Ithaca Finance, a new project focused on decentralized options trading, has emerged from stealth mode with the announcement of pre-seed funding and an invite-only mainnet launch on Arbitrum. $2.5 million will be used to develop the Ithaca Protocol for composable, non-custodial trading of on-chain options on Arbitrum. Ithaca’s funding news comes as VC interest in Web3 and DeFi projects appears to be picking up following a drop-off in 2023.
To date, on-chain markets have been mostly limited to spot and perpetual futures, with options markets significantly underperforming other asset classes. Ithaca Protocol aims to address this with a non-custodial risk primitive that is designed to attract billions in on-chain options volume. At the same time, it will also enable an efficient outlet for potentially trillions of dollars in latent options and structured payoff demand.
The Ithaca Protocol is based on a matching engine that decomposes option payoffs into fundamental smart-contract-based building blocks, allows for atomic order matching and conditional order logic, and utilizes replication, portfolio dominance, and collateral optimization principles.
A tool targeted at institutions, Ithaca is designed to prevent liquidity bootstrapping, reducing the time to institutional-level scale in on-chain options markets. Previously, growth in on-chain options has been hampered by fragmentation across blockchains and low liquidity in the absence of innovation around risk-sharing mechanics.
Ithaca addresses these challenges with a permissionless purpose-built infrastructure to aggregate cross-chain liquidity and enable optimal risk sharing across time and event horizons. The protocol’s algorithmic market clearing framework is auction-based, making it resistant to MEV, and allows for instant deployment of composable options and structured product markets for any underlying asset.
The Ithaca Protocol will go into mainnet production on an invite-only basis following a successful run on the Arbitrum Testnet. Users can sign up to test Ithaca become eligible for the Ithaca Points Program. However, the project is also gearing up for a mainnet launch imminently.
Ithaca’s pre-seed funding was co-led by Cumberland and Wintermute Ventures and also included investors from Room 40 Ventures and Ghaf Capital Partners, along with several prominent angel investors. An investor from Wintermute praised the project’s “truly innovative approach” to building composable options markets for any asset, while a representative from Cumberland pointed to the experience and background of the Ithaca Finance team.
Led by former strategy manager at Amber Group, and ex-Goldman Sachs partner Dimitrios Kavvathas, the team brings over 120 years of combined experience from the TradFi and digital asset space, with tenure at companies including BAML, Deutsche Bank, and Standard Chartered.
VCs Making a Cautious Return to Web3
“Cratered” is the term Crunchbase analysts used to describe the state of Web3 funding in 2023, yet Ithaca’s news is just the latest in a string of headlines that signal a brighter year ahead. On January 23, a new blockchain VC fund called Paper Ventures announced its launch with the news that it has secured $25 million for investment in early-stage Web3 and blockchain projects. The fund will be managed by three experienced investors who have previously supported successful projects, including Polygon, Injective, and Cosmos.
Ithaca investor Wintermute was also among those who recently participated in a $17 million funding round for institutional staking platform Kiln, which plans to use the funds for its global expansion plans. While funding this year may not return to the previous heights of 2021, it looks as if VCs are still loosening the purse strings, albeit with more caution in mind.
