Hello everyone. I'm Dan from Risk. I am the co-founder of Risk. At Risk, we build the infrastructure for volatility markets on the blockchain. So, for the last five or six years, I've basically been six years, I've basically been creating options and I've been obsessed with creating options.
And there is some revelation that I think we have understood in this area, which is something like this . Er, options don't work in DeFi. So every time I talk to someone for the last three or four years, I say, "I'm creating an options protocol." And the first reaction: “Yes, but people don’t want options. Options don't work in DeFi.
"Why are you even creating this?" The thing is, I actually tend to agree with them . After years of creation, I realized they were right. They're not crazy people, and the reason why options are so hard to work with, especially in DeFi, is because there are different challenges that we, you know, need to face. And in products like, for example, warrant glass exchanges, we've seen products like Hyperliquid, they have warrant glass; That's great, they attract a lot of liquidity, but when it comes to options, the challenge is completely different.
Now you are targeting very professional traders. It's very difficult to bootstrap liquidity, and I can give you a very simple example, for example, when you have a constant market in BTC, you have one glass of orders. When you have a BTC options market, you need a bucket of orders for every strike price, every expiration date, every, um, um, you know, asset, and so it's put and call options, so you essentially have hundreds of buckets of orders. And in reality, you may only have a few very liquid order books, but everything else is actually not liquid enough liquid enough , and the cost of illiquidity is very high. So most of the order book exchanges were down.
We have also used an options repository in the past. The option vault was a way to package options into a strategy that generated income. So, the bottom line is that you, as a user, contribute an asset and the repository runs the strategy for you. These strategies were very systematic back then, and ultimately, what happened was that they just lost money because they were too systematic, it was very easy to, uh, succeed, and ultimately most of them failed. There is a third alternative.
This is not purely DeFi, but it is how people trade options most of the time these days. This is over-the-counter trading over-the-counter trading . So you go to the options department and say, "Hey, I'd like to do a trade. Name a price." If you agree to the price, you make a deal.
So, essentially, this is happening in a very non- happening in a very non- DeFi way. This is mostly similar to what happens at TradFi. So you don't have any transparency. This is limited. This is a manual process.
So we, as Risk, have also created a product for this industry. This was our V1 three or four years ago. It was a very nice interface, at least in my opinion, but still very complex. And what happened is that we tried and failed. We were targeting options traders, but the reality is that options traders are very experienced, so they ended up not using the product.
So we have no users, no TVL. In the end, we had no escape. So it's quite difficult. But there is something we have learned about it. And we learned that focusing on the option is, in fact, somehow wrong.
So, what I'm trying to say is that volatility and options products are some of the most used in TradFi, but options are not a product. The product is what you can get from these options. And the reasons for using options are different. One is options are different. One is purely speculative, and most users now do this with perpetual options.
It is very easy to use. Or they do it, for example, with a forecasted market forecasted market , right? So if you want to speculate and you think I don't know if the market is going to go up or down, you won't use options. They are too complicated. You will use something else.
But there is a second use of options that is the most interesting to us, and no one has really focused on this, namely that you can generate income using options strategies. And that's something you don't do with, um, a perpetual option, you don't do that with a prediction market. So our whole thesis was , can we create a product that is purely DeFi where people can actually earn income? So instead of targeting traders or users who want to get some speculation, we target target anyone who actually owns a certain asset and wants to get income from that asset. So, in the end, we started rethinking everything from scratch.
And instead of from scratch. And instead of focusing on the exchange, we focused on creating a primitive. Now we have created a primitive for generating income from strategies. We designed the entire product to be designed for one very specific use case, and we try to do it very well. So we use the RFQ system to get the best price.
Settlements take place on the blockchain, and collateral is also on the blockchain. We are trying to essentially reduce counterparty risk. And all our positions are fully secured fully secured , without liquidation. So , without liquidation. So , our idea was to embed them in the file.
We want to benefit from our product file. Here's what we did. We made it composable. We do not do any remortgaging. We believe that an asset should be collateral, and the collateral for the asset should be secure.
She should be there. No one should be able to touch her. We designed it to be completely online. The idea is to potentially allow markets to have volatility on any asset. So, we completely redesigned the user interface, and, you know, I've already shown that our product was very complex with all the execution prices, expertise, push- expertise, push- buttons and everything else.
We reworked it in a very simple way. So, in this case, it's a covered circle tool. We did it in a way that the user goes to the UI and asks: At what price are you willing to sell Ethereum on a certain date? In this case, you know, in 53 days, July 31st. You choose a strike from those we offer.
So, the price of Ethereum was 1.6 when I took the screenshot. You can say, "Okay, the price is what I'm willing to sell for 2.2. That's how much I'll get."
There is a request for quotation (RFQ) system. So we send this to the options desk traders wherever they want. They price options in a 2- options in a 2- second auction. The best price is shown and we, as a protocol, facilitate the transaction, meaning the counterparty sends USD, and once the user sends collateral, it goes to the smart goes to the smart contract, not the counterparty. This way, all the security is locked down and users can see the security at any time and no one else can use it.
This is what has been happening over the past few years. So as you can see, this is just a TVL chart, and obviously all the ups and downs are time dependent. So every time you see the chart go down, it's because we or the protocol is settling positions every Friday. So, we refund the money to the user, the user gets, you know, the deposit back in a very simple way, but overall you can see an upward trend. And you know, as a developer, it's really interesting to me to think that every Friday we think, " Friday we think, " Okay, our TVL is down, let's see if we can get it back."
And it so happens that we have a 90% retention rate, so most users continue to return capital, and the reason for that is that we designed this protocol for very disposable use. So most of our users are not options traders, they have never traded options before, but they own assets. So they own ETH or stablecoins, and they are ready to make money on these assets in a very simple way. They understand what is happening. They have the flexibility to choose, say, their risk profile.
So they determine the strike price, the expiration date, how much they will get, they decide when to open the deal. So they have maximum flexibility, but in a completely, um, completely transparent way. And what we did, we also kept it completely in DeFi. So, you have an asset, you just put it into a smart put it into a smart contract, there's no need for bridging, you have it, you see the collateral at collateral at any point in time, you don't need to trust anyone in the process. Hmm, what happened is that now we also have institutions that can use it.
And, um, the image I'm using here is actually, yes, I am what actually, yes, I am what I really like. I'm Italian and it looks like the Milan Stock Exchange and there's a statue in front of it that I think best represents what we're building here. To me, it's like we need to remember the crypto remember the crypto ethos. So we create institutions to exploit risk, but the reason they exploit risk exploit risk is not because they are doing the same thing as five-for-five trading, but because they can benefit from DeFi. And in our case, the main advantage is complete transparency and the absence of credit risk.
So, they don't need to trust any counterparty. They do not need to send collateral to the counterparty. They can run this completely DeFi. So this is something completely DeFi. So this is something I've personally been fighting for a lot lately.
This is how to build in DeFi, we build in the crypto build in the crypto space. We need to make sure we continue to build in this way, and even when it comes to products like volatility, options or derivatives, there are so many cuts and compromises that can be made. But we believe we shouldn't go to any of them. The advantage of being on the blockchain is transparency, reduced counterparty risk, a guarantee of collateral, and a guarantee that no one can use it. So, that's how we're completely designing the protocol, and that's how we think DeFi, particularly when it comes to options and derivatives, should work in this case.
So the institutions that are now using risk using risk are doing it in a way that they are still trading with the counterparties of their choice , they still have full control, they can do it even with permission, but they are actually getting the benefits of this infrastructure and this volatility infrastructure on- chain. So, one interesting aspect of what we've been building lately is that I'm showing you the product. I noticed this. It's, you know, as a user, you go in there, you open your position, and that's the beauty of the product now. But we understand that we are actually creating a completely new infrastructure for a new type of product.
So, in the case of institutions, they create, for example, they launch their own structured products using our infrastructure. They can launch ATF-like products on a risk-based basis today, using, you know, again, infrastructure. So, recently we've been focused on developing infrastructure for volatility products, structured products like ETFs, using, you know, volatility and option generation. And we do it this way: we use the old advantage of blockchain. So we completely eliminate counterparty risk.
We use a request for quotation ( quotation ( RFQ) that is completely blockchain-based. So essentially, all counterparties can integrate can integrate , they can set prices, everyone can see the price, and our main value of integrating these counterparties into RFQ is creating a level of liquidity for these advanced structured products and options that everyone can plug into . And we use a settlement layer that is currently battle-tested, very secure, with full transparency, completely DeFi. And we just deployed to Ethereum. We do this on the Ethereum mainnet.
We deployed the product literally yesterday. You'll see a lot of announcements about this in the next few weeks. The reason for this is what we believe the ethos of the product should be. So, we see Ethereum as where most of the assets are. We see Ethereum as a neutral product and blockchain that is trusted by institutions, users, and more.
The advantage of what we created as Risk is that we can create as a cell the infrastructure for the volatility product. We can create them on any asset. So the idea is that by building on Ethereum, we can provide volatility to volatility to any asset available on- chain. You can use it as collateral. For example as collateral.
For example , next week we are going to launch gold, but the idea is that we can create a volatility market out of anything. So Ethereum is a natural home for what we're building, and you know, I'm personally very excited about launching on-chain. We are trying to do it the way we think Ethereum and DeFi should be, which is to minimize trust. We eliminate all trust. We eliminate any, I've mentioned this many times, but this is a pretty important matter.
There is no credit risk when using our product. That's why we believe Ethereum we believe Ethereum is the right place. Institutions are starting to use it to use it . Users are satisfied with the chain and its security. So, what does the future look like?
As I mentioned, volatility is a derivative. Like derivative. Like any derivative instrument, they have to rely on a few pillars to make sure that they're long-term oriented and that they, you know, don't essentially have to trust anyone. Therefore, we ensure that what we develop absolutely minimizes trust. We don't need any intermediaries.
We are getting the most out of blockchain. Um, they shouldn't, uh, give up custody of the asset. These are custody of the asset. These are probably all the pillars we are thinking about. So, no counterparty risk, full blockchain, full transparency, and most importantly, it should be available to everyone.
So the main point of what we've done with Risk over the last few months, and what we've changed in this space in general, is that we've made our product accessible. Risk is not a product for experienced options traders. This is a product for This is a product for anyone who owns assets and wants to earn money from them. We are very transparent about the results. We are very transparent about how we use them.
We are very transparent in everything we do. So, accessibility is the whole point of what we build in general, and what we expect all DeFi products all DeFi products based on Ethereum and DeFi to focus on. Thank you.
Automatic transcript — names and jargon may be misspelled.