Overview of Options Vaults

2022 is off to a hot start. The entire crypto market cap is down -11% in the first week of the year. DeFi’s top 100 tokens are down even more at -12%. However, there is one sub-sector within DeFi that is performing exceptionally well in 2022 - options. Instead of being down, options protocols have massively outperformed with market caps collectively increasing 66% to start the year.

Heck of a way to bring in the new year.

Part of the reason why options protocols were able to significantly outpace the crypto market so far this year has to do with the starting point. Options protocols have been priced relatively low compared to other DeFi protocols. For example, Ribbon Finance ended the quarter with a sub $100M market cap and a price to sales ratio of 2x. Uniswap, Yearn and others have circulating market cap to sales ratios around 4x. Much of the reason for the difference in price has to do with the relatively slow adoption of options on-chain compared to other DeFi sectors.

What began as slow adoption however has given in to strong growth. TVL growth rates for options protocols have significantly outpaced broader DeFi through Q4.

In December, options protocols grew TVL by 86% while the entire DeFi TVL actually contracted by -1.5%. Over the full quarter, options protocols expanded TVL by 412% compared to the 278% growth in DeFi TVL.

Strong relative growth for options protocols but still a far cry from being at the levels of adoption compared to traditional finance. To say options are a massive market in traditional finance would be an understatement. Options have a significant role in modern finance and are used by market makers, hedge funds, all the way down to retail traders. Zooming into the retail options trading market, 45% of Robinhood’s Q3 revenue was driven by options trading on their platform.