Smart Vaults
Leveraging Defi for Optimal Yield
Welcome to Babylon's Yield Farm
Babylon's yield optimization solution helps you take advantage of DeFi liquidity mining programs with its three types of vaults. Unlock passive income opportunities and maximize your returns in ever-expanding realm of digital assets
Overview of THORChain's Savers Vaults
In decentralized finance, the optimization of asset yields is a crucial factor for the participants. THORChain's Savers Vaults constitute a robust framework for yield generation through single-asset exposure, leveraging synthetic assets and a dedicated liquidity pool system. By incorporating Savers Vaults, we offer our users an accessible avenue for earning yield on their digital assets, with a minimized risk profile.
This documentation piece delineates the operational mechanics, economic rationale, and risk assessment associated with the Savers Vaults within THORChain's ecosystem.
Understanding Savers Vaults
THORChain's Savers Vaults present a novel approach to earning interest on Layer 1 assets through synthetic asset collateralization, distinct from traditional liquidity provision strategies. Savers Vaults operate by allowing users to deposit their cryptocurrencies, which are then converted into synthetic assets. These synthetic assets are pegged to the value of the original assets and accrue yield from the trading fees and liquidity rewards within the THORChain network.
System Design
Users mint synthetic assets corresponding to their Layer 1 assets, thereby creating a one-to-one claim on the underlying assets
Then the users deposit their synthentic assets into a Savers Vault and receive Saver Units in return, which represent their share of the total vault balance
The locked Synthetic assets in the Savers Vaults accumulate yield, which is then allocated directly into the vault. The user is entitled to the principal and the yield earned during the period of their investment
The Savers Vaults are designed to minimize risk exposure, particularly the absence of impermanent loss and RUNE price exposure, as Savers Vaults utilize synthetic assets that are anchored to the liquidity pool's performance
Entry and exit into the vaults incur liquidity and network fees. The liquidity fee is dynamic and is structured to deter market manipulation and attacks, while the network fee covers the transactional costs, promoting the sustainability of the system
The yield from Savers Vaults derives from swap fees and liquidity rewards in the THORChain ecosystem. Yield distribution occurs at the end of each block, where a portion is used to purchase assets and distribute to Savers
Interface Basics
We are crafting the user experience from depositing users' chosen assets to monitoring their yield to straightforward withdrawal
Our dashboard displays APY, APR, TVL and past exposure for each vault, enabling users to make informed investing decisions
Users can initiate deposit and withdrawal transactions directly through the Babylon Finance DEX interface, with the DEX handling the conversion with THORChain
Users can withdraw their principal and accrued yield at any point. The withdrawal process involves the conversion of synthetic assets back into the original deposited assets, plus any yield earned during the holding period
Risk Assessment
The risk associated with Savers Vaults is considered lower compared to liquidity provision because there's no exposure to impermanent loss or the price of RUNE. However, risks could include potential economic or technical bugs, though no such bugs have been reported since the introduction of Synthetics in June 2022. The system's integrity is upheld through continuous monitoring and auditing.
Additional Considerations
APY (Annual Percentage Yield) reflects the real rate of return that takes into account the effect of compounding interest over a year. In the context of TC vaults, APY is calculated based on the returns generated by the underlying synthetic assets in the vault, compounding any distributed yields back into the principal amount
APR (Annual Percentage Rate) is similar to APY but does not account for the effects of compounding within the year. The APR for Savers Vaults is calculated based on the past 7 days' performance, annualized. APR is often used to provide a more conservative estimate of returns. However, it's important to note that past performance, is backward-looking, and is not indicative of future performance
TVL (Total Value Locked) is a critical indicator of a vault's participation level. Calculated in real-time, it's the sum total of all assets locked in the vaults at the current market value
Synthetic assets on THORChain retain a 1:1 purchase power with the underlying Layer 1 assets they represent
Conclusion
THORChain's Savers Vaults represent a significant advancement in yield generation within DeFi. By providing a user-friendly, risk-averse, and efficient system for asset appreciation, the Savers Vaults are positioned as a keystone component of the THORChain ecosystem.
For in-depth technical details on the Savers Vaults' operation within THORChain's ecosystem, users can refer to THORChain's official documentation. The specific endpoints, smart contract functions, and security protocols are elaborately detailed in the developer documentation. Users are encouraged to review these resources to gain a comprehensive understanding of the system's capabilities and to stay informed about any updates or changes.
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