Savings Vault Strategy
Each Savings Vault will provide 1x Long exposure on a top crypto asset (e.g. BTC, ETH, BNB) while earning you sustainable, high yields! In other words, if you want exposure to top crypto tokens, investing in a BNB Savings Vault will be similar to staking in a BNB lending vault or holding BNB, except you’ll be earning much higher APYs!
The invested capital will generate passive income through automated yield farming (DEX market-making), at high leverage that only Alpaca can provide(3x-8x), and most importantly — with no risk of liquidation!
Similar to the Market-Neutral Strategy, the Savings Strategy opens two leveraged yield farming positions, one long and one short. However, where the two strategies differ is that the Savings Strategy balances the relative sizes of the long and short positions such that your aggregate exposure on the crypto asset remains at 1x long instead of market-neutral. Thus, you can deposit assets like BNB, ETH or BTC into a corresponding Savings Vault, keep the 1x long exposure on the asset, and earn much higher yields on those tokens than is otherwise typically available through single-asset lending or staking in DeFi or CeFi.
Like all Automated Vaults, if market prices move, the Savings Vaults rebalance their positions to maintain the desired exposure on the Savings asset, which is 1x long here. Meanwhile, Savings Vaults are always generating passive income for you by deploying the capital into automated market making on top DEXes, at high leverage, but with 0 possibility of liquidation due to how the Vaults automate risk management. This makes investing in a Savings Vault effectively similar in risk to investing in single-asset lending or staking of crypto tokens, but with much higher APYs and no lockup.
Furthermore, Savings Vaults also auto-compound your yields, making it a product you can deposit into and not have to actively manage it. In fact, you won’t need to do anything except watch as the number of crypto tokens in your portfolio grows.
💡 Market-Neutral Vaults are in fact, USD-denominated vaults. Meanwhile, Savings Vaults are crypto-denominated. For example, a BNB Savings Vaults is BNB-denominated. Here, being denominated in a certain asset means the underlying capital has exposure to that asset and earns its yield in that asset.So another way to think of the Savings Strategy is as a coin accumulation strategy, where it continually earns more of the corresponding coin(crypto asset) for you.
- Alice invests 4 BTC into a BTC Savings Vault
- 1 BTC = 45,000 BUSD
To achieve 3x leverage, the vault will need to borrow 8 BTC worth of assets and the total position size will be worth 12 BTC. We know that with the XY=K model, each side of the LP must be of equal value, this means each asset in the pairs will be worth 6 BTC.
From the information above, we know that we need to borrow:
- 6 BTC worth of BUSD = 270,000 BUSD
- 2 BTC (4 BTC supply from Alice + 2 BTC debt = 6 BTC)
We first borrow the required assets and then distribute them into two positions
- Assets in LP: 1.5 BTC + 67,500 BUSD
- Assets in LP: 4.5 BTC + 202,500 BUSD
Net exposure of the two positions: Long 4 BTC (i.e.,1x Long)
As seen from the example above, Alice ends up with 4BTC long exposure, the same as what she originally had, but she is now earning 3x the yields of farming with no liquidation risk.
Investing in the Savings Vaults will be very simple just like Market-Neutral Vaults. The backend contracts will do all the hard work of monitoring the positions and maintaining the 1x Long exposure by performing re-balancing when required.