vETH and VEC Yield Sources

Vector Reserve is issuing a new type of Liquid Staked Token called the Liquidity Position Derivative (LPD), represented by vETH. vETH is an ETH-pegged token (like Lido's stETH for example) that is backed not by ETH, not by stETH (or any other LST) but by a mix of them, paired with each other as LP positions. Since the entire backing is made up of ETH and ETH-denominated assets, vETH cannot be left undercollateralized by ETH price action. It is a product designed for people who want to take part in achieving optimized ETH yields, without sacrificing ETH exposure or risking Impermanent Loss (IL).

Where Does vETH Yield Come From?

What makes vETH so special is the diverse sources of yield it accrues:

  • The yield from the underlying LP positions: trading fees, arbitrage and emissions.

  • The yield from the LSTs within the LP positions.

  • Superfluid Staking yield, when enabled by EigenLayer.

The first two are rather straightforward, but the third one is where it gets interesting. If you're familiar with how EigenLayer restaking works, this will be easy to understand. EigenLayer not only allows you to deposit LSTs to restake, you can also deposit LST-based LP positions (like the exact ones that back vETH). What this means is that you can earn the same yield as an LRT on EigenLayer, but on top of the yield you earn all the additional sources of yield from LSTs and LPs, whilst remaining liquid via vETH. However, because it derives yield not only from restaking but from LP positions, the yield on vETH should drastically outperform a standard LRT.

How Does VEC Accrue Value?

Regarding the Vector token (VEC), it acts as a value accrual token for the entire protocol. VEC maintains a perpetually growing intrinsic value, similar to past iterations of "reserve currencies". However, unlike traditional reserve currencies, VEC accrues revenue from additional sources beyond merely bonding.

  • VEC is backed by vETH/ETH LP positions - meaning the intrinsic value is perpetually growing with yield accrued.

  • VEC sells bonds to acquire more vETH/ETH LP - growing the backing more rapidly whilst also bolstering vETH liquidity.

  • VEC has a transaction tax that goes towards bribing for LP provision across various DEXs - rapidly scaling VEC liquidity.

  • 20% of yield generated by the vETH collateral reserves goes towards the VEC token, either as perpetual buyback-and-burn, or by staking yield.

The Combined Value Proposition

Eigen points are unpredictable whilst LP yields are somewhat more predictable and certainly more tangible - Vector enables users to take advantage of both whilst achieving some of the highest current and future yields on ETH? As treasury backing grows we migrate the LP positions to multiple DEXes. That has two effects:

  • Vector Reserve earns more money for both vETH and VEC intrinsic backing and/or yield based on trading fees and arbitrage profits.

  • We produced a higher yield LP pool for LRT partner protocols and users. Any user of an LRT can deposit to these pools and earn trading emissions and DEX emissions!

  • We route our transaction tax back into vETH and VEC liquidity and yield. This is temporary, but enables us to boostrap TVL with industry leading yields.

All of these positions are locked in the treasury and required to both back our assets, and generate optimal yield for our future growth (rather than being liquid on the market in the hands of the masses). This means that we are able to offer a consistent, reliable, diversified and high yielding set of opportunities for both partner LST and LRT protocols and users.

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