Matador
Structured Products

Complex Derivatives

Options vaults, DOVs, and tranche management with risk scoping.

The DOV Revolution

DeFi Option Vaults (DOVs) democratized yield selling. But they are complex to manage.

  • Strike Selection: Requires off-chain models (Black-Scholes).
  • Rolling: Requires precise timing every Friday.
  • Collateral: Requires locking funds in Opyn/Lyra/Ribbon.

The Problem: The "Fat Finger"

A DOV manager usually has a multisig. On Friday morning, they must:

  1. Calculate the strike.
  2. Mint options.
  3. Sell them to market makers via AirSwap/CoW Swap.

If they "fat finger" the strike price (selling calls at $1000 when ETH is $2000), the vault gets wrecked instantly.

The Matador Guardrail

A Matador policy for a DOV implements Sanity Checks on the manager's inputs.

1. Strike Price Bounds

The policy can enforce that the selected strike is statistically reasonable.

  • check strike > oracle_price * 1.05 (Must be at least 5% Out-of-the-Money).
  • check strike < oracle_price * 1.50 (Cap upside variance).

2. Auction Guardrails

When selling the options to market makers:

  • check price_per_option > theoretical_min_price (Prevent selling too cheap).
  • check recipient in [Wintermute, Jump, GSR] (Whitelist known market makers).

3. Collateral Locking

Ensure the vault is fully collateralized before minting.

  • check aave_collateral > options_minted * strike (Prevent naked call selling).

Tranche Management

Structured products often have "Senior" and "Junior" tranches.

  • Senior: Lower yield, first claim on assets.
  • Junior: Higher yield, first loss.

Matador can manage the Waterfall Logic:

  1. Epoch End:
    • Calculate total PnL.
    • if PnL < 0:
      • Deduct from Junior Vault first.
      • Only touch Senior Vault if Junior is empty.

By encoding this waterfall in a Policy (rather than a manual spreadsheet calculation), you give Senior users cryptographic assurance of their seniority.

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