Julian Koh on derivatives and options in DeFi at Ribbon Finance

0:01I'm Ashton Addison from Block West capital for investment pitch media and today on the crypto coin show we have Julian Co CEO and co-founder of ribbon Finance Jillian welcome to the show and thanks for taking the time yeah thanks for having me on you're very welcome I'm excited to dive into the world of defy uh I feel like more and more institutional investors and

0:22corporations are getting interested in the future of finance and it looks like that's where it's going and I'd love to hear about what you and your team at ribbon have been working on with this regard uh let's just dive straight into it by getting an overview of you know what you and your team have built at ribbon and how you're looking at changing defy and continuing to grow it

0:43and then we'll dive into all the details yeah so uh we started Raven about two years ago um ribbons sort of some context is the first and largest structure products protocol uh in in defy um at our Peak we had close to 400 mL of assets I think we are currently sitting at about 100 ml of assets um we have traded over 10 billion dollars of option volume one chain and

1:09um yeah we are definitely like the biggest Structured Products uh platform in D5 right now very cool great to hear and for those people that are sort of just getting into defy or they're not familiar with traditional Finance can you explain more on what Structured Products means for for D5 yeah so um the oldies derivative uh contracts the options Futures fixed income there's

1:34sort of a whole range of stuff that people uh of derivatives that people can trade but generally for I suppose for Less financially Savvy people uh these derives are like pretty difficult to understand like if you had to come up with some sort of option structure yourself you have to think of all these groups and there's all this like Giga brain stuff and I think a lot of people

1:54don't really understand how how to use how to construct like the the payoff that they want using options so um traditionally I mean Structured Products are known as like these products which are really simple uh easy for people to understand and on on the sort of uh back end they use a mix of different derivatives to construct the payoff that people want

2:17um for us particularly we mostly do options based structure products and we offer them on Eve Bitcoin and a bunch of other crypto assets okay thank you for that and you know as it's not uh the the status quo in in crypto but it seems that it's traditionally uh traditional Finance sort of creeping in to defy are you seeing the majority of the clients and

2:42is the platform sort of laid out specifically for traditional finance and institutional clients that are moving into crypto or is it also for people that are in crypto looking to expand out into these different kind of financial products yeah I think um interestingly like our main customer base is sort of retail or like crypto Wales so really not institutional right

3:05now um and I think like one of the most interesting value propositions of what we're doing is it traditionally if you wanted to go and buy one of these Structured Products maybe your bank will sell them to you but only if you have like uh they only feel like an ultra high net worth individual or something uh usually these things have you know minimum requirements of like quarter of

3:27a male half a mill uh it is generally pretty difficult for like the retail customer to get access to these products so what we have done is really just like replicate the way these products are constructed using smart contracts uh making it really really sort of easy transparent that anyone can sort of participate in buy these things from a contract without having to go through

3:49like the broker who made like discriminate based on how much money you have in the bank and I think generally these products have been very popular in Asia even in like the traffic world so I think we've also seen like even in like the crypto version of these products they also are quite popular in Asia uh we will see the first crypto structure products maybe they were created by

4:14these Asian Brokers they're being sold to like Bitcoin and ethereum miners maybe two years ago and I think they're just getting more democratized and more and more people are getting access to these types of products that's great to know and I feel like defy seems to lower the barriers to entry for you know in all different ways uh and and that's a great difference

4:36between these Structured Products in in Trad Phi and D5 really just allowing anybody to use the smart contracts is there any other major differences or improvements in in how these products are run through D5 versus introd5 yeah I think um by far the primary benefit is just like the transparency uh if you go to any broker and they'll sell your product you have no real idea of

5:01like how it's been constructed like are they just resetting it to a different bank where's the money it's like very difficult to sort of keep track and a lot of these products are like a bunch of stuff combined which makes it even more difficult to track so I think the main benefit of this stuff is like uh doing them on chain is like super transparent you can see exactly which

5:24derivative contracts are being sold uh where does the money sit in which contract what is the logic of the smart contract uh where is the money at all times I think that is very important and um a lot of our users really like the fact that you know they really understand where the money is and how the contract Works without just sort of delegating their responsibility to

5:46someone that you don't really know what's happening under the hood that's crazy no and I was reading into the products in that uh you know they're underwritten uh by certain uh institutions can you talk about what that means and and how that affects the products yeah so um how the products were oh maybe I'll start with like what is our most popular product

6:11um our most popular products are these common call strategies on eth bitcoin and a bunch of other assets so the reason why people want to use these products is because you know if you are sort of like a yield Farmer on chain if you stick your Ethan in Aveo compound for a year you probably earn something in the range of like 20 to 30 basis points in a whole year basically nothing

6:35but if you're sort of willing to take some risks if you're willing to sell a call option against your eth giving up some of their potential upside for some premiums today you can get paid almost like an order magnitude or more um so generally the premiums that people earn by using our products is in the range of 30 to 50 basis points a week so basically you you earn what you get a

7:00paid in RV in a whole year in a week obviously that comes with risk as well uh for example you are selling some potential upside so you're giving up some risk but um I think some a lot of people like using this product because they find that risk profile really interesting um so yeah that's our most popular product and uh what it does under the hood is uh you put in one eat and the

7:24contract would basically sell one call option against the ether's collateral uh to earn some premiums today and uh for us to sell that Co-op should we actually need to find like a buyer and um there's actually no liquidity on chain did I sell it to an amm or use another protocol uh the this for for example the sizes we do is something in the range of

7:48like 30 000 or 40 000 each a week so like no no option protocol and ethereum can support the kind of volume so what we do is we work with a bunch of market makers and institutional trading firms and they come onto our platform and they buy up these call options From the Vault every single week we run like an open option and uh that is really the primary

8:10way we work with these uh institutional trading firms wow that's great to know and I feel like in traditional Finance derivatives Market is is so huge you know it's infinitely uh bigger than the cryptocurrency market is um and I feel like it could be very large in inside of the crypto sphere as well however it seems it's very very early and and you know defy has been

8:38great in the way that it's grown out in the last two to three years but I feel like these other Financial products that are in the traditional Finance world have still yet to come in and become a norm for defy where do you see you know the derivatives market right now inside of crypto in what you're working with in terms of the market size of it and then

8:58the potential for it as it grows out over the next five ten years yes so I think um in in sort of the C5 world of crypto these Futures contracts are like so popular I mean uh they they trade many many billions of dollars every single day but uh the option in the market and some other types of derivatives like interest rate swaps those are like still

9:22really really small and really decent but I mean in the traditional Finance world like options are so popular they have like many many trillions of dollars getting get traded every single year um we think it's still just really early so I think in C5 in crypto is getting a little bit popular and in D5 it's still like even earlier so I think for example

9:44as I mentioned every week we have these products they sell I don't know 30 to 30 000 or 40 000 if calls uh like none of the options protocols combine like can't support that type of volume so we had to sort of create this auction mechanism and a bunch of stuff but I think you know in in maybe two to five years like thirty thousand is maybe may not be like

10:08that big of a size like I think that that would be probably pretty easy to sort of trade um but now I think yeah we sort of have to make do with like using a bunch of different auction mechanisms and other types of clearing mechanisms it's good to know and with derivatives being so big in traffic do you see that as one of the core products of D5 when it does grow out or

10:35what do you think will be you know the most popular products that traditional Financial investors will want to be using inside of D5 yeah so I mean we think uh I I think uh derivatives are like sort of like the killer use case of D5 I mean derivative contracts are really just an agreement between two people uh to the the sort of tracks some sort of uh underlying price

11:02um and we can actually we don't need to sort of sign any papers we can actually track all of this on chain we can create any type of derivative contract that we want on using smart contracts and I think you know ribbon's a very good example of taking the underlying options uh contract and creating like the product that's really user friendly for people to use so I do think in the next

11:24few years more application Level stuff will get built which which sort of just drives a lot more volume to the actual derivative um but yeah I think uh it's still pretty early um you know we have traded over 10 billion dollars of option volume but uh that's over sort of a year and a half I I'm pretty sure in sort of two years you'll probably be doing that every

11:48single day or every single week incredible and what are you doing with your team to prepare uh for that scale of trading you know two years from now um and and how are you continuing to build out ribbon Finance to prepare for the the next Bull Run yeah so uh we recently announced a new product that we're working on which is called Avo which is really a

12:14decentralized options exchange and and we think to support this kind of option trading volume in D5 you need like a really high performance options exchange which uses like all the books and like a really Advanced margin system uh so we have been spending the last like six months building that whole thing from scratch uh we are launching it later this year but we think that is like the

12:36the main sort of unlock that we think we need for the options Market to sort of grow 100x in Neutron incredible and how easy is it for people to start using the products you know if they've done the basic defy on you know Ave and compound and they're sort of looking to to get involved in derivatives yep yeah so I think um even though all this stuff sounds

13:03pretty complicated uh if you go to our website ribbon.finance I think we do a pretty good job in sort of making it really simple for people to use uh and also like we explained the risk uh pretty clearly so um yeah I mean if you don't eat a Bitcoin uh or a few other smaller erc20s go to our website and did a bunch of different products for you um we've sort of made it simple enough

13:26where you know you just got a deposit uh after you sort of understand the risk profile and if you find that there's something you like uh all you need to do is Click deposit and I'll see my contracts sort of automate everything that happens under the hood so you don't have to know a single thing about like what options being sold every single week what strike what I expect the

13:47contracts automate all of that for you amazing well I will leave the link to to ribbon for people to check out and learn more in the description box below thank you so much Julian for coming on I'm fascinated about the growth of of options and derivatives inside of D5 and I feel like maybe it'll be you know derivative summer next year when when the next Bull Run comes up and it'll be

14:13a big hopefully the big push and I'm hoping that helps out hopefully as well so thank you so much for the time all the best with ribbon and let's follow up in the near future thank you