Degen Vaults


Degen vaults are option spreads designed to allow users to take on directional bets on the market. Unlike selling vanilla puts and calls where users have to collateralize the entire range, users of degen vaults would only need to collateralize the range between the option spread. This promotes capital efficiency as users can implicitly choose their leverage by depositing part, or all of their assets into the vault.
This strategy's main risk is that users' posted collateral is fully lost as the spot price of the underlying asset moves toward the strike price of the long option. The high APY% shown in the UI serves as a basis for comparison with the annualized returns of other options products.

How to use these strategies?

The use of the degen vault(s) requires active management where users need to have a strong market view before deploying their assets into this strategy as their posted collateral can be entirely lost. The main use cases of this strategy are to either make huge bets on the market or to be capital efficient.
A user is managing a 1,000 USDC portfolio. He/she has a market view that the price of ETH would moon next week.

Action Plan 1 (directional bet)

The user can use the 1000 USDC to buy ETH. This exposes him to both the upside and downside of ETH.

Action Plan 2 (passive income generation):

The user can deploy 1,000 USDC into a basic eth-put selling strategy to achieve a 20.77% APY.

Action Plan 3 (high-risk high-reward):

The user can deploy 1,000 USDC into the bull put spread to achieve 4K% APY. This strategy is high risk and high reward.

Action plan 4 (promoting capital efficiency):

The user can deploy 100 USDC into the bull put spread to achieve 4K% APY and deploy the remaining 900 USDC into a lending market to achieve a 1% APY.


The main risk of using this strategy is that the user would start to lose part of their posted collateral once the spot price of the underlying asset crosses the strike price of the short option. The maximum loss scenario is when the underlying asset's spot price approaches the strike price of the long call/put option. The long call/put option is exercised and the max loss is capped to the user’s posted collateral.

Strike price selection:

Prior to each degen vault auction, the protocol team would optimize the strike price of the spreads to ensure that the weekly yield achieved is greater than current vanilla option offerings in the market. The iron condor is currently made up of the existing bull put and bear call spreads. As a start, the long and short option strike prices will be based on adjusting the spot price upwards or downwards (e.g for ETH, +100/+150 or -100/-150) rounded to the nearest strike price.
For example, if the spot price of ETH is $1302:
  1. 1.
    The bull put spread would have a $1,200 short and $1,150 long put strike price
  2. 2.
    The bear call spread would have a $1,400 short and $1,450 long call strike price
  3. 3.
    The flat iron condor would have the same parameters as the bull put spread and bear call spread.
Adjustments to the strike price selection methodology are under constant review by the protocol team and feedback from the community is welcomed. The long-term goal would be selecting strike prices based on achieving a sustainable delta target or a fixed range.
The strike prices of the options are selected based on the above parameters at 0900 UTC every Friday just before auctions are conducted.

Here are the 3 main types of degen vaults and a product FAQ