Last article, we introduced a new vertical in Decentralized Finance, crypto options. Since the space is so new, no clear market leader has appeared when we look at DefiLlama. Opyn recently got surpassed by Lyra in terms of Total Value Locked in the protocol. However, with a total TVL of just 140 million, the sector has plenty of room to grow. Since there are no clear winners yet, we will cover four more protocols this week, completing our introductory round into crypto option protocols.

Ribbon Finance
Ribbon Finance is a suite of DeFi protocols that aims to provide users with access to crypto-structured products. At the core of the platform is the Theta Vault, which is a yield-oriented strategy that combines derivatives, lending, and a proprietary on-chain options exchange (Aevo). The Theta Vault aims to be a one-stop solution for users who want to improve their portfolio's risk-return profile by trading volatility on their underlying assets.

The Theta Vault strategy is based on selling European options with weekly expiration dates, where the sale value of these options, or "premium," is set through auctions and determines the vault return. The premium earned by the Theta Vault is then reinvested back into the strategy, effectively compounding it for depositors over time.

Ribbon's Aevo platform also allows users to create, buy, and sell on-chain options, known as Delta One Vaults (DOVs), which offer exposure to various underlying assets, including BTC, ETH, and other tokens. DOVs are structured products that aim to simplify options to a binary choice and gamefi the option trading experience while offering something different than other competitors.

One potential drawback of Ribbon Finance's design choice is that it focuses primarily on selling European options with weekly expiration dates. This means that the Theta Vault strategy may not be suitable for traders who prefer more flexible options trading, such as options with longer expiration dates or American-style options, which can be exercised at any time before the expiration date.

Moreover, the Theta Vault strategy is yield-oriented and proposes that depositors trade volatility on their underlying assets without taking on significant risks. While this may be an attractive option for some investors, it may not be suitable for those who are looking for more aggressive trading strategies or higher returns.

Dopex
Dopex is a hybrid AMM and DOV that is doing interesting work with Atlantic options. It uses a Black Scholes AMM to price options and functions similarly to Ribbon, allowing users to deposit into vaults to underwrite options at their desired strike price. However, it is more clunky than Lyra and other protocols.

One of the main advantages of Dopex is that it provides an alternative way to sell an option on-chain, which is different from other options protocols. However, its use of DOVs can be somewhat clunky and may not be as efficient as other options protocols. Additionally, Dopex currently only offers European-style options, which may not be suitable for traders who prefer American-style options.

Dopex is also working on an innovative type of option called Atlantic options, which are designed to address the impermanent loss issue that many DeFi options protocols face. Atlantic options are options contracts that can be automatically hedged through a decentralized insurance protocol, which helps to reduce the impact of impermanent loss on liquidity providers.

Another potential drawback of Dopex is its use of DOVs to underwrite options at desired strike prices. While this approach can be effective at maintaining liquidity, it may also have limitations in terms of market depth and price discovery during times of high volatility or low liquidity. This could lead to potential issues like slippage or a lack of price discovery during these times, which could negatively impact the pricing and liquidity of options contracts on Dopex.

Moreover, while Dopex is working on innovative types of options like Atlantic options to address the impermanent loss issue faced by many DeFi options protocols, these options were still in development as of my previous response. Therefore, the effectiveness of this approach in addressing impermanent loss remains to be seen.

Buffer Finance
Buffer Finance is a decentralized binary options trading protocol that allows users to create, buy, and settle options using a simple, user-friendly interface. The protocol is built on top of the Arbitrum network, which is an Ethereum Layer 2 scaling solution that offers fast and low-cost transactions.

One of the main features of Buffer Finance is its use of binary options, which are options that pay out a fixed amount if a specific condition is met, such as whether the price of an asset will go up or down. The application offers something quite different from the other option protocols as you area speculating if the price goes up or down, nothing more than that. Binary options are popular among traders because they offer a simple, intuitive way to trade financial markets.

Buffer Finance allows users to trade binary options against a pool of assets consisting of Protocol Owned Liquidity (POL) and liquidity providers. The POL is used as collateral to back the options contracts, and liquidity providers earn a share of the trading fees generated by the protocol.

The Buffer Finance protocol is designed to be easy to use, even for novice traders. The platform features a clean, intuitive user interface that guides users through the process of creating, buying, and settling options contracts. Traders can select from a variety of assets to trade, including popular cryptocurrencies like Bitcoin and Ethereum, as well as a range of other tokens.

To create an options contract, users first select the asset they want to trade and then choose the duration of the contract and the strike price. They can then either buy the contract outright or sell it to other traders on the platform. When the contract expires, the user is paid out the fixed amount if the condition is met, or loses their premium if it is not.

One potential drawback of Buffer Finance is its focus on binary options, which may not be suitable for all traders. Experienced options traders may prefer more complex option contracts that offer greater flexibility and more nuanced strategies. Additionally, Buffer Finance is a relatively new platform, and it may take some time for it to gain traction and build up liquidity. Finally, since the pay-out is binary, manipulation of asset prices can make the application vulnerable to exploitation.

Conclusion
The options market space is fast-moving, with updates and developments happening rapidly. The total value locked in these platforms is still relatively low, which can be a double-edged sword in terms of investment potential. On one hand, it presents an opportunity for investors to get in early and potentially reap significant returns as the space grows. On the other hand, it also means that the space is still relatively untested and subject to significant risk.

At Fourstack Capital, we are committed to monitoring this sector of DeFi closely to achieve good risk-adjusted returns for our investors.We are currently invested in Lyra Finance and have a small allocation towards Buffer Finance. As the space continues to develop, we will continue to evaluate new and existing investments.