Liquidity Vault
Vault Overview
Drake vaults provide AMM liquidity through an ERC-4626 compliant structure. Vaults accept USDC deposits and issue dUSDC shares representing proportional ownership.
Core Design:
Oracle-aligned pricing (no bonding curve)
No impermanent loss
Counterparty to all trader positions
Automated opposite position taking
Position Mirror:
Trader goes long → Vault goes short
Trader goes short → Vault goes long
Net result: Vault holds aggregate opposite to all traders
Share Token Mechanics
dUSDC Share Price:
Share Price = Total Vault Assets / Total Shares Outstanding
Total Assets = USDC + Unrealized PnL + Accrued FeesExample:
Initial: $1M assets, 1M shares = $1.00/share
After 30 days: $1.075M assets, 1M shares = $1.075/share
Appreciation: 7.5% in 30 daysDeposits:
Deposit $10,000 at $1.05 share price
Receive: 9,523.81 dUSDC shares
Shares earn immediately, no lock periodRevenue Streams
1. Trading Fees (60% to LPs)
Volume-based earnings:
$10M daily AMM volume × 0.075% fee = $7,500/day
LP share (60%) = $4,500/day = $1.64M/year
On $50M vault = 3.29% APR2. Funding Payments (100% to LPs)
Largest revenue component:
Long-biased market → Vault receives funding from longs
Short-biased market → Vault receives funding from shorts
Scenarios on $50M deployed:
Low funding (0.01%/8hr): 10.95% APR
Moderate (0.05%/8hr): 54.75% APR
High (0.10%/8hr): 109.5% APRBull markets typically generate highest funding income.
3. Borrowing Fees (100% to LPs)
Utilization-based:
Rate = Base Rate (10%) × Utilization
70% utilization on $50M vault:
$35M deployed × 7% = $2.45M/year = 4.9% APR4. Spread Capture (100% to LPs)
Bid-ask spread on AMM trades:
Oracle: $50,000
Bid: $49,975 / Ask: $50,025
Spread: $25 per BTC
200 BTC daily volume × $25 = $5k/day = $1.825M/year
On $50M vault = 3.65% APR
Dynamic spreads:
Normal: 0.02-0.05%
High volatility: 0.10-0.20%
Emergency: 0.50%+5. Counterparty PnL
Vault opposite to traders:
Vault PnL = -1 × Trader PnL
Historical trader statistics:
70-80% of traders are net losers
Average trader loses 40% of capital
Expected contribution: 20-40% APR long-termVariance:
Good months: Traders lose, vault gains significantly
Bad months: Skilled traders profit, vault loses
Long-term: Fees + Funding exceed trader edge
Withdrawal Process
Two-step redemption:
Step 1 - Request:
Submit redemption request for shares
Shares frozen during delay
Continue earning during period
Typical delay: 24 hours
Step 2 - Execute:
After delay, burn shares
Receive USDC at current share price
Delay prevents rapid withdrawals during stress
Risk Factors
Trader Performance: If traders consistently profit, vault pays out winnings
Market Gaps: Extreme moves may gap past liquidation levels
Withdrawal Cascades: Mass withdrawals may force disadvantageous position closures
Oracle Issues: Multiple source failures could impact pricing accuracy
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