DeFi
DeFi Cega Protocol’s New Options Product, Gold Rush, Marries XAUT and ETH to Offer Up to 83% Yield
Decentralized finance (DeFi) projects continue to develop structured products, which offer decent returns, market exposure and protection against losses and were previously only available to institutional investors in traditional markets.
Last week, derivatives protocol Cega revealed Gold Rusha basket options strategy involving ether from the Ethereum blockchain (ETH) the token and Tether’s gold-backed {{XAUT}} as underlying assets, as well as a security component that protects users’ capital against a 30% drop in asset prices.
The product offers an annualized percentage return of up to 83% to investors who stake ETH, Lido staked ether (stETH), wrapped bitcoin (wBTC) or stablecoin USDC in the strategy vault of options, Cega said. Yield is paid in the form of staked coins, so ETH investors receive ETH in yield, providing asymmetric upside potential in a bull market.
The Gold Rush vault went live on March 26. Since then, users having deposited crypto assets worth $2.74 million in the strategy.
“DeFi users want to stake native assets like ETH or liquid staking tokens like stETH, but don’t want to lose the asymmetric advantage of these assets. Users also want safer, higher yielding opportunities without significant risk to their capital The new “Gold Rush offering achieves both of these objectives,” Cega told CoinDesk.
Gold Rush sells 27-day puts with XAUT and ETH as the underlying assets. The premium received from market makers who purchase these options is distributed as a return to the vault participants.
Options are derivative contracts that give the buyer the right to buy or sell the underlying asset at a predetermined price at a future date. A call gives the right to buy and a put gives the right to sell. A basket option gives the option holder the right to subsequently buy or sell the basket of underlying assets, in the case of Cega, ETH and XAUT, at a predefined price.
The option has a security mechanism that protects investors’ capital against a 30% drop in the price of XAUT or ETH and has a maturity of 27 days. In other words, the product is suitable for those who do not expect a larger drop in tokens over the period.
If none of the assets fall that much, users receive the full principal, plus the yield, which is accrued daily. On the other hand, if either breaks the 30% downside barrier, the principal returned at expiration is adjusted to account for the loss of the worst performing asset. The user always retains the yield.
“Users benefit from downside protection on their deposits against significant market declines, up to 30%. This security element is an attractive aspect of the Fixed Coupon Note (FCN) strategy due to a technical feature called barrier option,” Cega said in a note. at CoinDesk.
According to Cega, even in the worst case scenario, users earn more than by holding long positions in XAUT/USD or ETH/USD.
“In effect, losses are offset by the high daily yield, which is paid regardless of market conditions – and this safety element also makes FCNs [fixed coupon notes/structured products] attractive for investors,” Cega said in a explainer.
Backtesting of the strategy by Cega over the past three years has shown less than a 3% chance of XAUT or ETH falling more than 30% in 27 days.
That said, depositors risk losing the return if the market makers who purchased the options default. And, as with other DeFi protocols, on-chain funds transfer carries smart contract risk.
12:25 UTC: Correction: Users deposited crypto assets worth $2.74 million under this strategy. The previous version incorrectly stated $297,000.