Treasury Management

Vector Reserve's treasury management is intricately designed around vETH, a unique Liquid Staked Token (LST) backed 1:1 by Liquidity Position Derivative (LPD). These derivatives utilize Superfluid Staking, ensuring active participation in the Ethereum ecosystem while maintaining a beta equivalent to ETH market movements.

Strategy for vETH

The purpose of vETH is to leverage the latest innovations emerging in Ethereum (liquid) staking and restaking, offering an asset with a diversified set of underlying assets that both minimize risk, and maximize yield. Key components of the strategy include:

• Superfluid Staking: The vETH LPD is engaged in Superfluid Staking, allowing vETH to remain active in Liquidity Positions (LP) while simultaneously earning (re)staking rewards.

• 1:1 Backing: Each vETH is backed one1:1 by these LPDs, providing a clear and transparent value correlation with the underlying assets with minimal volatility or Impermanent Loss (IL).

• Mass Exposure: vETH collateral contains various assets, each with distinct airdrop potential from various protocols. One thing they all have in common is they provide exposure to the EigenLayer airdrop to each vETH holder.

Beta Alignment with Ethereum

By focusing on ETH and Liquid Restaked Tokens (LRT) and LST pairs, the treasury strategy also includes investing in assets that are underpinned by ETH or LRTs or LSTs. For example, this could include utilizing yield-bearing LST stablecoins like Lybra's eUSD or Prisma's mkUSD.

• Beta Equivalence: The beta of the vETH backing assets mirrors ETH market behavior whilst achieving optimized yield, to maintain a consisten risk profile in line with ETH price movements.

• Market Synchronization: In doing so the treasury hedges against market volatility specific to the DeFi sector, ensuring stability and predictability in returns, and building long-term user confidence.

Revenue Streams

An essential aspect of treasury management in Vector Reserve is risk management, particularly concerning price exposure to ETH. The strategy aims to optimize yield without compromising on risk management in order to deliver on long-term consistent revenue streams:

• Liquidity Provision Earnings: vETH’s involvement in LPs generates fees, contributing to a steady income stream for the treasury.

• Staking Rewards: Superfluid Staking of the LPDs allows for additional yield generation, enhancing the overall value of the treasury’s holdings.

• LST/LRT Liquidity: Providing liquidity using LST and LRT assets allows the Vector treasury to earn from the staking/restaking reward accrual of those assets while also earning the yield from liquidity provision.

Diversification and Risk Mitigation

Active management of the vETH portfolio is crucial to maintaining the desired beta equivalence. This involves close monitoring of the market and treasury by the treasury team, to ensure that the portfolio is adjusted and diversified to effectively manage risks.

• Risk Management: The treasury team closely monitors market conditions to make informed decisions about asset allocations.

• Portfolio Diversification: vETH is designed to follow ETH movements, but the treasury diversifies holdings across a Superfluid Staking opportunities to optimize yield whilst managing risk.

Governance and Communication

The intention of the Vector Reserve protocol is to move towards a fully decentralized governance model when the system is stable and a community of prospective core contributors and delegates has formed. In the interim it will function as follows:

• Decentralized Decision-Making: Key treasury decisions will be influenced by the Vector community through decentralized governance mechanisms.

• Transparent Reporting: The protocol commits to maintaining high transparency, regularly updating the community on vETH positions, market performance, and risk management.