A New Way to Generate Yields
DeFi Options Vaults (DOVs) are a rather recent phenomenon in DeFi (Decentralized Finance). Traditionally in DeFi, discounting ponzinomics schemes, there are 3 different ways to generate yields:
- Yield Farming: You park some tokens or LP (Liquidity Pool) tokens with a vault or pool at a farming protocol, and one or more farm tokens (also known as farm emissions) can be harvested periodically as the farming yield.
- Trading Fees: If you have supplied LP tokens to an Automatic Market Maker (AMM), a portion of the fees that are earned from trading commissions (usually 0.3% of trading volume) will be paid to you that corresponds to your share of the LP.
- Interest: You can also supply your tokens to a money market or leveraged yield farming protocol and earn interest (either more of the same tokens, farm tokens, or a mixture of both).
DOVs represent the 4th manner where yields can be generated through premiums collected from the sale of options tied to an underlying token. I like that it is very different from the 3 traditional methods above and thus represents a distinct diversification of income sources.
DOVs are riskier though — besides the usual risks associated with smart contract exploits and potential protocol rug pulls, with DOVs, there is actually a chance (usually the DOV protocols target around 5%) that you may lose some of your capital. However because…
