Introduction

In the rapid expansion of the DeFi ecosystem, derivative projects continue to innovate and emerge. However, despite the rapid development of the decentralized derivative trading market over the past two to three years, the trading volume still falls short of centralized exchanges. DeFi derivatives in the market can roughly be divided into perpetual contracts, options, synthetic asset classes, and interest rate derivatives, among which perpetual contracts have the largest trading volume and dominate the derivatives market. With the rise of other public chains and the launch of Layer-2s, the underlying performance of perpetual contracts is breaking through, showing strong vitality.

Options are the only financial instruments in derivatives that can provide trading prices, time, and volatility. They can offer more diverse and flexible ways to invest than spot markets. In the past two years, the DeFi options track has expanded rapidly, significantly increasing trading volume and the number of users. However, the trading volume still accounts for a lower proportion of the total market trading volume. There is still a huge gap between the trillion-dollar spot and perpetual contract markets, and the development space has not been fully tapped. Due to the high threshold of options, most cryptocurrency options trading volume is still focused on centralized exchanges, with Deribit being the dominant player. Professional investors and market makers primarily participate in this, with the main trading contracts targeting mainstream assets such as BTC and ETH. The Ribbon Finance team has been deeply tilling the options track since 2021, constantly exploring new development paths for this track. The structured option products it launched have attracted a lock-up value of up to 300 million US dollars. Last year, the team transformed the product and renamed it Aevo, and then launched a perpetual contract product. This article will focus on the business logic of Aevo products, and analyze its economic model and development status in detail.

What is Aevo?

Aevo was formerly known as Ribbon Finance, a structured options product protocol, and has been dedicated to constructing DeFi option derivatives since 2021. The two core founders, Julian Koh and Ken Chan, have worked in software development at Coinbase, and the team members have impressive backgrounds. Before transforming into Aevo, the team received seed funding from Coinbase. In March 2022, they secured $8.75 million in a Series B funding round led by Paradigm. At one point, the locked-up value exceeded $300 million, demonstrating a robust financing lineup. However, the total value locked (TVL) experienced a drop due to an attack and the backdrop of a crypto bear market. In July 2023, the Ribbon Finance community voted to merge into Aevo, and the team has just completed the AEVO token airdrop in February this year.

Aevo is a decentralized trading platform dedicated to options and perpetual contract trading, and it operates on an order book model. The product was launched on the mainnet in April 2023, and in August of the same year, the perpetual contract product was launched. Aevo is built on its own Layer 2 network, which lowers security based on the classic Optimism Rollup to speed up transaction confirmations. The protocol uses USDC for the final settlement. Recently, Aevo initiated a liquidity mining incentive program and a token airdrop, attracting a significant amount of funds and users. This move has heated the market, and the Total Value Locked (TVL) has reached a historical high.

Technical Architecture

Aevo is built on its own Layer 2 network, utilizing Optimism Rollup to achieve high throughput and low latency. From an architectural perspective, its ecosystem primarily consists of Aevo L2 and Aevo DEX. Aevo DEX operates on top of L2, adopting an off-chain order book and an on-chain settlement model. This trading model allows Aevo to offer an experience close to that of a centralized exchange (CEX).

Aevo implements an off-chain order book, where traders’ orders are quickly matched off-chain. This system is complemented by a corresponding risk engine, which evaluates and appropriately matches based on the user’s margin account, ensuring enough collateral in the user’s account to complete the trade. Once an order is matched off-chain, Aevo’s smart contract swiftly executes the trade and performs on-chain settlement.

Source：Aevo Docs

The liquidation process is designed to reduce the position risk of traders and the system’s risk exposure. When a trader’s portfolio cannot meet the margin ratio, the system will initiate the liquidation process, using the liquidation engine to reduce positions and recover account balances gradually. If unable to pay, an insurance fund will be activated for compensation.

Product Logic

Aevo Option

Aevo provides users an options trading platform, currently only offering options contracts with BTC and ETH as the underlying assets. The platform provides options contracts with different expiry dates, such as daily and weekly (mainly), and different exercise prices. Users can choose based on their investment needs, but they cannot create any option on their own. Similar to general options exchanges, users only need to enter the number of options they want to buy, the underlying asset, the expiry date, and the exercise price. The platform uses USDC for transaction settlement.

Source: Aevo App

Aevo Perpetual Futures

The contract product was launched a while after the options, and its operation logic is no different from a typical perpetual contract exchange. It supports up to 20x leverage, and users can leverage long or short a wide variety of assets, currently supporting nearly a hundred assets.

Source: Aevo App

Pre-Launch Token Futures

The pre-launch token futures contract is a novel financial product introduced by the team. It allows users to assess and trade the value of a token before its official release and listing on external exchanges. It currently supports four token assets: ENA, W, BLAST, and PARCL. This product caters to investors’ speculative needs, enabling predictions and speculation on unreleased tokens. However, it carries a certain level of risk. Accordingly, the team has established stringent position limitations and contract caps.

This product requires traders to pay an initial margin of 50%, allowing a maximum leverage of 2 times, with a maintenance margin ratio of 48%. The contract does not have an index price or a funding rate. However, once the token is live on the spot market, an index price will be referenced immediately, and a funding rate will be applied. The platform imposes a 25% taker fee, a 10% maker fee for trades, and a 5% liquidation fee. When the token starts trading on an external exchange, settlements will be conducted in USDC.

Source: Aevo App

aeUSD

aeUSD is a collateralized yield asset launched by the team at the end of December last year. Users can convert USDC to aeUSD for free on Aevo, with a maximum leverage of 20 times. aeUSD is an ERC-4626 asset based on Aevo L2, and is a combination of USDC and sDAI. It is also a whitelisted collateral asset of the exchange, with a 100% collateral ratio, allowing users, market makers, and institutions to obtain an annualized exchange margin interest rate of 4.75%.

Tokenomic Model

AEVO is the new name for the native token of Ribbon Finance, previously known as RBN. RBN is already circulating on the market, and the DAO previously owned the largest share, specifically, 45% of RBN will be exchanged for AEVO on a 1:1 basis. Original RBN holders will also be able to exchange for AEVO on a 1:1 basis, with a two-month unlock period.

The 45% of AEVO owned by the DAO will be further subdivided: 15% will be used for incentives (including airdrops), managed by the Growth and Marketing Committee; 9% will be used for initial liquidity support, managed by the Finance and Revenue Committee; 5% will be used for community development and bounty programs; 16% will be reserved for future project support funds (2% of the annual reward allocation funds for contributors will come from this part).

According to the former RBN tokenomic model, AEVO’s maximum supply is 1 billion, with a circulating supply of 110 million. Per the updated token distribution rules, private investors will receive 18.5% of the maximum supply. The Binance Launchpool, market makers, community airdrops, the team, the corporate treasury, the DAO treasury, and other circulating RBN tokens will be allotted 4.5%, 2%, 3%, 23%, 2.7%, 36%, and 10.3%, respectively. Each of these will be exchanged at a 1:1 ratio for AEVO.

Source: Binance

AEVO token will have two functions: governance and staking. (1) AEVO holders can participate in protocol governance through voting involving product upgrades, listing of coins, and DAO governance proposals. (2) Users who stake AEVO tokens can receive transaction fee discounts when trading and participate in the trader reward program to gain higher rewards.

Aevo recently announced on March 13 that they have opened claims for an airdrop, distributing 30 million AEVO tokens. However, this has sparked controversy within the community. Participants claim that the token airdrop was primarily based on trading volume, leading to widespread wash trading by many institutions and investors. In response, the team updated the airdrop rules to reward genuine traders and penalize wash traders. This change has resulted in dissatisfaction among users and organizations involved in high-volume trading.

Current Development Status

Aevo’s business data is growing, with the total value locked (TVL) continuously rising. The trading incentive plan and token airdrops have attracted a wave of capital, and the current TVL is close to 100 million USD.

Source: DefiLlama_

Since the beginning of this year, the platform’s trading volume has surged, and recently, the trading volume of contract products has surpassed options. New traders enter the platform every week, with the weekly user volume reaching over 60,000 at its peak.

Source: Aevo Metabase App_

Source: Aevo Metabase App_

Conclusion

Aevo, a project focused on derivatives, has established a derivatives trading platform with an off-chain order book and on-chain settlement through its L2 architecture. Moreover, it has introduced an innovative product - Pre-Launch Token futures contracts. This allows users to potentially profit from new coins early, fulfilling speculative demands. The team has an excellent background, and the project has received support from well-known industry investment institutions such as Paradigm and Coinbase. Recently, due to the appeal of trading incentives and token airdrops, there has been an influx of capital and users, leading to continuous growth in business data.