Spool is synonymous with innovation. Leading and developing new ways of interacting with DeFi is a part of our DNA, but that means new terms and phrases need to be used.
V1 highlighted the role of decentralisation and self-custody, introducing concepts such as Total Value Routed as opposed to Total Value Locked, but now Spool V2 is live.
In this piece, we’ll share with you some new and key terms you’ll encounter as we talk about and you interact with Spool V2, often built around brand-new concepts, or expanding and further developing concepts created by other DeFi protocols.
Actions
These are customisable automatic actions that can be tied to users’ activities, such as depositing into or withdrawing from a Smart Vault, providing a more adaptable and efficient experience for both the Vault Creators and the investors.
Examples include:
- Charging a fee when depositing
- Paying an insurance fee when depositing
- Paying an early-withdrawal penalty
Note: Actions have yet to be activated on Spool V2.
For more information see: Spool V2 Actions — Enhancing Smart Vault composability
Allocation Provider
This smart contract calculates the strategy allocations based on various input parameters, such as risk scores and APYs.
Spool supports multiple implementations of the Allocation Provider, giving potential different ways of calculating allocations within the Smart Vaults.
Deposit NFT (dNFT)
When a user deposits into a Smart Vault, a dNFT or a deposit NFT is a NFT-1155 token that is minted as a deposit receipt. The dNFT can be then burned in exchange for the Smart Vault Token (SVT) it represents.
Smart Vault Token (SVT)
The SVTs or Smart Vault Tokens represent the user’s shares in the Smart Vault. issued to a user once they have deposited, and allow users to trade their share of a Smart Vault.
DoHardWork (DHW)
Do Hard Work is an incredibly complex and fine-tuned core function that compounds yield, manages reallocation between strategies, and handles pending deposits/withdrawals. As part of this process, transactions are grouped to reduce the gas fees, which are paid by the Spool DAO, not the Smart Vault Investors.
Entry/Exit Condition (formerly “Guards”)
Entry and Exit conditions are the “secret sauce” of V2, taking Smart Vaults from a great personal tool to a powerful institutional toolbox for creating new financial products. They allow Smart Vault creators to configure multiple requirements for depositing into or withdrawing from a Smart Vault. They include KYC, address whitelisting, NFT gating, and time locks. For more information see our detailed Medium article: Adding control for Institutional DeFi product creators.
Protocol
A Protocol is an external smart contract or a set of smart contracts with some yield-bearing mechanism.
Spool Smart Vaults route deposits into Protocols in exchange for part of the yield. The interactions are done via the Strategies, which wrap the Protocol into a unified interface in the Spool ecosystem.
Protocol Rewards
Underlying Protocols that a Smart Vault routes funds to accrue yield but also emit extra tokens.
During DoHardWork (DHW) these are swapped into the underlying asset and reinvested back into the vault.
Risk Model
These are models, created by a Risk Provider, that use a variety of factors to assign a risk score to each Strategy. Risk Models are only included within the Spool ecosystem when vetted and voted on by the DAO.
When creating a new Smart Vault, the Vault Owner can select from the available Risk Models to apply against the Strategies selected for that vault.
Risk Provider
The Risk Provider is a whitelisted account that can create and is responsible for maintaining a Risk Model. These take into account various factors to assign a risk score to each strategy and can be implemented by users when creating their Smart Vaults.
If a Smart Vault creator needs an automated on-chain risk provider, they can implement their own smart contract to invoke RiskManager.setRiskScores.
Risk Appetite
A sliding scale between “Risk Averse” and “Risk Seeking”, the level of which is selected by the Smart Vault Creator and combined with the strategy risk scores for use by the Allocation Provider. Risk-averse as in: Allocate more of my funds into the higher yield strategy only if its risk score is relatively low. Risk seeking as in: Allocate more of my funds into the higher yield strategy even if its risk score is higher.
This, in turn, dictates how the smart contracts will allocate and maintain the user’s assets across the selected strategies.
Smart Vaults
A Smart Vault is a smart contract that combines strategies, a risk model, conditions, and actions into a usable end-user product and the creation and management of the “Smart Vault” contracts are user-controlled through a “no-code” UI.
In addition, the Smart Vaults are a routing system that allocates funds to and moves them between strategies without locking them.
Spool Vault Incentives/Rewards
Vault owners can decide to incentivise their users with arbitrary tokens, setting reward emission amount and duration so the reward tokens are emitted over a specific period.
SPOOL incentives are a use-case of this mechanism, where the Spool DAO incentivises some vaults with their SPOOL token.
Users can distribute their voting power between vaults that reach the 1% TVR threshold and the amount of incentives a vault receives is calculated based on the vote (50%) and the profit the vault made relative to other vaults (50%).
The resulting amounts are then passed to the Smart Vault to be issued as a reward to the investors utilising it. Other incentives, as defined by the Vault Owners, can be in any ERC-20 token and do not require voting through DAO governance.
Strategies
These are adapters connecting the Spool ecosystem to a specific underlying Protocol. They handle the routing of deposits, withdrawals, and other communication with the protocol. A Smart Vault routes funds to a collection of Strategies.
Strategy Share Tokens (SST)
The SSTs or Strategy Share Tokens represent shares of the underlying assets locked in a particular strategy.
Supported Asset Group (SAG)
Each strategy has an underlying asset used for deposits. Spool groups these assets into Supported Asset Groups (SAGs). On a Smart Vault creation, the Creator directly decides which strategies will be used, with the UI only allowing selection from those strategies with the same underlying tokens.
The selected SAG then dictates which strategies are available for inclusion in the Smart Vault.
Total Value Routed (TVR)
Spool Smart Vaults are non-custodial solutions and route assets rather than holding them.
This metric measures the total value that was routed through the Spool Protocol to the underlying protocols.
This is one of the key performance indicators for Spool protocol.
Vault Owner
“Owner” of one or more Smart Vaults. The vault owner is entitled to a Management Fee and Performance Fees from users using the smart vault. They also have the ability to add, edit, and remove other admins from the Vault they own.
Vault Admin
A specific address with administrative rights in Smart Vaults.
Such privileges (depending on the Smart Vault configuration) include:
- Withdrawing funds from a Smart Vault,
- Removing Smart Vault participants
Vault Sync
This step updates the vault state after DHW is completed. It runs automatically when the first user after DHW takes an action in the vault (deposits, withdraws, claims), but it can also be executed separately.
As part of this, the Vault Sync:
- Transfers new strategy shares (SSTs) from a strategy to the vault
- Mints the appropriate amount of vault shares (SVTs)
- Calculates Management and Performance Fees
Vault Flush
Having the option of running DoHardWork (DHW) in an asynchronous manner and executing it separately for each of the strategies leads to users receiving their receipt tokens gradually.
To ensure deterministic outcomes, all deposits are pooled at the vault level, pending a vault flush, before being sent to DHW for processing.
Simply put, a vault flush is a synchronization point and can be executed by any user, at which point the funds aggregated within a specific “vault flush” period are made available to DHW.
Please note, that a Vault Flush can only occur if DoHardWork processes for the previous Flush are completed, preventing overlapping DHW Indexes.
Vault Strategy Share Reallocation
Due to the market changes and the protocol dynamics, the Vault-Strategy share allocations have to be periodically reallocated to correctly reflect the Smart Vault’s risk assessment.
Reallocation adjusts capital allocation to maximize capital efficiency within the constraints of the parameters and Risk Appetite set by each individual Spool Smart Vault. This happens periodically depending on the gas prices and smart vault.
Withdrawal NFT (W-NFT)
This NFT represents a pending withdrawal. When a user requests a withdrawal from a Smart Vault, a W-NFT or a withdrawal NFT is minted as a withdrawal receipt.
After the next DoHardWork (DHW), the W-NTF can be burned in exchange for the withdrawn asset tokens it represents. Burning of the W-NFT also burns the wrapped Smart Vault Tokens (SVTs).
To find out more about any of these functions, and the way they can be used to create powerful new DeFi investment products, please get in touch with our BD team via spool.fi.
