Derisking the Dip ($)

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1. 🚫 House Dems Move to Ban Presidential Memecoins. House Democrats propose the MEME Act, aiming to ban public officials from launching tokens like TRUMP.
2. 📉 Pump Fun Activity Plummets Amid Memecoin Fatigue. Pump.fun tokens see a swift drop in daily launches and DEX graduations, hinting at broader market fatigue.
3. 🤝 The SEC Drops Its Case Against Consensys. Consensys and the SEC finalized an agreement to dismiss the MetaMask securities enforcement case.

	Crypto $2.81T	↗ 1.3%	↘ 12.2%
	BTC $84,318	↗ 0.9%	↘ 14.1%
	ETH $2,317	↗ 1.2%	↘ 15.4%

Market Plays:

• 🌊 Leveraging Smart Collateral on Fluid Multiply
• 🤖 Checking wallet mode in the Bankr Terminal
• 🎮 Playing Duper for an Abstract flash badge
• 🦄 Trying Uniswap on the Monad testnet
• 🪙 Trading Zora coins on Base

Hot Reads:

• 🧱 Block Building in Taiko - Optimus
• 📆 Variant February Roundup - Variant
• 🐱 JUP: GOAT, Litterbox, Belief - Meow
• 🔒 Safe{Wallet} Statement on Bybit Attack - Safe
• 📰 EF AMA Summary February 2025 - Sprintcheckout
• 🔵 How Base Can Solve Their Short-Term Blob Problems - mteam.eth

Farming Opps:

• 🟠 BTC: 54% APR with Aerodrome’s tBTC-cbBTC pool on Base
• 🟠 BTC: 12% APY with Pendle’s WBTC (Bera) PT on Ethereum
• 🔵 ETH: 26% APR with Convex’s ETH-xETH vault on Ethereum
• 🔵 ETH: 10% APY with Pendle’s liquidBeraETH PT on Ethereum
• 🟢 USD: 143% APR with Aerodrome’s USDC-USDT pool on Base
• 🟢 USD: 25% APY with Orca’s USDS-USDC pool on Solana

Airdrop Hunter:

• 🐻 Berachain: Bridge to Berachain
• 🏦 Beraborrow: Acquire NECT
• 📷 Kodiak Finance: Provide Liquidity
• ❄️ BurrBear: Provide Liquidity

This week brought with it an undeniable vibe shift in the crypto market. Just last month, investors were eagerly anticipating new all-time highs, but the past few days have been marked by significant declines in crypto’s majors and profound weakness for many top altcoins.

In our citizen-exclusive Bankless article published last week, we revealed how risky 0DTE crypto options can enable you to profit big from sudden market swings. The recent fall in prices proves just how powerful such options can be, with 0DTE put options returning core-shaking multiples amid the chaos!

Fortunately, options aren’t all about short-term speculation and gambling. Today, we’re exploring how longer-dated put options can help to hedge your portfolio against catastrophic losses in another disastrous downside scenario. 👇

🧐 Why Options?

For market participants who aren’t quite ready to cut all crypto exposure, but who remain fearful of future drawdowns, diverting a relatively small percentage of their portfolio to make an opposite bet (i.e.; hedging) could be a worthwhile endeavor to protect against potential losses.

While perpetual futures have become commonplace among crypto traders, as we highlighted last week, crypto assets are prone to wild fluctuations in price, subjecting even directionally correct positions to liquidation and forcing traders to chase market moves.

Alternatively, in exchange for a fixed one-time payment, options holders receive the right to buy (call) or sell (put) an asset at a fixed price until a future date, allowing them to forgo all risks of price-based liquidation.

In comparison to speculative options strategies intended to generate profit, like purchasing explosive zero-days to expiration options, hedging is a powerful portfolio management tool that allows traders to derisk their existing positions. 

How to Trade Zero-Day Crypto Options on Bankless

Step inside the casino with 0DTE crypto options protocols.

BanklessJack Inabinet Feb 13, 2025 • 5 min read

🦔 How to Hedge

Crypto call and put options can be purchased through a variety of platforms – including centralized and decentralized crypto-native exchanges – but for investors worried about true calamity, acquiring such options through a traditional stock brokerage may be the best strategy, as these venues offer better pricing than decentralized alternatives and have a much lower risk for insolvency or fund misappropriation compared to CEXs.

Your favorite altcoin is unlikely to be listed in a traditional stock brokerage, and in the United States, only a select spot BTC exchange-traded funds (ETFs) have listed options. Although hedging a diversified portfolio of crypto assets with BTC options is not ideal, it should enable you to capture offsetting gains in the event of a market-wide selloff.

Hedges can be placed using put options of any maturity date, but for investors uncertain about when a drawdown could occur or how long it will persist, options that expire multiple weeks or months in the future are the best bet.

Options are priced based on a multitude of factors, and while further-dated options are more expensive, they provide greater flexibility and allow for less active investors to set-and-forget their downside protection.

Additionally, while the value of an option is bound to fluctuate over its lifetime, a put hedge maintains the same short exposure throughout its life, and options that expire further in the future are less susceptible to daily changes in the price of the underlying (for the purpose of this example, we will use BlackRock’s IBIT).

To perfectly hedge a portfolio of 100% BTC from all downside, an investor would want to purchase at-the-money IBIT put options, meaning they have a strike (the guaranteed price at which IBIT can be sold until expiration) equal to the current share price of IBIT, which was $48 at the time of this analysis.

On traditional exchanges, call and put options are sold in bundles of 100 shares, meaning that purchasing one IBIT put option at $48 will protect a portfolio of $4,800 BTC from all downside until the maturity of that option.

Seen below is the option chain for IBIT puts expiring on April 4, 2025, as of market close on February 26, 2025. In this example, each $48 IBIT put option costs $305, and purchasing one eliminates all downside risks for a hypothetical portfolio of $4,800 BTC for more than six weeks.

Investors seeking protection from a catastrophic crash, but who are comfortable bearing some downside risk, may desire out-of-the-money IBIT puts, which have a strike price below the current price of IBIT.

For example, an investor seeking protection against a BTC drawdown exceeding 16.6% until April 4, 2024, could purchase the $40 IBIT puts shown above for just $60.

While these options will provide no coverage for as long as IBIT stays above $40, they are one-fifth of the price of the $48 IBIT puts, enabling hedgers to secure more cost-effective downside protection in the event of a large market drop.

❓ Should You Hedge?

Every investor has a unique situation, and while we cannot recommend whether you individually should hedge your crypto portfolio, we can certainly alert you to this option!

Crypto markets are no longer trading all-time highs, but for investors fearful that an impending dip could significantly reduce their portfolio value, purchasing IBIT or other BTC-related ETF puts that expire multiple weeks/months from now remains a viable low-cost strategy to derisk and earn profit in the event of a market decline.

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Catalyst Overview:

SKY/MKR was down 36% of its previous Bankless bear rating at the time of this analysis (February 21), but the tokens had been pumping throughout much of the month alongside a sharp increase in the circulating supply of its USDS/DAI stablecoins.

Pros:

• Relatively High Yields: Compared to its leading yield-bearing stablecoin competitor, Ethena’s sUSDe, Sky ecosystem staked sUSDS/sDAI has offered higher returns in recent weeks due to crypto funding rate compression.

Cons:

• Falling Stability Rates: To retain depositors, a recent Sky governance proposal implores delegates to consider reducing stability fees – the interest charged to stablecoin borrowers – on a multiple leading vaults.
• Burning Cash: While above-market yields enabled Sky to expand its USDS/DAI supply in February, the expansion was collateralized by lower-yielding stablecoin and RWA assets, which resulted in the protocol operating at a net loss throughout the month. 
• Yield Downgrade: If passed, the governance proposal referenced above would also decrease sDAI and sUSDS yields from their current levels of 7.25% and 8.75%, respectively, to 4.75% and 6.50% (essentially the same interest rate offered on short-term US treasuries) to offset decreasing revenues.

Price Impact:

The Bankless Analyst Team is fading the rally and reiterating its bearish rating for SKY/MKR, anticipating the protocol will run into revenue problems in the near future as it looks to balance declining crypto interest rates with profitable business operations.

For a bull case to have any chance at materializing, endogenous demand for crypto leverage and borrower willingness to pay higher interest rates must occur.

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