Ribbon Finance partners with Gamma for liquidity management of its ETH covered call positions on Uniswap v3

Announcing our latest partnership with Ribbon Finance to initialize and manage a liquidity position on Uniswap v3 for rETH-THETA-ETH (Covered Call ETH position). The proposal for partnership between Ribbon and Gamma was widely supported by the Ribbon community with 96% in favor.

Ribbon Finance is a DeFi protocol which runs automated options selling strategies to obtain yield for their depositors. They currently are running covered call and put selling options strategies with weekly expiries. The yields from each week are reinvested back into the strategy, effectively, compounding the yields for depositors over time.

rETH-THETA, the receipt token of the ETH Covered Call vault, earns approximately 0.3% in ETH yield a week assuming the option expires out-of-the-money. Historically, the vault strategy has expired out of the money, all but once, in the last 25 weeks. However, losses may occur when the options expire in-the-money (price of ETH rises above the strike price selected by Ribbon’s algorithmic strike selection). In this situation, a percentage of ETH is withdrawn from the vault in an amount determined by the difference between the current price of ETH and the strike price at expiry.

This partnership has multiple benefits. The first is that it will allow all rETH-THETA holders to have liquidity to enter and exit their positions whenever they desire. Currently, when depositors deposit ETH into the weekly covered call strategy, the depositors will not have immediate access to the covered call position until the next upcoming Friday at 11 am UTC, when their ETH becomes collateralized. Additionally, once their ETH becomes collateralized, only then will they receive their rETH-THETA receipt tokens, which will not accrue any yield until the actual expiry of the options. The liquidity pool thus allows traders to enter and exit the positions more fluidly, take speculative bets on the covered call positions, or arbitrage the differential between the actual price per share of rETH-THETA and its respective pool price on Uniswap.

Another potential benefit of this partnership is that it allows LPs to potentially earn fees on their ETH through the rETH-THETA-ETH liquidity position with Gamma. They will receive partial exposure to the Ribbon covered call selling strategy through rETH-THETA while also earning trading fees from the liquidity position. As such, over the next couple weeks, we will be analyzing the performance of the rETH-THETA-ETH hypervisor and potentially open it up on our frontend for public deposits.