DeFi Options vaults have become a billion-dollar opportunity. However, whether DeFi options vaults should charge fees to investors?
Investors place their money in the vaults, and the vaults invest the money in various options. Before DOVs, option strategies were only available to qualified investors through OTC internet trading or self-execution on options exchanges like Deribit. Distinctive base yields, typically 15% to 50% have been achieved via vanilla covered call and cash-covered put techniques. In addition, tokens are given out, resulting in an even higher return for users.
Several hedge funds have abandoned the 2/20 paradigm these days. The 2/20 strategy is regarded as exceedingly costly and is only used by elite hedge funds that routinely beat by a significant margin. On the other hand, index funds have been pushed towards a zero-fee approach. Passive funds are expected to have no expenses, yet renowned index fund managers like Vanguard can still charge a 0.06 percent management fee.
Index funds could get strong returns, but that would still not warrant high fees as the returns are generated from passive strategies working well in a favourable market and not because of any special effort from the fund manager. Similarly, Crypto DOVs such as Ribbon and Friktion are charging exorbitant management and service fees to crypto investors. Due to this, it does not make sense for DOVs like Ribbon and Friktion to charge fees to crypto investor’s users.
The DOV protocol is primarily an infrastructure provider. They provide access and make it easy for the Defi user to execute these strategies in a trustless manner. A nominal management fee is perhaps acceptable for Ribbon Finance and other DOV protocols for this service. However, zero fees protocols such as ThetaNuts provide more value to investors considering the nature of the strategy implemented.
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