[BIP-227] Upsize BAL allocation in Ribbon Finance Treasury Vault

PR with payload


In July 2022 Balancer passed BIP-24 which allocates 200K BAL (~$1.3M) to a Ribbon BAL Covered Call treasury vault. The call-writing strategy has significantly outperformed buy-and-hold since inception, earning 221,885.41 USDC for the Balancer subDAO treasury.

Currently, 4.16% (200K / 4.8M BAL) of the treasury BAL is allocated to the Ribbon vault. We propose to increase the allocation of BAL to the vault.


The original rationale for BIP-24 still stands today:

  1. We are still in the midst of a significant bear market both for the price of BAL and for DeFi assets overall. This thesis was validated since BIP-24 8 months ago: BAL has remained range-bound between ~$4.5 - ~$7.8 from July to March (fig. 1).
  2. The DAO wanted to explore ways to bolster stablecoin reserves – indeed the strategy has shown results, earning 221K USDC on $1.3M worth of BAL.

Figure 1

We think it is prudent to increase the allocation at this time for the following reasons:

  1. Implied volatility has been picking up recently, thus, selling calls is more attractive and is rewarding sellers more appropriately for the risk they are taking. One can observe below the 2-weeks implied volatility of ETH, which is a good proxy to see how implied volatility is moving for altcoins too (fig. 2).
  2. Since BIP-24, more market makers and institutional players have been participating in Ribbon Auctions for altcoins, making the bidding process more competitive. As a result, over the 8 months these options trade at increasingly tighter spreads and higher premiums, effectively generating more revenue for the DAO.
  3. While the strategy has been performing well so far, the current performance is quite path-dependent and we could structure this second vault to reduce the path-dependency of the initial covered call strategy (see implementation).

Figure 2

Current Strategy

Since inception, the current strategy generated 221,885.41 USDC. This converts to 22.58% realised yield using the initial BAL deposit of 200k BAL, which was worth roughly $982,681.77. Using the current BAL price of $6.58, this converts to 16.86%.

It is possible that some of the following options end up in-the-money in which case the strategy may have a lower return and possibly underperform buy-and-hold. I want to refrain from using “APR” for this very reason, since it is a trade and not a loan, but annualizing both figures, this would convert to 33.23% and 24.13% APR respectively.

Out of the 8 trades expired, only one expired in-the-money, resulting in a loss of 3,474.75 BAL.
One can compare the current strategy to a simple buy-and-hold strategy by looking at the graph below.

One can find the raw data below.

The current covered call strategy is outperforming the buy-and-hold strategy significantly so far.


While the current strategy is selling monthly 25% OTM options, we propose to also sell biweekly 20% OTM options. As this strategy will be rebalanced on different schedules and different strikes will be chosen compared to the monthly strategy, it will effectively reduce the path-dependency of the overall portfolio, leading to lower drawdowns overall. The amount of BAL we allocate needs to match the BAL in the current strategy for it to be effective.

In the current market conditions, the additional biweekly layer is expected to yield 1.22% every two weeks (paid out in USDC). Obviously, this premium will change on a trade per trade basis but if you want to have an idea of what it would mean in APR terms, this converts to an APR of 31.69%.

This proposal will be a vote on how much to increase the current strategy by, and by extension the allocation for the biweekly 20% OTM options strategy.


Since July 2022, this strategy has earned 221,000 USDC on $1.3M BAL for the subDAO due to a bearish / sideways / low realized volatility thesis. We believe these conditions will continue for a while given the macroeconomic. If the community agrees with this thesis, then it may be prudent to double-down (7%-15% treasury allocation) to increase profits and minimize path dependency.


Market Risk: The primary risk for running this covered call strategy is that the vault may incur a biweekly loss in the case where the call options sold by the vault expire in-the-money (meaning the price of BAL is above the strike price of the call options minted by the vault).

Smart Contract Risk: The Theta Vault smart contracts have been audited by OpenZeppelin and ChainSafe. Balancer has been in this strategy for 8 months without smart contract exploits– despite that, we always advise to exercise caution and only risk funds they can afford to lose.


It is up to the community to decide how much more BAL is reasonable to allocate to this, if at all. Note that the depositor (the Balancer subDAO) has the flexibility to downsize the position, add to the position, or exit the strategy entirely.


Below are a few options. Please Vote!

  • Keep as is
  • 2x (400K total in 25% OTM monthly / 20% OTM biweekly) - 7.8% of treasury
  • 3x (600K total in 25% OTM monthly / 20% OTM biweekly) - 11.7% of treasury
  • 4x (800K total in 25% OTM monthly / 20% OTM biweekly) - 15.6% of treasury

0 voters


If approved, the DAO Multisig eth:0x10A19e7eE7d7F8a52822f6817de8ea18204F2e4f will call approve on the BAL token contract 0xba100000625a3754423978a60c9317c58a424e3D with spender 0xA06a03d72F1b6350b3aA75524863823eB14dC864 and amount 200000000000000000000000.

This will allow the new Ribbon vault contract to spend 200k BAL.

Then the DAO Multisig eth:0x10A19e7eE7d7F8a52822f6817de8ea18204F2e4f will call deposit on the Ribbon vault contract 0xA06a03d72F1b6350b3aA75524863823eB14dC864 with amount 200000000000000000000000

This will deposit 200k BAL in the Ribbon vault.


I think increasing this allocation makes a ton of sense. BAL has very high on-chain liquidity relative to market cap and has an immutable emissions schedule (lots of guaranteed printing). This dynamic means large sustained upward spikes in price are unlikely, compared to a generic token with low on chain liquidity and zero or low emissions. I also think the last six months are likely to be indicative of the next 6-12 months (chop market, no sustained bull or bear). This is the perfect strategy for this kind of market and BAL dynamics further reinforce that.

Thank you to ribbon guys for taking the time to do this proposal.

I agree with @solarcurve that during the last 6 months this strategy has been very good for the DAO. However, I am not entirely convinced if we should increase the allocation now given that the year 2 funding gap has been secured by the BAL OTC deal. Additionally, emissions will decrease (although not significantly) and market outlook is not too bearish so there is potential upside for BAL price. So if we go down this route we should carefully assign a meaningful allocation.

The strat has worked out relatively well so far, but I fear allocating too much of the treasury to this strat. My vote is to go 2x and see how things turn out over another few months. I fear depositing too much in the case the market turns quickly and we lose a substantial amount of the treasury funds. Nobody knows how things will turn out price wise, but once money starts flowing in the system more freely we could see a big upturn. Maybe that is just me being optimistic though :blush:.

The new Balancer Ribbon Vault with bi-weekly expiry and 20% OTM strike: 0xA06a03d72F1b6350b3aA75524863823eB14dC864

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