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

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Share Token Mechanics

dUSDC Share Price:

Share Price = Total Vault Assets / Total Shares Outstanding

Total Assets = USDC + Unrealized PnL + Accrued Fees

Example:

Initial: $1M assets, 1M shares = $1.00/share
After 30 days: $1.075M assets, 1M shares = $1.075/share
Appreciation: 7.5% in 30 days

Deposits:

Deposit $10,000 at $1.05 share price
Receive: 9,523.81 dUSDC shares
Shares earn immediately, no lock period

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Revenue 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% APR

2. 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% APR

Bull 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% APR

4. 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-term

Variance:

• Good months: Traders lose, vault gains significantly

• Bad months: Skilled traders profit, vault loses

• Long-term: Fees + Funding exceed trader edge

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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

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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