month we plan to diversify counterparty risk by allocating into a weighted basket of tokenized T-BILL providers such as Ondo Finance, MatrixDock, OpenEden, and Stream Finance.
Eligibility
Individuals or entities from these countries are prohibited from using Ribbon Earn USDC: Belarus, Cuba, Democratic People’s Republic of Korea (DPRK), Democratic Republic of Congo, Iran, Iraq, Lebanon, Libya, Mali, Myanmar, Nicaragua, Russia, Somalia, South Sudan, Sudan, Syria, Ukraine, United States of America