How were ACryptoS Venus Vaults unaffected while other yield optimizers lost tens of millions in users’ funds when Venus Protocol introduced its 0.01% redemption fee?

We didn’t do anything too special really…

Our Vaults farming on Venus Protocol use a single-token leverage strategy to ~3.66X your yield — essentially for every 1 token users deposit in our Vaults, we supply ~2.33 tokens and borrow ~1.33 tokens from the Venus protocol, using ~95% of our borrow limit.

Venus Protocol introduced a 0.01% fee for redeeming supplied tokens. This had a negligible impact on our yield.

Let’s take a closer look

There are essentially 3 types of transactions our Vaults do:

1. Deposit
   User deposits tokens into our Vault. We supply the tokens to Venus, and if needed, borrow and supply more tokens to reach our target borrow limit of 95%. There is no redemption here — and no redemption fee to pay.
2. Harvest
   A user or bot triggers a harvest of our Vault which harvests XVS from Venus, and sells it for more of the (vault’s) token. We supply the tokens to Venus, and if needed, borrow and supply more tokens to reach our target borrow limit of 95%. There is no redemption here — and no redemption fee to pay.
3. Withdraw
   User withdraws tokens from our Vault. We redeem tokens from Venus, and if needed, repay and redeem more tokens to reach our target borrow limit of 95% after sending the withdrawn tokens to the user. The redeemed amount will be ~1X to ~2.33X of the amount withdrawn depending on how large the withdrawal is. It will only reach ~2.33X if the entire Vault is withdrawn at the same time.

In short, we pay Venus redemption fees of 0.01% on ~1X to ~2.33X of each withdrawal from our Vaults. Hardly a bank-breaker.

What happened with everyone else?

We were the first to launch Vaults farming on Venus Protocol, and we were still the only ones for 3 weeks after. When we examined the first competitors’ Vaults to emerge, we noticed that our gas fees were ~5X lower, and our yields ~25% higher.

Why was this the case? The competitor’s Vault was fully de-leveraging and re-leveraging the ENTIRE VAULT on EVERY transaction!!! 🙈 The total amount redeemed would be 2.33X of the TVL of the whole vault on every transaction. Every. Deposit. Harvest. Withdrawal.

With every transaction, they would redeem as much as they could, repay everything, and repeat 4 times until everything was fully repaid and redeemed. They would then supply everything, borrow as much as they could, and repeat 4 times, reaching a borrow limit of ~96.67%.

(For some reason they didn’t supply everything after the last loop, leaving a good proportion of funds un-utilized, hence our 25% higher yield. 🤷‍♂️)

Why did they do it this way? Probably because it’s an easier way to maintain the target borrow limit, compared to coding the logic required to do it in a more efficient manner.

Also, ~5X higher gas fees… some users might complain on TG, but it’s not too much of a biggie…

But when you need to pay a 0.01% fee on 2.33X of the TVL of your entire Vault on every single deposit, harvest and withdrawal…

Staying SAFU

Defi is risky. Adding layers of smart contracts on top of each other increases risk exponentially. How well do the devs of your yield aggregator understand the underlying protocols they are farming? Learn more about how ACryptoS is different.