Vesper Pool Mechanics

Vesper Grow Pool Structure

The Grow pool has three main modules: Collateral, Strategy, and Action.

Collateral is where funds are handled when they are deposited and withdrawn. It reflects the contract calls required to move deposits to where they will earn yield. This may be lending platforms like Maker, Aave, or Compound. The process of withdrawing funds through the collateral module can require more effort than depositing them. If the pool is taking out loans with the pooled asset (ETH for example), a partial refund of its outstanding loans may be required before a withdrawal can be executed. This may lead to rebalancing, described below under the heading 'Rebalancing Pools'.

The Strategy module deploys capital to generate interest. Depending on the pool, this module could look simple (take out a loan and deposit it somewhere else) or complicated (fractional loans for compounded interest). The strategy might only use the deposit asset deposited in full to an interest-earning DeFi protocol.

Interest accrued is goes into the Action module. The action module determines how often to claim interest, and whether to move that interest to the strategy module to be redeployed for further yield, or to take the deposit asset off the table by feeding it back to the collateral module to withdraw it. Using Vesper Pools

Vesper Grow pools are designed for accessibility. Connect your wallet (e.g. MetaMask) with any of the available deposit assets, and make your deposit through the Vesper web interface. When you deposit, you’ll receive a vToken that represents your stake in the pool (e.g., deposit ETH and get vETH). As the pool accrues profit and purchases more of its asset, that tokenized stake will grant more of the underlying asset. To exit the pool, simply send your vToken back, and you will receive the underlying asset. While your funds are in the pool, you are free to move your tokenized stake to other wallets you control, perhaps to deposit it into another interest-generating strategy.

Fees The fees work as follows:

  • There is no fee to deposit into Vesper pools (beyond Ethereum gas fees).

  • There is a 0.6% withdrawal fee when exiting the pool.

  • There is a 15% platform fee collected from accumulated yield.

  • For strategies, 5% of that 0.6% withdrawal fee and 15% platform fee is allocated as the Developer's Fee. This is paid to whoever built that strategy. (More in "Developer Incentives.").

  • 95% of the accumulated fees are sent to the Vesper Treasury Box. The treasury will convert pool shares to buy-back VSP governance tokens off the open market. VSP tokens that are bought back are distributed to the vVSP vault stakers.

Rebalancing Pools Certain Vesper Pool strategies take advantage of peer-to-peer lending platforms (Maker, Aave, or others) which offer over-collateralized loans. Rebalancing maximizes the loans taken out while remaining within the bounds of safety.

Rebalancing works as follows:

  • Each pool has a 'high water' and 'low water' collateralization percentage that correlates to the collateralization requirements enforced by the lending platform.

  • There is a RebalanceFriction administrative parameter that protects the pools from excessive rebalance calls.

  • Any member of the public, user or not, may call the rebalance function everyRebalanceFriction number of seconds. When the rebalance function is called, if the assets are in 'high water', more loans are taken out. If the pool is at 'low water', some of the loan will be returned to partially close out the loan.

  • This rebalance function also claims interest, and swaps interest to collateral tokens.

Collateral Management

In order to maximize profit while avoiding unnecessary liquidation fees, Vesper pools utilize the rebalancing high water and low water variables to guide collateral management. When users deposit to the pool, their assets are posted as additional collateral as outlined by the strategy, enabling the pool to take out more loans. Likewise, withdrawals remove collateral. Whenever users interact with the pool, or the pool takes profit, it determines the current collateralization ratio and compares it to ratios marked as the high water and low water marks.

If the pool's collateral is at or below the 'low water' ratio, some capital is returned in order to partially close the loan, increasing the collateral relative to the outstanding loan and reducing risk.

Conversely, if it is at or above the 'high water' level, additional loans are taken out.

Rebalance Mechanics

Users are incentivized to call the rebalance function to maintain the health of the pool's outstanding loan portfolio (if applicable to the strategy). The initial three conservative pools use 250% and 275% collateralization benchmarks as the boundaries for low water and high water variables, respectively.

When the collateral on outstanding loans is >275% at time of call, additional loans are taken out to bring the collateral ratio back down. If outstanding loans are <250% collateralized, then the loans will be partially repaid to bump the ratio up into a healthy midpoint between low water and high water.