Vault Strategies
Last updated
Last updated
The idea of a vault is to provide a one-click UX to end users, such that they can simply deposit their tokens and start collecting leveraged yield. In the background, the vault deploys the fund as defined in the vault’s smart contract to farm yield. Below we discuss 2 common approaches of how Volo Vault farms yield by leveraging pegged assets, so that the farming strategy is NOT subject to token price fluctuation and allow users to reap the high yield with minimal risks.
The most commonly seen vault strategy is looping within a lending protocol between two pegged assets. An example is illustrated as follows:
Such looping strategy can be extended to borrowing and depositing any pegged assets, such as liquid staking SUI vs SUI or USDC vs USDT, so that the arbitrageur is not subject to any market risk (i.e. token price fluctuation) unless a depeg event occurs. The formulation of such a looping strategy is usually driven by the incentive/subsidy provided by the lending platform.
For a DeFi-savvy user, Approach 1 may simply be a simple automation of manual DeFi maneuvering, Approach 2 cannot be achieved by retail users as this is what we call - whale perks. Projects within Sui ecosystem work with Volo Vault to offer exclusive deals as Volo Vault participants form a whale collectively and become worthwhile for the collaborating project to provide exclusive incentives to attact.
A good example is the suiUSDT/USDC vault that guarantees 20% APR with 16-week lock. The guarantor of the vault is Momentum, which is the biggest DEX on Sui that is eager to attract more users, TVL and transactions, and Volo Vault provides a much more simplified UX to users with stablecoin holding but not having the know-how to provide liquidity on a DEX.
In the example above, as long as the borrow interest of SUI is less than that of the sum of the staking yield and deposit interest of vSUI, the loop makes positive yield that can be leveraged to the multiplier of . Take the SUI-vSUI looping strategy on NAVI as an example:
Given that the LTV of vSUI is 60% - for a SUI holder, one could either earn 4.39% yield by just depositing the tokens on NAVI, or earn through the SUI-vSUI loop strategy offered by Volo SUI Vault.
