yYour Guide to YOP Vaults, Strategies and APY Calculations
In this post, we will take a look at some of the most common questions people new to YOP, might have about the Platform. There is a lot more detail available in the YOP Whitepaper, so don’t forget to check that out too.
What are Vaults?
Vaults are the main point of interaction for users within the ecosystem. Users deposit their funds into the various Vaults, and YOP takes care of distributing, compounding and managing the funds. Users are free to withdraw their funds at any time from a Vault.
Vaults combine one or more Strategies to create diversified investment opportunities. These Vaults offer variable APYs based on the Strategies in use and the percentage allocation to each strategy.
Vaults combine multiple Strategies in varying weights and combinations — with the goal of offering exposure to returns in the top and upcoming DeFi Protocols, whilst reducing Protocol specific risk exposures within DeFi.
What are Strategies?
Strategies are the underlying steps used to generate a yield on a user’s assets. These can include lending assets on Protocols, providing liquidity to pools, investing in crypto indexes and other DeFi activities.
DeFi Protocols can be combined in multiple ways to create new Strategies — this is an amazing benefit that DeFi brings, which traditional finance can not match. Leveraging multiple DeFi Protocols in this way typically results in increased yield, but with this increased reward comes an increase in risk. Each DeFi Protocol introduced adds additional complexity and contributes to the overall risk. YOP has invested a lot of time in risk profiling and analysis of DeFi Protocols, so as to be able make informed decisions about which Protocols to interact with and what the risk:reward ratio looks like.
How is APY Calculated?
APY is comprised of two components:
- Base APY — Represents the returns generated by the underlying Strategies through investing in various DeFi Protocols
- Reward APY — Represents the additional return being earned as reward for being a YOP Community member.
Note: At the current phase of the dApp (Private Launch), these figures are combined and quoted as a single static figure next to each Vault. There will be clear breakdowns of these figures for users coming in the near future.
How is Reward APY Calculated?
Reward APY is variable and is different for each of the Vaults. In the Private Launch phase, there are 3 key factors which impact the Reward APY in a given Vault:
Amount of YOP directed to Vault
- Vaults are incentivised with YOP tokens from the community emissions pool. The exact amount of YOP allocated varies on a vault-by-vault basis, with higher emissions on new Vaults to attract deposits and grow the Vault’s TVL. The more YOP emissions allocated, the higher the Reward APY in the Vault.
Depositor’s Share in Vault
- YOP allocated to a Vault is distributed among the Vault depositors based on their share of Vault. The greater the number of depositors (or TVL) in the Vault, the further these emissions need to be spread, resulting in overall lower APYs on larger cap Vaults.
YOP Token Price
- APYs are expressed in the base token of the Vault. Therefore, to calculate APYs, it is necessary to express the value of the YOP Tokens emitted to a Vault in the base token of the Vault. This means that a doubling of the YOP token price would result in similar increases in Reward APY.
Are Vault Reward APY’s Sustainable?
With the current mechanism to calculate YOP Rewards for Vaults, each depositor receives the same Reward APY — as YOP is allocated based on their share of the Vault pool. In this model, there is no strong incentive for depositors to stake their newly acquired YOP tokens (apart from staking yield in the LockBox and governance). In the long run, this would not be sustainable — as most users would be looking to sell YOP to cash in their gains.
The current model was chosen as a simple methodology to reward participants in the Private Launch phase of YOP. Moving into the Public Launch, the mechanism to calculate YOP Reward’s for each depositor will be changing to reward users that have proven vested interest in the protocol — making the emission of YOP to Vaults sustainable in the long-run. More information on the new methodology will be released along with the Public Launch.
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