Introducing Rysk Beyond

A New Paradigm in Options

Taking Uncorrelated Returns to the Next Level

Rysk Beyond takes our Alpha product a leap further, opening up our doors to options traders.

Rysk Finance is a DeFi options protocol generating uncorrelated returns for its liquidity providers, whilst enabling anyone to trade on-chain options. Rysk Beyond will be live on Arbitrum Goerli (testnet) in March 2023, before a full launch on Arbitrum mainnet in the weeks after.

If you are interested to join Rysk Beyond you can get early access by filling out this form.

Introduction

We launched Rysk Alpha in October 2022 as a proof-of-concept on-chain vault that generates uncorrelated returns for its depositors through trading options and dynamically hedging them to reduce risk. This is the Dynamic Hedging Vault (DHV).

The main goal was to validate the appetite for DeFi uncorrelated returns and test our risk management infrastructure. Since launch, almost 1,500 users have applied to join the Rysk Alpha Club to become early depositors. Upon opening, the vault cap was filled within minutes, showing intense excitement from liquidity providers.

Rysk Beyond was built in line with 3 main objectives:

• Offer tight bid and ask spreads and deep concentrated liquidity to options traders
• Create a flexible and automated platform for traders and protocols/structured products to trade on and integrate with
• Increase hedging efficiency to reduce risks and increase returns for liquidity providers

Today, we are excited to present you an overview of Rysk Beyond — a feature-rich options protocol with an advanced user experience for traders, unlocking new features and optimizations.

Rysk Beyond introduces:

• On-chain pricing mechanism with AMM capabilities
• Multi-collateral partial collateralization
• One-click options strategies construction combining vanillas into a single transaction
• Improved hedging

These design improvements make Rysk Beyond one of the most capital-efficient, flexible, and advanced protocols for options traders, builders, and liquidity providers.

How the DHV Works

Before getting deep into the improvements, let’s briefly look at how the DHV works in Rysk Beyond.

The DHV is a hybrid AMM and RFQ options protocol, generating uncorrelated returns for its liquidity providers whilst enabling anyone to trade (buy and sell) options with a wide range of strike prices and expiry dates. The DHV uses a dynamic approach in hedging risk to generate market-neutral uncorrelated returns for liquidity providers.

Liquidity Providers

On one side of the DHV, there are Liquidity Providers / Depositors. They deposit stable coins into the DHV to get passive, healthy, uncorrelated returns as the DHV acts as a decentralized and automated Market Maker for the options traders.

Learn more about the importance of uncorrelated returns here.

Options Traders

On the other side, are options traders, market makers, arbitrageurs, and other protocols/structured products. The DHV acts as an automated on-chain counterparty to trade options with a wide range of strike prices and expiry dates for hedging, speculation, or filling arbitrage opportunities.

Innovating Beyond

Let’s take a look into the innovations brought to the market with Rysk Beyond 🤌

On-Chain Pricing Mechanism with AMM Capabilities

Rysk Beyond introduces an on-chain price mechanism to price selected expiries (even longer-dated tenors) and strikes (from In-The-Money to Deep Out-The-Money).

The on-chain price mechanism will be implemented on top of the current RFQ (Request For Quote) execution mechanism already available for Rysk Alpha in order to increase the efficiency of DHV utilization.

At a high level, the price model is a combination of 4 functions:

1. Vanilla Black Scholes price using:

• Implied volatility — read from a stochastic volatility model (SABR) for the smile and calibrated off-chain to Deribit volatilities for each expiry
• Interest rate — calculated from spot and Deribit futures

2. Slippage model taking into account:

• The current exposure of the DHV for a given instrument as well as the size of the trade
• The delta of an option — enabling customization of the slippage at different delta values

3. Spread model based on:

• Collateral Lending Premium — as a function of the returns lost by collateralizing an option instead of gaining interest elsewhere
• Delta Hedging Premium — as a function of the cost to hedge the delta of the option traded
• “Handbrake” — as a percentage reduction that is applied to the IV to bring down the price of an option when the DHV is buying (trader selling to DHV) — deliberately simple to give the pool an effective safety handbrake to cool down trading

4. Trading Fee as:

• Fixed dollar amount per contract — currently $0.30 per contract
• Cap of 12.5% of premium on selling options back to the pool

Multi-Collateral Partial Collateralization

The DHV enables multi-collateral partial collateralization, increasing capital efficiency and our product offering. With Rysk Beyond, options writers can choose which collateral to use, starting with stables (USDC) and ETH — the list will be expanded in the future including yield-bearing tokens.

This will enable options sellers to mint naked options as well as covered calls or married puts based on their risk appetite. Learn more about Rysk capital efficiency improvements here!

One-Click Options Strategies

Rysk Beyond unlocks one-click options strategies, enabling anyone to trade combinations of different vanilla options that can be executed atomically with one transaction.

Below are some of the strategies that could be tradable with Rysk Beyond.

One-click options strategy construction enables traders and other protocols to create advanced strategies on-chain, reducing execution risks and increasing capital efficiency pushing the on-chain options space one step forward.

Improved Hedging

The DHV hedges its exposure by:

1. Price actions — e.g. pricing options to make reducing portfolio delta “cheaper”, essentially incentivizing arbitrage opportunities
2. Using other instruments with modules known as reactors, allowing the DHV to hedge itself by trading spot, opening perp positions, trading futures or any other product with a trackable delta

With the launch of Rysk Beyond, we have increased the hedging efficiency by adding new integrations, such as GMX Perps and Uniswap Range Order on top of the existing ones such as Rage Trade and Uniswap swap trades.

With GMX, the DHV can trade perps on a highly liquid market without being impacted by slippage.

With Uniswap Range Orders, the DHV can place spot limit orders enabling hedges with a variable time of execution and a fixed price. The Uniswap Range Order integration also allows the DHV to take on theta-generating short gamma positions, for example during periods of low volatility or to hedge high gamma positions.

Hedging is a critical improvement for Rysk Beyond, as upgrading hedging:

• Can improve the profitability of Liquidity Providers by reducing market risks
• Enables better pricing of the options, enhancing the overall trading experience.

What Can You Do Now?

• If you are interested in joining Rysk Beyond you can get early access by filling out this form
• Follow Rysk on Twitter and join the Rysk Discord to get updates on Rysk
• If you are an options trader, market maker, or arbitrageur interested in trading options get in contact with Dan
• If you are interested in becoming a Liquidity Provider for the DHV and want to understand more about the benefits and risks get in contact with Dan
• If you are building a DeFi protocol and interested in adding options strategies get in contact with Rysk