Introducing the IV League DAO
Today we are happy to announce the IV League DAO — a quantitative research DAO created to design better yield strategies for options and other derivatives to provide more attractive risk-adjusted returns for LPs.
Designing More Attractive Yield Generating Strategies
One of the main reasons users explore DeFi projects is to find yield generation. With recent decline in yields across lending and yield farming protocols, LPs are seeking alternative ways to generate income on their crypto — either via off-chain lending (e.g. Maple Finance, Goldfinch) or selling risk on-chain via options.
DeFi Options Vaults (DOVs) like Ribbon Finance, Dopex, Siren and others experienced massive growth in TVL over the past year due to their unparalleled ability to generate high yields on a variety of crypto assets. As TVL continues to grow, we see an opportunity to assess the risks of current DOV strategies and improve upon their performance and the experience of LPs. We explore the effects of the current state of DOV strategies in the article Respect the Tsunami-ishi: DeFi Option Vaults, Risk, and the IV League DAO.
As part of our efforts to provide more attractive risk-adjusted returns for LPs, we performed extensive research of the performance of popular DOV strategies under various market conditions, as summarized in Quantifying Risks of DeFi Options Vaults. We backtested popular Call- and Put- selling strategies and simulated returns across hypothetical scenarios, which led to interesting conclusions, including:
- ETH puts selling strategy: The return for the entire period (06–01–2017 to 05–25–2022) was 13.7% (2.6% APY). Overall, the backtest empirically validates the notion that systematically selling fairly-priced options should result in EV of 0. Another interesting observation is that long-term direction of the market has less impact than the short-term market volatility.
- ETH calls selling strategy: The return for the entire period (2017–06–01 to 2022–05–25) was -2% (-0.4% APY). Overall, the results are inline with the intuition that if options are priced correctly, then the expected value (EV) of systematically buying or selling them should be about 0.
- Better strategies can be designed to drive returns: Token holders hungry for yield are eager to deposit funds into strategies promising high returns. However, our research shows that a simplistic passive options selling strategy is generally not very attractive on a risk-adjusted basis. The market for DeFi structured products involving options and other derivatives is very early. We believe that better strategies can be designed to provide more attractive risk-adjusted returns for LPs.
The design space is quite large, we’re excited to create the IV League DAO to work on solving these problems.
Objectives & Admission Processes
The IV League DAO currently includes community members of the Siren project–a composable DeFi option protocol–who were vital in our research and have offered a vault in which the IV League DAO can build option strategies and iterate quickly.
As we move forward, the DAO will be primarily focused on researching, designing and stress-testing new automated options strategies.
For the time being, as we build this community, we’re keeping it small (think two pizza team). We believe the greatest value we can add in these early days will come from a team of strong collaborators. So we’re opening up the admissions process to a select few. The application window will be open through August 5th, 2022. Thereafter, we will be hosting a series of 1v1 interviews to admit our first class of members into the IV League.
Apply here by August 5th, follow us on Twitter, join our Discord
We are looking forward to building with you!
IV League DAO
