Farming oVCX with VaultCraft
A how-to guide on VaultCraft Tokenomics
Overview
By the end of this article, you will have a clear understanding of how to:
- Earn yield with Smart Vaults
- Earn oVCX rewards
- Earn bribes for voting on gauges
app.vaultcraft.io goes live on November 30th, 2023!
As VaultCraft kicks off its veTokenomics, let’s first revisit the key features of the new tokeconomy before we distinguish between each token’s utility:
Features
- Smart Vaults — non-custodial, automated DeFi strategies — and boost your returns with oVCX
- oVCX, the reward token— Reward tokens are call options on VCX, enabling the protocol to accumulate much more in cash reserves regardless of market conditions, as well as letting loyal VCX holders buy VCX at a discounted price.
- Vote-escrowed VCX is now a Balancer LP token — VaultCraft uses the Balancer 20WETH-80VCX LP token as the lock token for obtaining veVCX. Users stake their Balancer LP token into Smart Vault gauges to earn oVCX.
- Gauges — Staking contract where users stake assets and are rewarded pro-rata depending on oVCX distribution.
- Max boost enabled for Smart Vaults — Popcorn gives a 5X max boost to LPs who have veVCX, increasing the advantage of holding veVCX.
VCX, veVCX, and oVCX
Let’s differentiate between the three tokens:
VCX
Vaultcraft’s underlying token. An ERC-20 token that can be used to LP into the 20WETH-80VCX Balancer pool.
veVCX
veVCX is a liquidity governance token and an escrowed version of the VCX token.
To acquire veVCX, you must provide liquidity into the 20WETH-80VCX Balancer pool. When you provide liquidity in Balancer, you will receive LP tokens, also known as Balancer Pool Tokens (BPTs), representing your deposited position in the DEX’s liquidity pool. You can lock these LP tokens for up to 4 years in exchange for veVCX.
veVCX plays a crucial role in creating the flywheel effect within the protocol. At a high level, veVCX ensures VCX liquidity, dictates how oVCX rewards (indirectly TVL) are distributed across Smart Vaults and underlying protocols, and functions as the DAO governance token.
oVCX
The option-reward token. Each week, the protocol will emit option-reward tokens (oVCX) to gauges, boosting the APY of Smart Vault depositors. Unlike typical liquidity mining that releases liquid tokens in an unsustainable, inflationary manner, oVCX is an executable call option to purchase VCX at a predetermined discount to the spot market price. For example, if VCX is trading at $1 and the discount is 25%, a user can spend $0.75 in WETH to convert their oVCX call option into VCX that is worth $1. This does the following:
- guarantees a profit for the recipient,
- allows the protocol to earn revenue from redemptions that will be partially allocated to buyback & burns,
- limits dilution of circulating supply for existing holders because of the buyback & burn + burn matching mechanism.
How do I get VCX?
There are three ways to get VCX:
1. Migrate POP to VCX
If you are a POP holder, you can go to app.vaultcraft.io to convert your POP for VCX.
1 POP = 10 VCX
2. Balancer 20WETH-80VCX Pool
Go to the Balancer 20WETH-80VCX pool and place a buy order directly from the DEX.
3. CEXs
VCX will be listed on centralized exchanges. This document, as well as our other documents, will be updated as more information is finalized.
veVCX utility
VCX DEX liquidity
In order to receive veVCX, users must lock VCX with WETH in the 20WETH-80VCX Balancer pool. veVCX is rewarded based on the amount of Balancer Pool Tokens (BPT) and the duration of the lock as outlined below:
veVCX = bpt amount * daysLocked / 1460
Note, there is a maximum time lock of 4 years, or 1460 days
This essentially guarantees VCX liquidity on Balancer since liquidity providers are vote-escrowing their positions for a substantial period of time. This helps stabilize market prices, and with the help of the buyback & burn system, will provide sufficient liquidity for oVCX redemption sell pressure.
Vote to boost oVCX rewards
As previously mentioned, the protocol will emit oVCX tokens as a mechanism for boosting APYs on Smart Vaults. These emissions are distributed based on the voting behavior of veVCX holders. Each week, veVCX holders will have the choice of adjusting their voting positions to help determine the distribution of oVCX.
Note, if veVCX holders do not change their existing vote, their previous vote positions remain constant.
oVCX boosting
Furthering the utility of veVCX in the context of the oVCX emissions, veVCX holders will receive a boost in the proportion of oVCX they receive from their vault’s emission allocation. See below for weight equation:
w = min(l, 0.2 * l + 0.8 * L * v / V)
max boost = 5x
Bribe hunting
Similar to other veTokenomic systems, bribing will be implemented for parties interested in having veVCX holders vote for emissions to be directed to their gauges. This provides a mechanism for protocols that have vaults directing TVL to themselves to boost the APY for depositors without needing to lock up veVCX and vote directly. Additionally, this is another pathway for veVCX holders to generate revenue. To track active bribes, please visit Warden by Paladin or Hidden Hand by Redacted.
Note, bribing will initially only be live on mainnet and will become multi-chain in Q1 ‘24.
Governance participation
Lastly, veVCX will determine a user’s voting weight in traditional DAO governance. VaultCraft utilizes Forum and Snapshot for governance. Previous governance topics have included tokenomics, treasury management, and strategic initiatives.
Putting it all together
To walkthrough the flow of this system, let’s imagine a hypothetical scenario…
- Protocol (x) is integrated into VaultCraft.
- They create a Smart Vault that uses themselves as an underlying strategy.
- Protocol (x) bribes veVCX holders to vote on directing oVCX emissions to their Smart Vault’s gauge — incentivizing TVL growth with a boosted APY.
- Smart Vault depositors recieve a boosted APY in the form of oVCX, a call-option allowing them to buy VCX at a predetermined discounted rate using WETH.
Summary
VaultCraft maximizes returns by allowing users to provide liquidity on Balancer, vote-escrow their LP token for veVCX, and earn base yield with Smart Vaults. This allows them to:
- Earn trading fees from Balancer,
- Use veVCX to vote on directing oVCX emissions to themselves (compounding the effect each cycle),
- Receive bribes for voting on gauges that are actively incentivized,
- Continue to earn yield on Smart Vault deposits,
- and maintain long upside exposure to VCX
The optimal strategy specifically depends on your identity, capital requirements, and risk profile. However, for all market participants, employing veTokenomics furthers their interests more than using the protocol without a tokenomic strategy. This applies to protocols seeking to increase Total Value Locked (TVL), fund managers aiming to earn yield, farmers and bribe hunters striving to maximize profit, and VCX holders in search of passive income.
