The Ethereum-based structured product firm Ribbon Finance's decentralized exchange Aevo began offering options tied to alternative cryptocurrencies (altcoins), a crypto term used to describe digital assets other than bitcoin (BTC) and sometime even ether (ETH).
Aevo users can trade options tied to Lido's LDO, Pepecoin (PEPE), Sui's SUI, Arbitrum's ARB, Litecoin (LTC), Aptos (APT) and others tokens which could earlier only be traded through an over-the-counter desk, Ribbon Finance said in a press release shared with CoinDesk.
Users can pick the options strike price and tenure of these options and get instant quotes from crypto market makers Galaxy, GSR and OrBit Markets.
Options are derivative contracts that offer the purchaser protection against bullish or bearish moves. A call option confers the right to purchase the underlying asset at a predetermined price on or before a specific date, while a put option offers the right to sell.
Bringing more "options" to altcoin traders
The availability of onchain altcoins options means crypto traders that focus on tokens with small market caps can now set strategies, such as spreads or spot/futures and options combinations. With these strategies they can potentially take advantage of market scenarios or major fundamental event like litecoin's halving.
So far, the crypto options market dominated by Deribit and generally restricted to bitcoin, ether, and solana (SOL).
Currently, Aevo users can only buy options and hold the same till expiry or square off before the expiry. Down the road, Aevo plans to allow users to write options with customized margins and counterparty of choice, according to the official statement.
Market makers would need to post collateral, approximately 30% of the notional trade size, in the form of dollar-pegged stablecoin USDC, Ribbon Finance's CEO Julian Koh explained to CoinDesk.
Crypto market maker OrBit Markets said Aevo's "portfolio margin" system makes it more capital efficient for users. The portfolio margin system offsets money-making and losing positions in a given portfolio to calculate its real-time margin requirements.
"A major breakthrough of Aevo was the enablement of portfolio margin, which greatly improves the capital efficiency for on-chain option trading," OrBit told CoinDesk.
In 2021, Ribbon's structured products offered double-digit yields and emerged as retail-friendly alternatives to the popular cash and carry arbitrage. Last year, the firm launched Aevo, which allowed ether investors to trade options onchain.
