Derby.finance is a layer 2 liquidity optimizer for the DeFi ecosystem.
Derby.finance is a layer 2 liquidity optimizer for the DeFi ecosystem.
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In the last couple of articles (Hello Derby.finance, Derby.finance in the DeFi landscape, Derby.finance, the game) we introduced Derby.finance as the layer 2 liquidity optimiser of DeFi. In this article we will present an in-depth overview of our product, the Derby.finance vault.
Vaults are the main point of interaction with the users of DeFi applications. Vaults are smart
contracts which hold user funds. Usually (and in the case of Derby.finance) vaults contain a deposit and withdraw function. If a user deposits funds into the vault these funds are transferred from the user controlled address to the smart contract address of the vault. In return the user receives so-called Liquidity Pool tokens (LP tokens) back to the user controlled address. These LP tokens act as receipts with which the user at any point in time can claim back his or her funds including accrued yield from the vault smart contract. Derby.finance has implemented a few different kinds of vaults.
Derby Finance offers multiple vaults and also makes it easy to deploy new future vaults governed by the DAO. The vaults are categorised among different currencies and risk characteristics. The following currencies are supported:
USD, currently 3 different stable coins: UDST, USDC and DAI. USDC is the main currency that should be deposited. The vaults automatically swaps this for USDT or DAI if the underlying DeFi protocol requires this.
In the last couple of articles (Hello Derby.finance, Derby.finance in the DeFi landscape, Derby.finance, the game) we introduced Derby.finance as the layer 2 liquidity optimiser of DeFi. In this article we will present an in-depth overview of our product, the Derby.finance vault.
Vaults are the main point of interaction with the users of DeFi applications. Vaults are smart
contracts which hold user funds. Usually (and in the case of Derby.finance) vaults contain a deposit and withdraw function. If a user deposits funds into the vault these funds are transferred from the user controlled address to the smart contract address of the vault. In return the user receives so-called Liquidity Pool tokens (LP tokens) back to the user controlled address. These LP tokens act as receipts with which the user at any point in time can claim back his or her funds including accrued yield from the vault smart contract. Derby.finance has implemented a few different kinds of vaults.
Derby Finance offers multiple vaults and also makes it easy to deploy new future vaults governed by the DAO. The vaults are categorised among different currencies and risk characteristics. The following currencies are supported:
USD, currently 3 different stable coins: UDST, USDC and DAI. USDC is the main currency that should be deposited. The vaults automatically swaps this for USDT or DAI if the underlying DeFi protocol requires this.
BTC, currently only WBTC.
ETH (WETH).
The following risk categories are defined:
Low, only containing exposure on DeFi applications that offer a stable unleveraged yield without impermanent loss (in the case of DEXs).
Mid, same as low but includes DEXs (with risk of impermanent loss).
High, same as mid but also includes leveraged vaults and strategies.
With these currencies and risks in total 9 vaults can be deployed. These vaults are deployed on a number of different chains and layer 2s. Currently the supported chains are: Ethereum, Binance Smart Chain, Avalanche, Polygon and Fantom. The supported layer 2s are: Optimism and Arbitrum.
In this section we list the most important characteristics of our vaults.
When interacting with one of the Derby.finance vaults it doesn’t matter on which chain or layer you are. You will always get the same exposure, determined by the Derby.finance investment game. This means that per deployed vault as described above, multiple vault contracts will be deployed. One per chain or layer. For example, the low risk USD vault will have a deployment on the 5 different chains and 2 different layers described above. These deployed vaults will automatically synchronise funds so that for a user the entry point is irrelevant. This way, we constructed our vaults in a truly multi-chain, multi-layer fashion because just as with the internet we think layers should be abstracted away.
With this function a user can deposit funds into one of our vaults in return for LP tokens. When a user deposits funds the funds will be locked in the vault smart contract first. After a rebalance has been triggered (once in two weeks) these funds will be allocated among the different DeFi applications that are whitelisted in the vault according to the allocations set by the game.
With this function a user can withdraw funds from the vault by “burning” its LP tokens. The vault will always contain a reserve balance of 10% of all the funds after each rebalance. The reserve balance increases with each deposit. Withdrawals are always first taken from this reserve balance. If there’s no reserve balance anymore, the funds to be withdrawn will be pulled from the underlying investments in the different DeFi applications.
This is the most important function of the vault. It is triggered once per two weeks by a keeper or the DAO. The entity which triggers this function will be compensated for its gas expenses plus a small fee. The function consists of two main parts:
This is the part where the funds will be re-distributed between the different chains and layer 2s. This part will be triggered first so that all vaults on all chains contain the correct amount of funds.
This is the part where the funds will be re-distributed between the different underlying whitelisted DeFi apps according to the allocations given by the game. This part will be triggered after the above part so that all underlying whitelisted DeFi apps contain the correct amount of funds.
The gas intensive part of the vaults is the rebalance function described above. With each deposit or withdrawal the user only pays for the transfer of funds. This makes our vaults really gas efficient for our users. The gas costs of the rebalance function is paid from the vault funds and thus effectively shared among all the participants in the vault.
Especially relevant with our stable coin denominated vaults. Our USDC vault accepts USDC. However it also has exposure to underlying DeFi protocols which are listed in USDT and DAI. The back and forth swapping between USDC and USDT/ DAI will be done automatically by the vault on rebalancing.
Yield harvesting refers to the incentives offered by DeFi applications to attract liquidity by offering extra yield in the form of issuing extra protocol tokens to be paid out to liquidity providers. While it remains to be seen whether these incentives will keep being popular among DeFi applications, in some cases they still offer very interesting opportunities. Our vaults will automatically swap the protocol tokens that have been received by these yield harvesting opportunities for extra yield.
While the Derby.finance vaults present an interesting opportunity for DeFi yield on its own, many DeFi Liquidity Providers will seek higher risks and rewards. Therefore Derby.finance offers the opportunity to enter any of its vaults with leverage. The leverage works by connecting a simple lending and borrowing pool to each of our vaults. This pool offers loans to users that want to use leverage. These loans will automatically be deposited in the Derby.finance vaults. The user that has taken on leverage will own LP tokens obtained from both his or her own deposit and the deposit from the loan. If the total of all the LP tokens will be worth less than the amount of the loan plus some margin then the LP tokens will automatically be liquidated paying back the loan. This essentially creates the opportunity for Derby.finance liquidity providers to take on leverage on our vaults without the need to provide collateral.
In the next article we will discuss the multi-chain implementation of the Derby.finance vaults.
BTC, currently only WBTC.
ETH (WETH).
The following risk categories are defined:
Low, only containing exposure on DeFi applications that offer a stable unleveraged yield without impermanent loss (in the case of DEXs).
Mid, same as low but includes DEXs (with risk of impermanent loss).
High, same as mid but also includes leveraged vaults and strategies.
With these currencies and risks in total 9 vaults can be deployed. These vaults are deployed on a number of different chains and layer 2s. Currently the supported chains are: Ethereum, Binance Smart Chain, Avalanche, Polygon and Fantom. The supported layer 2s are: Optimism and Arbitrum.
In this section we list the most important characteristics of our vaults.
When interacting with one of the Derby.finance vaults it doesn’t matter on which chain or layer you are. You will always get the same exposure, determined by the Derby.finance investment game. This means that per deployed vault as described above, multiple vault contracts will be deployed. One per chain or layer. For example, the low risk USD vault will have a deployment on the 5 different chains and 2 different layers described above. These deployed vaults will automatically synchronise funds so that for a user the entry point is irrelevant. This way, we constructed our vaults in a truly multi-chain, multi-layer fashion because just as with the internet we think layers should be abstracted away.
With this function a user can deposit funds into one of our vaults in return for LP tokens. When a user deposits funds the funds will be locked in the vault smart contract first. After a rebalance has been triggered (once in two weeks) these funds will be allocated among the different DeFi applications that are whitelisted in the vault according to the allocations set by the game.
With this function a user can withdraw funds from the vault by “burning” its LP tokens. The vault will always contain a reserve balance of 10% of all the funds after each rebalance. The reserve balance increases with each deposit. Withdrawals are always first taken from this reserve balance. If there’s no reserve balance anymore, the funds to be withdrawn will be pulled from the underlying investments in the different DeFi applications.
This is the most important function of the vault. It is triggered once per two weeks by a keeper or the DAO. The entity which triggers this function will be compensated for its gas expenses plus a small fee. The function consists of two main parts:
This is the part where the funds will be re-distributed between the different chains and layer 2s. This part will be triggered first so that all vaults on all chains contain the correct amount of funds.
This is the part where the funds will be re-distributed between the different underlying whitelisted DeFi apps according to the allocations given by the game. This part will be triggered after the above part so that all underlying whitelisted DeFi apps contain the correct amount of funds.
The gas intensive part of the vaults is the rebalance function described above. With each deposit or withdrawal the user only pays for the transfer of funds. This makes our vaults really gas efficient for our users. The gas costs of the rebalance function is paid from the vault funds and thus effectively shared among all the participants in the vault.
Especially relevant with our stable coin denominated vaults. Our USDC vault accepts USDC. However it also has exposure to underlying DeFi protocols which are listed in USDT and DAI. The back and forth swapping between USDC and USDT/ DAI will be done automatically by the vault on rebalancing.
Yield harvesting refers to the incentives offered by DeFi applications to attract liquidity by offering extra yield in the form of issuing extra protocol tokens to be paid out to liquidity providers. While it remains to be seen whether these incentives will keep being popular among DeFi applications, in some cases they still offer very interesting opportunities. Our vaults will automatically swap the protocol tokens that have been received by these yield harvesting opportunities for extra yield.
While the Derby.finance vaults present an interesting opportunity for DeFi yield on its own, many DeFi Liquidity Providers will seek higher risks and rewards. Therefore Derby.finance offers the opportunity to enter any of its vaults with leverage. The leverage works by connecting a simple lending and borrowing pool to each of our vaults. This pool offers loans to users that want to use leverage. These loans will automatically be deposited in the Derby.finance vaults. The user that has taken on leverage will own LP tokens obtained from both his or her own deposit and the deposit from the loan. If the total of all the LP tokens will be worth less than the amount of the loan plus some margin then the LP tokens will automatically be liquidated paying back the loan. This essentially creates the opportunity for Derby.finance liquidity providers to take on leverage on our vaults without the need to provide collateral.
In the next article we will discuss the multi-chain implementation of the Derby.finance vaults.
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