Katana is a DeFi Options Vault (DOV) protocol operating on the Solana network, having won the grand prize at the Solana Hackathon.
What is Katana?
Katana allows anyone to sell covered call or cash-secured put options, by depositing their assets into a pool, which is then used as collateral to sell options.
Previously, only market makers and experts have been able to earn from selling options, as it can be extremely complicated and very risky.
How Do The Vaults Work?
Assets deposited into Katana are used as collateral to sell options on platforms such as PsyOptions, and through the joint venture with Katana and ZetaMarkets, named ZetaFLEX, which is a platform that runs auctions, selling options in bulk to interested parties.
DOVs claim to make it possible for anyone to benefit from a high, sustainable yield. Katana advertises projected Annual Percentage Yields (APYs) between 20-60%, with most falling between 20-30%.
Note, this comes with risks.
Deposits into DOVs can suffer losses. Generally, they sell far out-of-the-money options, for example, a call option at $110 when the price is $80. If the price jumps to $180 before expiry, this would result in a significant loss.
These losses could be mitigated by hedging against price movements in underlying assets (delta hedging), however, we are yet to see this successfully implemented on any protocol
Our Opinion
DOVs are an essential part of the derivative market and something we see absolutely exploding in the next 12-18 months.
There are some major hurdles that need to be overcome before they can be used for safe, consistent, and sustainable yield (such as Delta hedging).
