VLP Stakers Rejoice: SAKE Vault is Cranking Up the Leverage to 3x for VLP Stakers

The countdown is almost over — it’s time to witness the official launch of Vela Exchange on 26 June 2023 as well as the latest developments of SAKE Vault — VLP 3x Leverage Strategy.

We are excited to announce the launch of our latest SAKE Vault is approaching, setting to transform the way you invest as Perpetual DEX Liquidity Provider. With cutting-edge product and technical features, SAKE is designed to uplift your capital efficiency and return in VLP investment and make it more exciting than ever before. Whether you’re a seasoned LP or just starting out, you must be able to find something value-added in the current product launch of SAKE & its corresponding lending vault — s-WATER.

Introduction of SAKE and s-WATER

SAKE is a VLP Leverage Vault with features up to 3x leverage, multiplied rewards from VLP in terms of USDC real yield and dynamic reward split mechanism that SAKE holders pay the leverage cost only when they gain.

s-WATER is a low-risk USDC Lending Vault which offers higher returns than pure staking, while still maintaining principal-protection. With its innovative reward split mechanism with SAKE, s-WATER offers a unique investment opportunity for those seeking a secure investment with full upside potential.

SAKE and s-WATER can be analogized as celebrities and their managers. Both SAKE and celebrities require reliable foundational support to amplify their success. s-WATER provides the necessary capital for SAKE to leverage its holding on VLP and uplift their yield returns, while managers provide celebrities with industry connections, negotiate deals, and shape their public image. In return, both managers and s-WATER are entitled to a percentage of profit sharing, incentivizing them to work hard and emphasizing the need for cooperation between the two parties.

The leverage workflow

1. “Manager” simulates and determines the amount of to-be-borrowed USDC from s-WATER
2. “Manager” checks the availability of s-WATER and determine whether borrowing is proceeded or not
3. The borrowed USDC is combined with injected USDC in SAKE Vault to mint VLP on Vela Exchange
4. ”Debt-to-Value (DTV) Monitor” and “Liquidation Monitor” continue to update and monitor the latest health of SAKE
5. Reward is split to s-WATER upon each DTV update according to the latest Utilization Rate of s-WATER

Win-Win: Both VLP investors and USDC lenders earn more than before

The introduction of SAKE and s-WATER vaults has opened up a new opportunity for perpetual DEX LP staking. Vaultka acts as an intermediate to facilitate and enhance capital efficiency for LP stakers and stablecoin lenders on Arbitrum by re-allocating funding and risk, resulting in a win-win situation for both participants.

The below graph simulates the APR of SAKE & s-WATER compared to the APR of VLP & prevailing USDC lending vault.

We enter into several realistic assumptions:

• APR of VLP = 18%
• Protocol fee = 15% (good news!! It’s all waived in the first 3 months of mainnet launch)
• USDC lending APR (Weighted avg. on Arbitrum) = 3%

The emergence of SAKE & s-WATER produces a win-win situation when the utilization rate of s-WATER is between 10.5% to 90%. “Win-win” means both SAKE stakers and s-WATER lenders earn more than original VLP staking and prevailing USDC lending respectively.

You are welcome to play around with our simulator here, please make a copy on the worksheet.

Performance projection of SAKE & s-WATER in one-year (base & stress cases)

A. We try to project the corresponding annual performance of SAKE & s-WATER with below base-case assumption:

1. APR of VLP = 18%
2. Protocol fee = 15% (good news!! It’s all waived in the first 3 months of mainnet launch)
3. USDC lending APR (Weighted avg. on Arbitrum) = 3%
4. Utilization rate is changed once a week in random sequence from 0–100%

It is implied that both SAKE stakers and s-WATER lenders earn 2x-4x more than normal VLP stakers and usual lenders, just by a simple trick that Vaultka facilitates the reallocation of funding and risk among the market.

B. A more stressed case is simulated with an APR of VLP assumed at 5%. From the illustration below, SAKE still outperforms VLP near double while s-WATER’s ROI is comparable to market average lending yield.

Again, feel free to make a copy and use our simulator designed for you here and let us know for any feedback.

Unique features of SAKE & S-WATER for operation and risk management

In addition to yield enhancements for VLP stakers and USDC lenders, the Vaultka team places a 120% emphasis on product design to ensure mutual benefit and security. SAKE and s-WATER offer unique features that make them ideal and ready to be the killer product to optimize the capital efficiency of investing in VLP. Those unique features include:

1. Market-first Reward Split Mechanism

Unlike prevailing single-asset lending vaults, s-WATER does not receive a fixed interest rate from the borrowing side (SAKE). Instead, it shares the yield that SAKE generates through VLP staking. This arrangement provides s-WATER with great potential to earn extraordinary yield when the market is hot. Meanwhile, SAKE only pays borrowing costs if it generates a profit, allowing for a fair and balanced sharing of earnings between both parties.

Table comparison between “Reward split mechanism” & traditional “Interest model” on lending:

2. s-WATER Utilization Cap

To maintain a certain level of liquidity for s-WATER withdrawals, an utilization cap of 80% has been implemented. If the utilization rate of s-WATER exceeds the cap, further borrowing from s-WATER to SAKE will be temporarily paused until the utilization rate returns to an acceptable level.

3. Debt-to-value (DTV) Ratio Rebalancing

It is essential to allocate the unrealized profit stored in the value of VLP to s-WATER lenders in a continuous and fair manner. To achieve this, we have designed a dynamic rebalancing system that updates the DTV ratio triggered by any movement of SAKE vaults, significant price changes of VLP, and at constant time intervals (The dynamic rebalancing will be implemented in SAKE v2; while SAKE v1 currently supports one-off reward split when users unstake their SAKE position). By updating the DTV ratio in this way, everyone is able to review their profits all the time.

Come and give it a try!!

Last but definitely not least, we sincerely invite you to try out our latest SAKE and s-WATER Vault on Arbitrum. With its innovative features and unique reward split mechanism, SAKE and s-WATER offer a win-win situation for both VLP stakers and USDC lenders. So why not give it a try and experience the future of perpetual DEX LP staking firsthand? (guide here)