Overview
Provide Liquidity And Earn From Multiple Sources.
Vault Fundamentals
Drake's vault system forms the liquidity backbone of the protocol, acting as the counterparty that continuously provides liquidity to traders. Rather than operating like traditional constant-product AMMs, Drake's vaults function as sophisticated market-making entities with dynamic strategies optimized for diverse market conditions.
Dynamic AMM Strategy Vault
Drake's primary liquidity vault operates with institutional-grade market-making mechanics:
Core Features:
No Impermanent Loss – Eliminates the bonding curve model (x*y=k) that causes IL in traditional AMMs
Oracle-Aligned Pricing – Quotes based on fair market prices rather than manipulable pool ratios
Active Risk Management – Dynamic exposure controls and position limits adapt to market conditions
Diversified Revenue – Generates returns from trading fees, funding rates, borrowing fees, bid-ask spreads, and counterparty PnL
ERC-4626 Standard – Uses the standard vault interface for seamless deposits and withdrawals
How It Works:
Liquidity providers deposit USDC and receive dUSDC share tokens representing their proportional ownership. The vault acts as the counterparty to traders, with vault PnL moving inversely to aggregate trader performance.
Pricing is determined by the oracle mid-price adjusted by fixed or dynamic spreads, ensuring fair execution without the price impact mechanics of traditional AMMs. The protocol's router system throttles vault exposure during volatile periods, while open interest caps prevent excessive position concentration.
Key Distinction: Unlike constant-product AMMs, Drake's vault operates as an institutional market maker rather than a passive liquidity pool, eliminating impermanent loss while generating sustainable returns.
Funding Rate Vault (frUSDC)
The Funding Rate Vault enables market-neutral yield generation through automated cash-and-carry arbitrage:
Mechanism:
Deposit USDC into the vault
Vault swaps to assets with positive funding rates
Posts assets as margin and opens equivalent short perpetual positions
Maintains net-neutral delta while collecting funding payments from long traders
Returns compound into frUSDC share value
Benefits:
Stable, Direction-Neutral Yield – Returns uncorrelated to market direction
Market Stability – Helps compress funding rate imbalances
DeFi Composability – Tokenized collateral usable across protocols
Institutional Strategy – Replicates automated hedge fund arbitrage
Risk Considerations:
While the vault maintains delta-neutral positioning, funding rate reversals can impact returns. The vault's dynamic exposure management system actively mitigates these risks by adjusting positions based on market conditions.
Use Cases:
Passive yield generation for stablecoin holders
DAO treasury allocation with stable returns
Yield-bearing collateral for other DeFi protocols
Key Distinction: Unlike AMMs that rely on swap volume, the Funding Rate Vault generates returns purely from funding rate arbitrage without exposure to impermanent loss.
Additional Structured Strategies
Drake's composable vault architecture supports advanced strategies beyond the core offerings:
Strategy Types:
Hedge Vaults – Protect liquidity providers and treasuries from directional market exposure
Index Vaults – Replicate diversified "DeFi equity" exposure through multi-asset positioning
Yield Optimization Vaults – Channel trading flows into sustainable, compounding returns
Design Principles:
These vaults are built for seamless integration with DAOs and other protocols, providing modular building blocks for sophisticated DeFi applications. Full on-chain execution ensures complete transparency and composability across the ecosystem.
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