33 types of DeFi Protocols (Part 9)
Learn about Options Vaults, Prediction Markets, and Decentralized Stablecoins.
Part 1 covered Liquid Staking, Lending, and Decentralized Exchanges. Part 2 covered Bridges, Collateralized Debt Positions, and Services. Part 3 covered Yield Protocols, Tokenization of Real World Assets, and Derivatives. Part 4 covered Yield Aggregators, Cross Chain Protocols, and Synthetics. Part 5 covered Launchpads, Indexes, and Liquidity managers. Part 6 covered Insurance, Privacy, and Algorithmic Stablecoins. Part 7 covered Payment Protocols, Leveraged Farming, and NFT Marketplaces. Part 8 covered NFT Lending, Staking Pools, and Options. Part 9 covers Options Vaults, Prediction Markets, and Decentralized Stablecoins.
1. Options Vaults
DeFi Options Vaults enable users to deposit assets to automatically participate in options trading strategies. These vaults manage the assets, executing options trades like selling calls or puts, and aim to earn returns for depositors through the collection of options premiums.
Call options give the buyer the right, but not the obligation, to buy an asset at a specified price (the strike price) within a certain time frame. The buyer of a call option anticipates the price of the underlying asset will go up and aims to profit from this increase.
Put options give the buyer the right, but not the obligation, to sell an asset at a specified strike price within a certain time frame. The buyer of a put option believes the price of the underlying asset will go down and aims to profit from this decline.
In both cases, the seller of the option earns the premium, which is the price the buyer pays for the right that the option grants.
In DeFi Options Vaults, these strategies are automated, and the vaults sell options to earn premiums for the depositors.
No. of protocols: 13
Combined TVL: $35 million
The Top 3 protocols by TVL are:
Ribbon ($19 million)
Thetanuts Finance ($9 million)
AlgoRai Finance ($3 million)
2. Prediction Markets
Prediction markets are platforms where participants can trade shares in the outcome of events.
Here's how they generally work:
Event Selection: A specific future event is chosen, and a market is created where people can bet on various outcomes of that event.
Buying Shares: Participants buy shares for the outcome they predict will happen. The price of these shares reflects the market's belief in the likelihood of each outcome.
Market Trading: Like any market, participants can buy or sell shares at any time. Prices fluctuate based on how the market assesses the changing likelihood of each outcome.
Resolution: Once the event occurs, the market is resolved. The protocol determines the correct outcome, and the shares of the winning outcome become redeemable for a payout, often in cryptocurrency.
Payout: Participants holding shares of the correct outcome can claim their earnings, which typically come from the pool of funds from the losing bets.
Prediction markets are not only used for betting but also as forecasting tools, as they aggregate the collective wisdom and information of all the participants, which can sometimes lead to highly accurate predictions.
No. of protocols: 34
Combined TVL: $26 million
The Top 3 protocols by TVL are:
Polymarket ($8 million)
Azuro ($5 million)
Gnosis Protocol ($4 million)
3. Decentralized Stablecoins
Decentralized stablecoins are cryptocurrencies whose values are pegged to assets like the US dollar. But they achieve stability through decentralized mechanisms, instead of relying on a central authority to maintain the peg.
Crypto-collateralized Stablecoins are backed by other cryptocurrencies held in smart contracts. Users over-collateralize, meaning they deposit more cryptocurrency than the stablecoin they take out, to account for volatility.
If the value of the collateral falls below a certain threshold, the collateral is liquidated to ensure the stablecoin remains fully backed.
Algorithmic Stablecoins are not backed by any collateral. Instead, they use algorithms to control the supply of the stablecoin, expanding or contracting it in response to changes in demand to maintain the peg to the USD.
Seigniorage-Style Stablecoins are a variation of the algorithmic approach where the system's algorithm issues more coins when the price is high (above the peg) and buys them off the market when the price is low. The idea is that by controlling supply, the price can be stabilized.
No. of protocols: 4
Combined TVL: $24 million
The Top 3 protocols by TVL are:
Djed Stablecoin ($15 million)
UXD ($9 million)
Milkomeda-C1 Djed ($11,000)