Earn vaults

Users can supply liquidity in WOOFi by depositing assets into vaults. By doing this, users delegate the liquidity management to the sPMM pool manager, so that users keep the exposure only to the token they deposit without worrying about impermanent loss.

Up to 90% of the assets in the vaults are available to be borrowed and used to facilitate on chain swaps by the sPMM pool manager as needed. The sPMM pool manager pays a fixed borrowing rate on the loan and manages the quotes and the impermanent loss risk.

Settlement cycle

The vaults have a 7-day settlement cycle and there is a 24-hour time window after each cycle ends for the LP to settle loans according to user requests. The workflow of the vault is illustrated as follows:

Vault design flowchart

1. Users deposit assets into the vault

2. Assets are deployed into the base yield farming strategy on a third party DeFi protocol

3. The sPMM pool manager initiates and borrows up to 90% of the vault TVL as needed

4. Borrowed assets are retrieved from the third party protocol and deposited into the WOOFi liquidity pool

5. The sPMM pool manager repays the principal and interest of the loan to the vault

6. When the vault is not under settlement, users can choose to instantly withdraw assets to their wallet within the weekly limit or request withdrawals of any amount which will be settled at the end of the cycle

7. During the settlement process, the assets requested for withdrawal will be moved from the vault to a separate pool

8. The requested assets will be available for withdrawal anytime after the settlement process completes

Withdrawals

Each 7-day cycle starts from 0:00 UTC Monday. The sPMM pool manager will be notified of the amount to repay based on the withdrawal requests from the last cycle. The sPMM pool manager needs to complete the settlement within 24 hours, and as soon as the settlement completes the next cycle will begin.

Vault settlement cycle

• Standard withdrawal - there are two steps for standard withdrawals: 1) request; 2) withdraw. Users can request to withdraw their deposits with no fee or limit anytime except when the vault is under the settlement. Assets requested will be available for withdrawal as soon as the next settlement process completes, i.e. no later than 0:00 UTC Tuesday. The settlement process usually takes a lot less time (e.g. a few hours) if there aren't many withdrawal requests.

• Instant withdrawal - to meet users' urgent needs, at the beginning of each cycle the vault sets aside 10% of the TVL for instant withdrawals. Users can withdraw their deposits immediately within the weekly withdrawal limit, in order to avoid any abuse of the instant withdrawal a 1% withdrawal fee is charged. The weekly withdrawal limit resets at the beginning of each cycle.

Borrowing rates

The Supercharger vaults earn yields from the borrowing interest paid by the sPMM pool manager.

The WOOFi sPMM liquidity pool is the only address whitelisted to borrow assets from the Supercharger vault with no collateral. The loan is initiated by the sPMM pool manager as needed. The rate of the uncollateralized loan is defined as follows:

Due to the lack of a market rate benchmark for uncollateralized non-stablecoin loans, the borrowing rate on non-stablecoins is calculated as if the sPMM pool manager were to get a collateralized non-stablecoin loan and then apply a multiplier (>1) according to the collateralization ratio. Because multiple platforms will be considered in the calculation, the final rate $B$ is based on the exponential moving average of calculated rates on various platforms.

When benchmarking a single platform $i$, the borrowing rate $Bi$ is decided by the following factors:

• $Xi$: Overcollateralized borrowing rate of the non-stablecoin on the platform $i$

So, $Bi=Xi*Multiplier$

When benchmarking multiple platforms, the final vault borrowing rate would be:

$B=ema(average(Bi))$

As an example, on AAVE the borrowing rate on ETH is 3% and the Multiplier is 105%. So if only benchmarking AAVE, the supercharger borrowing rate on ETH would be:

$Bi$ = 3% * 105% = 3.15%

Additional WOO rewards are allocated to vault depositors across all chains as additional incentives.

In order to receive WOO rewards, you need to perform one more step to stake the vault LP token i.e. weTOKEN under the "Rewards" tab.

Impermanent loss

Impermanent loss risk exists when users provide liquidity in almost all DEXs. With WOOFi Earn vaults, users simply delegates the management of impermanent loss risk to the sPMM pool manager and earn yields from the borrowing interest.

The WOOFi sPMM pool manager uses its own trading strategy to stay market neutral so that users can always withdraw the assets they originally deposit. The strategy, at a high level, works as following:

• Bridging the liquidity between DeFi and CeFi - WOOFi’s sPMM simulates the WOO X order book liquidity via a combination of tools including sPMM algorithm, onchain price feeds, and an automated hedging strategy. The sPMM pool manager holds positions both onchain and on WOO X, and the combined positions always stay market neutral.

• Hedging the exposure - When a swap is executed on WOOFi, e.g. swap USDC for WOO, the WOOFi liquidity pool effectively sells WOO for USDC. Once the transaction is final onchain, the sPMM pool manager then executes the reverse trade on WOO X, i.e. buying WOO with USDC. WOO X's trading fee structure makes it an ideal hedging venue.

• Mitigating the IL risk - There are a lot of nuances in the hedging strategy, but through this the sPMM pool manager will continue staying market neutral. That means even if the onchain liquidity pool is out of balance (i.e. IL), they can always make up the assets with the inverse position on WOO X during the settlement process for users to withdraw upon requests.

Risks when using WOOFi Earn vaults

WOOFi smart contracts are audited and we carefully evaluate the security risks of the external smart contracts WOOFi interacts with. However, this does not mean that a vault is entirely risk-free.

Risks specific to Earn vaults include:

• There is still a trust element in the Earn vault in its current form, where users allow the WOOFi sPMM pool manager to borrow the deposited assets with no collateral and manage them via providing liquidity in WOOFi Swap.

• There is a risk of losses incurring during the sPMM pool manager's hedging process due to the delay or reorg in blockchains. However, the WOOFi sPMM pool manager has a strong track record of keeping the strategy healthy even in many extreme market conditions. Therefore, the sPMM pool manager will by default assume the risk with its trading strategy.

General risks of all vaults:

• WOOFi Earn vaults help users deposit assets into 3rd party DeFi protocols. As with any smart contract, the ultimate risk is that a user's funds can end up being exploited, stolen, or unable to be withdrawn. However, the team always takes security as the first priority when assessing the external smart contracts that WOOFi interacts with.

• In case of any smart contract exploit, an emergency process is in place to pull out users' funds from the external smart contract back to WOOFi Earn vaults to avoid/minimize the loss. Users will always be able to withdraw the funds proportionate to their share of the vault.