New yETH-PUT (Options) Strategy / Vault

With secured puts, the draw-down here would be a repurchase of ethers at lower prices, which is not a complete downside for the vault. What risks are you thinking of?

Also, that paper by Prof. Lo looks interesting so I’ll have to read it.

The objective of the Vault is to increase ETH, i.e. have a return in ETH. So purchasing ETH at a lower price is a desirable outcome. The important part is how to manage the leverage on this area; currently protocols don’t allow naked puts (and I would definitely not recommend that) so limited risk on that part.

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After looking at Hegic, I have two questions for @ramaruro. First, it looks like returns on locked DAI would be <20% (depending on how volatility changes of course), so it would seem this would reduce overall returns compared to a properly boosted Curve strategy, wouldn’t it?

Second, “10% of liquidity” in the ETH vault would be over $7m now (and probably much more, should deposits be opened and the strategy working), but considering the historical total of put premiums written on Hegic is about $200k, so the vault would be a major whale and its selling would significantly move the market. Realistically the amount that could be deployed would be much smaller. Would it then make enough of a difference in returns to matter?


Thank you!
First question: Inmediate results will be more variable than the Curve (or Swerve) Strategy (might be lower or higher, depending on volatility and demand for protection). It is important to notice that this becomes a net new income approach that is independent, and that is important for diversification.

Second Question: We suggest a separate Vault for this approach. If this is included in the current yETH vault, it should start with less than “10% of liquidity”, maybe $1M initially (and not a percentage right away), as the current liquidity in the Option Market is still thin. We believe there is big potential for the Options Market to grow, and that would support expansion of this strategy. Given how quickly everything seems to evolve in DeFi, Options are likely to see quick growth too.
That is also why we mention the opportunity to help develop (bring liquidity) the Options market due to the presence that Yearn brings. We think there will be demand for Option exposure overall, it is still early.

We plan to make a model for returns and liquidity availability in the coming days to better assess the parameters that impact returns and tweak the strategy.


Maybe it is just me but Hegic seems to be marketing option trading as easy as clicking a button on its website to the general public. Also how are Hegic or Opyn options priced? I cant seem to find information on that.

Given most people in the space do not have options trading background. How would someone be able to know the historical vol of the underlying and be able to gauge the risk-reward pricing level (cheap vs rich) of a contract?

Daniele from Opyn here. Our goal is to offer options for DeFi and we are glad to be considered as an alternative for this yETH strategy. We are always supportive of community projects focused on growing the ecosystem and create value for final users.

The proposed strategy could be implemented using our current protocol with minimal effort.
The vault could use options already available in Opyn. Based on our current metrics and volumes we are confident that strategy underwriting/overwriting ETH would be quite successful given sufficient liquidity.

Additional notes about Opyn:

  • We finalized Opyn v2 (Gamma Protocol) and is in the auditing process. V2 is a big step forward and will be optimized to be more capital efficient, increase liquidity and facilitate unique automated trading strategies.
  • In addition to v2 we are building new trading venues and an option specific AMM to ensure a more liquid markets around options.

We would love to collaborate and integrate Opyn as the option protocol for this yETH and future yEarn strategies.


This sounds great, and is an example of the maturation of $YFI and the DeFi space.

Serious tools being built for serious purposes. I’m all for this.

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Hello guys!
Just wanted to point out that the new version of Hegic (already being audited by Peckshield) won’t have the downside mentioned by OP (Liquidity Pool denominated in DAI, now it will be denominated in ETH) and will have more flexible collat ratio.
Also, thanks to recent IBCO (31k ETH), initial liquidity will be much higher per pool than before (50% of funds will go to WBTC pool and 50% to ETH pool), which will reduce impact of the vault buying puts.

I have spent some time understanding Hegic so I am available to answer any specific doubts, questions or ideas from you guys. Happy to be able to help!


Hi everyone,
I hope this graph helps to better understand the proposal :

The most important part :

  • This strategy adds profit & boosts the original strategy by buying ETH at a more convenient price than originally.

  • It doesn’t introduce additional risk as Puts are fully collateralized.

  • It helps develop the Options Market which can grow tremendously in Crypto and yEarn can become a major participant in it.


I am still getting familiar with the technical side of the vaults, so I’ll need to update this comment once I am confident I understand the limits of the contracts.

With that said, how are we timing the put contracts that are sold? Could we sell them in higher implied vol. environments to capture more premium? (need an oracle for that value). Technically, this is quite difficult, but how important would that be?

Would we be rolling the puts in inventory? Or are we waiting for puts to expire, withdraw collateral, then short more put options with the freed collateral?

I understand that the Option protocols include a reading from Oracles to price the puts based on current volatility (higher volatility, higher premium). That needs to be determined with the selected Option Protocol.
Optimizing the Timing for selling is a desirable behavior, ie have available liquidity when volatility increases.

There are two outcomes when writing a put:

  • Not assigned: Keep premium an collateral, use both as Collateral for further put writing (or take some money out on a cadence)
  • Assigned: receive ETH, send it back to the Maker DAO vault

Actually, the ideal design is to provide DAI and retire ETH, this would be achieved by controlling the PUT writing protocol. The discussion with the Option Protocols should include an arrangement where yEarn sell the options leveraging the Protocol.

We are currently doing this with Nexus Insurance, ie we are using their protocol for selling insurance.

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sorry for my French, but what does it mean by “retire ETH”?

What I mean is you put DAI into the Option Protocol, which serves as the Collateral for writing puts.
By “retiring ETH” I mean that when you get assigned (exercised), the DAI Collateral goes to the buyer and you get the ETH at the Strike Price. You send that ETH back to the Maker DAO Vault to mint more DAI and start the cycle.
It is effectively swapping DAI for ETH, which in the end is what the Vault wants anyway.

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ah and so it is actually simpler if the option written is denominated in DAI. I see, thanks for the explanation!


This proposal (in its current form) is not a good idea.

As someone who has worked at multiple options market makers, I can assure you that market selling options at any price is not only a -EV strategy, but one that exposes the vault’s capital to a high amount of risk.

You could maybe make an argument that you can get some sort of edge by following a set of rules (i.e. sell puts when implied volatility > 120%), but blindly selling at any price is a sure recipe for disaster.

An argument can be made that providing liquidity to the options market can generate yield, but such strategies require complex risk management and can be capital-constrained.


Yes and it’s not like the Crypto market has no vol

I’m not sure you read the details of how this is proposed ==> Write fully collateralized Options with DAI, obtain ETH if assigned, if not repeat. The objective of this Vault is to get more ETH, and it is continuosly buying ETH already. This is an alternative to buy ETH at a lower price and/or increase the yield on the DAI available. The fact that this is fully collateralized makes this portion safe.
Also, that is why after reviewing the available options in more detail, we suggest an approach where yearn controls the Option writing, NOT contributing to a Liquidity Pool to write Puts, as that would expose to bigger risks.

The main risk of this Vault is still the leverage through Maker DAO to print DAI.

Maybe I’m misunderstanding something?

The objective of this Vault is to get more ETH, and it is continuosly buying ETH already.

What happens in this scenario:

ETH price is 500 DAI. You sell one ETH 400 put for a premium of 40 DAI, which means you must sell .8 ETH for 400 DAI to fully collateralize your position.

ETH then rips to 1000. You are left with 440 DAI and buy back .44 ETH.

Your overall ETH position has decreased by 45% (.8 -> .44)

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Look at the graph below, the main box on teh top left represent the current yETH vault. Remember this strategy complements the way the current yETH strategy is set up. You start with ETH, mint DAI in Maker DAO (you don’t sell ETH), DAI is invested (currently in the Curve Pool) and the DAI profits are used to buy more ETH. We suggest to use DAI profits to collateralize ETH Puts.
The leverage exposure is as before the minted DAI in Maker. This strategy can only complement another DAI generating strategy (i.e. as a boost). It cannot be applied alone, as the vault needs to continuosly adjust the DAI/ETH ratio based on the Maker Oracle.