Ribbon.Finance offers a variety of options products to generate yield. One of their products are covered calls. Covered Calls are one of the most popular yield strategies in tradfi — they allow people to generate income on their assets by selling upside volatility. Ribbon.Finance recently introduced a new product available to DAO treasuries which would allow them to diversify their treasuries using covered calls.
The call options that are periodically sold through this strategy are auctioned to the public via a Gnosis Auction (as per how Ribbon V2 works). bZx through Ribbon would be utilizing Wintermute to act as the market maker for this strategy to participate in these auctions, but the auctions are fundamentally open to anyone with an Ethereum address.
If this proposal is approved, bZx will be working very closely with the Ribbon team to design a strategy with parameters that best suit bZx DAO treasury needs.
This proposal would allocate approximately $5m worth of bZx DAO’s treasury towards a monthly expiration covered call strategy on Ribbon.Finance. The Price of the BZRX monthly call option would be:
BZRX-20211231-0.45-C bid=0.0087 USD
If we assume that it’s $5m notional = 17M BZRX
0.0087 * 17,000,000 contracts = 147,900 USDC
The estimated monthly yield = 3% on BZRX terms or approximately 36% APY.
Utilizing this strategy would benefit bZx in the following ways:
- This would help grow and diversify the bZx Treasury.
- Generate another source of protocol revenue.
- A portion of the funds generated through this strategy could be used to grow the protocol in a number of ways including for example purchasing more BZRX to use for votium bribes, or to incentivize Curve Factory Pool Liquidity, or also assisting with compensation plan.
This covered call strategy for treasury diversification can also be used in addition to other Treasury Diversification options such as RAI discussed here.