Saffron Fixed Income Vault Calculator
We’ve developed a tool to help calculate SFIV return.
After a few months in development, we’ve rolled out the initial capped launch of our Fixed Income Vaults. We’ve done our best to simplify them our UI for our users and we’ve just released a feedback survey gathering the community’s thoughts on our initial rollout. In this two-part series we’ll introduce a way for you to calculate potential returns on Saffron Fixed Income Vaults as a way to better understand their performance.
While they are still capped as of this writing, we want to make sure that our users are educated on how both sides of the Fixed Income Vault work. Our lead scientist Rx has developed a tool that you can use to calculate the returns of both the variable and the fixed side. In using this you will be able to better understand the most fundamental aspect of our Fixed Income Vaults: How each side makes money.
We’ll begin with just four parameters for our calculator; length of contract, fixed side capacity, fixed rate, and average underlying return rate. Next week we’ll be adding position range and price variation. It may seem like a lot at first, but if you’re a DeFi user you’ll already have an inherent understand of what we’ll cover today.
Let’s take a look at the calculator here and follow along in a separate window.
We’ll be looking at the Fixed side parameters first. If you’re a variable side user don’t let this throw you off — the fixed and variable sides have a symbiotic relationship, once you understand one you’ll better understand the other. For right now we’re taking a look at only the first three parameters: Length of contract, Fixed side capacity, and Fixed Rate. Let’s ignore Average Underlying Return Rate for now.
You’ll notice the parameters I’ve set mirror one of our capped Fixed Income Vaults (with the exception of the Average Underlying Return Rate, which is intentionally set to 0).
By playing with the top three parameters you can get a sense of how the variable side capacity fluctuates depending on how long the contract is, the amount deposited into the fixed side, and the fixed APR.
Try modifying these above parameters to replicate what would happen to the variable capacity if the Saffron Fixed Income Vault:
- Had a contract lasting for 90 days instead of 60?
- Had twice the amount of Fixed Capacity?
- Had a Fixed APR of 15%?
Pretty big difference right?
Now let’s look at the returns at the bottom — how much profit each side makes at the end of the contract. You can see below that the Fixed Return matches whatever the variable side capacity is. It’s exactly how its name implies — fixed. However notice that the variable return — the amount of profit that the variable side would receive at the end of the contract — is stuck at 0.
We still haven’t messed with the fourth parameter here — the Average Underlying Return Rate. The average underlying return rate is, in essence, how well that LP does over the course of the contract (in this case USDC/ETH). In this scenario, assuming that there is no range or price variation (we’ll get into that next lesson), that LP (USDC/ETH) would have to give an APR of 12% to break even.
However, once it does breakeven you can see how dramatically the variable side begins to be in profit with every additional 0.1% APR increase.
Check out the difference in return if there was just a 3% APR from 12% (“breaking even”):
In this scenario, the variable user deposits 500.36 USDC and in two months would be able to withdraw 625.45 USDC from the contract based on these parameters. Obviously this is dependent on how well the LP does — it could be higher or lower — which is why looking up an LP’s historical performance is key.
Modifying these four parameters above can help you begin to decide if a specific vault is appealing to you on the variable side or not, but we’re still missing a few ingredients.
Now that we have the basics down, next week we will give you two additional parameters and talk about one of the most important factors for the variable side — as everyone who’s familiar with impermanent loss knows all too well — Price Variation. Due to the complexity of this material we’ve intentionally separated this into two “lessons”, and the calculator will reveal the additional two parameters when our second and final lesson is released.
As mentioned at the beginning of this article, if you’ve gotten a chance to use our Fixed Income Vaults, please give us your feedback here.
Community resources
Whitepaper: Saffron Fixed Income Vaults Whitepaper
Web3 app: https://saffron.finance
Governance: https://gov.saffron.finance
Telegram: https://t.me/saffronfinance
Discord: https://discord.gg/pDXpXKY
Twitter: https://twitter.com/saffronfinance_
Github: https://github.com/saffron-finance/saffron
