- The crypto market has been stuck in a sea of red as major tokens are down over 50% from their peaks.
- A subsector of decentralized finance that focuses on options has defied the broader downtrend.
- Three DeFi experts break down how investors can earn passive income via these DeFi options vaults.
Amid the chills of what looks and feels like a crypto winter, a subsector of decentralized finance that specializes in automated options strategies has been defying the broader market’s downward trajectory.
DeFi options vaults, which allow investors to deposit their crypto assets into “vaults” that automatically deploy options strategies, saw their collective market value surge 66% this year through January 11, Dustin Teander, an analyst at crypto research firm Messari, wrote in a recent note.
Notably, these protocols rallied as the total market value of all crypto assets fell 11% in the first week of 2022 and the overall DeFi sector remained knee-deep in a
bear market
. The DeFi Pulse index, a weighted basket of major DeFi tokens, has plunged 34% in the past year while bitcoin and ethereum have notched respective gains of 22% and 96%, according to CoinGecko pricing.
Genesis Trading, a transacting party on several DeFi vaults, observed in a Q4 2021 report that these options protocols saw a “parabolic rise in trading volumes” as they reached over $1 billion in total value locked.
The strong recent growth of DeFi options protocols can be partially attributed to their relatively slow adoption. Per Messari’s Teander, ribbon finance (RBN), one of the top DeFi options vaults projects, ended last quarter with a
market cap
of less than $100 million and a price-to-sales ratio of 2x. Meanwhile, legacy DeFi protocols including uniswap (UNI) and yearn finance (YFI) have circulating market cap-to-sales ratios of around 4x.
The massive opportunity in facilitating options trading on-chain is yet another driver fueling the growth of these decentralized applications, Teander said. While US equity markets options volume as a percentage of spot volume is about 35x, crypto options volume as a percentage of spot volume is just around 2%, according to Zeta Markets, a decentralized derivatives exchange on the solana blockchain.
How to earn passive income via DeFi options vaults
A key function of options in both traditional and decentralized finance is to offer investors the ability to hedge and take non-directional bets on
volatility
during periods of market chaos, according to…
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