Earn yields by providing liquidity to professional market makers
WOOFi Earn provides a hassle-free experience by offering "set-and-forget" yield generating strategies, where users can simply deposit into a vault and let the automated strategies do the rest.
Since the launch, WOOFi Earn had deployed auto-compound vaults on BSC, Avalanche and Fantom networks, charging the lowest performance fee across DeFi yield applications. The vaults automate the process of compounding interest by harvesting rewards and reinvesting at an optimal frequency, which helps to achieve higher yields.
The Supercharger vault is the new flagship product of WOOFi Earn, which supercharges yields for users by allowing liquidity provision in WOOFi's highly capital-efficient sPMM pools. Each Supercharger vault adopts a base yield farming strategy in combination with lending assets to the WOOFi sPMM pool manager. We expect to continue deploying additional Supercharger vaults to cover more assets and chains.
Assets in the WOOFi Supercharger vaults are deployed into two following strategies:
- WOOFi sPMM liquidity provision - up to 90% of the vault's assets 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.
- Base yield farming - unborrowed assets are deployed in a 3rd party DeFi protocol for auto-compound yield farming. This helps enhance the capital efficiency and set a base APY for users. The strategy only lends assets to trusted protocols to ensure the security and availability of the funds.
An additional 150K WOO per month is rewarded to supercharger vault depositors across all supported chains in the form of xWOO (i.e. staked WOO). Rewards on Optimism are distributed in WOO. Allocation is based on the borrowing needs of each supercharger vault. To receive the xWOO rewards, users need to stake the weToken in the "Rewards" tab after depositing in the supercharger vault.
The Supercharger vault has 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 Supercharger vault is illustrated as follows:
- 1.Users deposit assets into the Supercharger vault
- 2.Assets are deployed into the base yield farming strategy on a 3rd 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 3rd 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 at end of each cycle, the assets requested by users 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
Each 7-day cycle starts from 0:00 UTC Monday, followed by the settlement process where 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.
Supercharger 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 0.3% withdrawal fee is charged. The weekly withdrawal limit resets at the beginning of each cycle.
The Supercharger vaults earn yields from the borrowing interest paid by the sPMM pool manager and auto-compounding rewards from the base yield farming strategy.
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 i.e. Kronos Research 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 an uncollateralized stablecoin loan and put it as collateral to borrow the needed non-stablecoin on the given platform. Because multiple platforms will be considered in the calculation, the final rate
is based on the exponential moving average of calculated rates on various platforms.
When benchmarking a single platform
, borrowing rate
is decided by the following factors:
- : Market rate of borrowing stablecoins without collateral
- : Overcollateralized borrowing rate of the non-stablecoin on the platform
- : Lending interest rate of stablecoins on the platform
- : Collateral ratio
When benchmarking multiple platforms, the final Supercharger vault borrowing rate would be:
As an example, the market rate for borrowing uncollateralized USDC is 6%; on AAVE, the lending interest rate for USDC is 1%, borrowing rate on ETH is 2% and the collateral ratio is 150%. So if only benchmarking AAVE, the borrowing rate on ETH would be:
= 2% + (6% - 1%) * 150% = 9.5%
2. Base yield from 3rd party protocol - the funds that are not borrowed by the WOOFi sPMM pool manager are deployed in 3rd party protocol to earn base yield.
A monthly 150K WOO is allocated to supercharger depositors across all chains as additional incentives. The rewards are claimed in xWOO (the staked WOO token).
In order to receive xWOO rewards, you need to perform one more step to stake the Supercharger LP token i.e. weTOKEN under the "Rewards" tab.
Impermanent loss risk exists in all swap style DEXes, where the assets borrowed by the sPMM pool manager may be swapped for other assets in the liquidity pool as the result of trading activities on WOOFi. With the Supercharger vault, users simply transfer the responsibility of managing impermanent loss risk to the sPMM pool manager and earn yields from the borrowing interest.
The WOOFi sPMM pool manager, Kronos Research, 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 WOO X order book liquidity via a combination of tools including sPMM algorithm, on-chain price feeds, and an automated hedging strategy. The sPMM pool manager holds positions both on-chain 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 on-chain, the sPMM pool manager then executes the reverse trade on WOO X, i.e. buying WOO with USDC. WOO X's zero trading fee structure makes it the 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 on-chain 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.
WOOFi Earn 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 Supercharger vaults include:
- There is still a trust element in the Supercharger vault in its current form, where users allow the WOOFi sPMM pool manager i.e. Kronos Research 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, Kronos Research 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.