This vault is suitable for depositors who want to optimize their fee earnings on Level Finance’s Senior Tranche Liquidity (SLLP), while also maintaining a neutral price position on the SLLP’s volatile assets.
Essentially, this vault is best if you believe:
→ BTC, ETH, and BNB (only on BNB chain) will continue in a sideways or downward trend. 💹
→ Level will continue to attract traders for earning fees. 🧲
→ Level perpetual traders will continue to lose more than they gain. 🕗
Overview
Using 5x leverage on deposits, this strategy earns boosted yields from SLLP staking on the Level derivatives protocol. The yields come from minting/burning, swaps, liquidation, and margin trading fees, and they are automatically compounded back into the value of the SLLP vault token.
Additionally, Level token emissions (LVL) are harvested and staked on the Level Finance platform for more SLLP tokens.
Chains
Arbitrum
BNB
Implementation (BNB Example)
User deposits $100 worth of USDT or SLLP to the 5x Neutral Vault and receives svToken receipt.
Vault borrows $400 worth of ETH, BTC, USDT and BNB from Lending Pool. Total now $500.
$500 used to mint SLLP, which is then staked for LVL emission rewards.
1. Vault keeper (bots) harvests and stakes the LVL emissions for more SLLP.
Vault keeper (bots) check position status to rebalance if necessary (very rare).
When ready, user withdraws position from the vault in USDT or SLLP, which burns the svToken.
Rebalance: a “reset” of the vault’s assets such that the debt ratio stays within a healthy range and the delta exposure is true to the intended strategy. In the case of Delta-Neutral SLLP, there are rebalances on the debt ratio and delta.
Protocol Fees
Steadefi charges a 2% management fee annually on the overall value of the vault, as well as a 20% fee on earned yields from the underlying protocol.
These fees are maintained in the treasury for $esSTEADY dividend staking.
Risks
Level traders make consistent and significant gains on the platform
Considerable market movement on the volatile assets (ETH, BTC, and/or BNB) which causes frequent rebalances (damaging short-term profitability of the position).
An exploit, price manipulation, or code issue occurs with the Level protocol
Backtest Results
We conducted backtests from December 2022 - July 2023 to show how the 5x Neutral Senior LLP Vault would have performed over the lifetime of the tranche assuming a fixed fee APR of 60% and not including LVL emissions.
Please click the text below to see the backtest results:
Uptrending and Sideways Market (Dec 23rd 2022 - July 26th 2023)
Overall PnL: 44%
SLLP Overall change: 4.4%
# of Rebalances: 123
Accumulated SLLP Yield: 726%
Despite the frequent rebalances and recent Level trader gains, the Vault still steadily outperforms the standard SLLP by nearly 10x.
Conclusions
During a sideways or downtrending market, the vault steadily accumulates yield with max profitability when rebalances are minimal.
During an uptrending market, the vault rebalances frequently and only preserves the principal position without much profit in comparison to the standard SLLP (or our 3x Long SLLP Vault).
In all scenarios, the vault will continue earning and compounding to accumulate more yield to the SLLP position.
