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, and most importantly — with no risk of liquidation!
Notes on AV's exposure:
In the short term, the exposure in an AVv3 could appear more "extreme" than what it used to be on the previous versions of AV. This is simply due to the nature of how CL DEX works. When the asset price moves to the edge of the LP range, the LP position ends up with almost one asset in its position (and completely in 1 asset when it's out of range.) This behavior is in a stark contrast to the UNIv2 where the exposure shift slightly as price move because you are providing LP from 0 to infinity. Hence, there could be a period where the vault's exposure deviate from the target depending on the market condition and the manager's strategy at the time.
Similar to the Market-Neutral Strategy, the Savings Strategy opens leveraged yield farming position on UNIv3. 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 hedge their positions to target the desired exposure on the Savings asset, which is 1x long. Meanwhile, Savings Vaults are always generating passive income for you by deploying the capital into automated market making on top DEXes, with 0 possibility of liquidation due to how the Vaults automate risk management.
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
Assuming the manager targets 3x leverage as a strategy, 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)
This optimal sizing will achieve 50-50 asset value ratio.
Above scenario works as illustrative example. For UNIv3, it's true if you are creating an LP position with a symmetrical range on the upper and lower range. However, if the range is not symmetrical, the required assets ratio will be different.
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 targeting the 1x Long exposure by performing re-balancing when required.
Last modified 1mo ago