The Logic Behind AutoVault

Published on: 21.02.2023
The Logic Behind AutoVault

Introducing the logic behind AutoVault

The Logic Behind AutoVault. AutoSingle launched the first AutoVault — Automated Delta Rebalancing Vault recently, providing one more option for USDC staking with juicy reward and limited downside risk.

Live performance of the vault is updated from time to time and there is no lockup period. Currently the vault is performing around 17% APY since the inception date, all in USDC!!!

Facts behind the Auto Delta Rebalancing Vault?

1. Where does the yield come from?

Unlike some other staking pools using the self token as reward (i.e. stake XYZ earn XYZ), the AutoVault collects the yield from the real on-chain activities: (1) trading fee associated with CRO/USDC swap on VVS, and (2) farming yield distributed by the DEX with further auto-compounding. Both the income will be ultimately converted to USDC & CRO (CRO portion in the AutoVault is dynamically hedged in a continuous way).

2. What are the expenses incurred for leverage?

The first Automated Delta Rebalancing Vault is leveraged in 3X. Leverage is an angel tool if it is used in the right way. Leverage brings more possibilities to yield farming by (1) enlarging the principal; earn multiple incomes, and (2) initiating a market-neutral setup; be resistant to price changes. One will have to pay interests in terms of CRO & USDC to borrow CRO & USDC respectively.

So frankly, doing 3x leveraged yield farming is a better-off in a steady market when:

3. Regardless of the income & expense factors, what does AutoVault do to stabilize the LP equity value along with token price movement?

Auto Delta Rebalancing Vault is under 3x market-neutral setup.

(Market-neutral: Number of CRO in LP = Number of CRO borrowed)

Thus there is theoretically no price exposure toward CRO.

Nonetheless, in practice, the equity value of the 3x LP does drop when the CRO price moves farther from the initial price, mainly due to the logic of the prevailing AMM model.

It is notable that the equity value loss is relatively insignificant (i.e. the slope is flat) around 0% and the marginal loss enlarges when the price movement goes farther on either side.

Our bot in Auto Delta Rebalancing Vault detects the right dynamic moments to execute the delta rebalancing (i.e. to rebalance the hedge amount) and shift the flat region to the next price range stabilizing the equity value of the Vault.

This action protects the downside and offers more time for the Vault to accumulate the inflow and provide long-term stable real return in USDC.

4. So, what is the nature of Auto Delta Rebalancing Vault?

Indeed, it is technically NOT yield farming with volatile reward and equity value!!!

Auto Delta Rebalancing Vault is a USDC Vault with the tactic built on top of yield farming and it stays largely neutral to the market!!!

You may look more into the backtest result in extremely volatile 2022 with the same rebalancing logic (result was based on real on-chain historical data):

About Single Finance

Single Finance a super intuitive platform for all your DeFi investments minimizing correlations to the general market. Everything here work out from your injected capital in USD. Everything visualized. And everything is at your fingertips.

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