Introducing PWRD and Vault – stablecoin yield farming that tranches risk & yield
PWRD and Vault (GVT) are stablecoin products built on tranching risk and yield.
PWRD is a stablecoin that comes with deposit protection and yield. It is backed by deposits into PWRD and Vault, and shielded from losses resulted from yield strategy failures by its sister product Vault by sharing some of its yields. This means PWRD is the "senior tranche" that offers safer access to DeFi yields.
Vault is a token which value changes based on the leveraged stablecoin yields. It is designed to be the highest-yield stablecoin vault on the market by getting a share of yields from PWRD deposits and in return offering protection to PWRD when an underlying stablecoin or protocol fails. This means Vault is the "junior tranche" that absorbs stablecoin or protocol failures, but also gain a higher percentage of yields.
How are yields generated at the system level?
Before diving into the differences between PWRD and Vault, let's first go through how the combined funds generate yield as an aggregate.
PWRD and Vault funds are deployed to provide liquidity in the same Curve Pools that pair 3CRV (DAI, USDC, USDT) with other stablecoins. When people swap stablecoins using these pools, they pay trading fees to the liquidity providers. In addition, the liquidity provided is tokenized and deposited on Convex for additional governance token rewards. The yield generated come from these two sources.
PWRD and Vault have exposure to not only USDC, USDT, and DAI but also other stablecoins in the selected strategies. It also has exposure to both Curve and Convex.
Learn more about the yield strategies used in this page:
Gro protocol balances internal assets based on the risk exposure to different assets and protocols. This involves setting allocation targets for stablecoin assets, which the Risk Balancer will try to meet when distributing stablecoin assets. In practice, Gro protocol measures the changing risk exposure; when the exposure is above a predefined margin, the system will rebalance by swapping assets. It uses Curve as the swapping layer, meaning that the system can make decisions on what assets to move in and out independent of what assets the end user deposits/withdraws. Gro protocol determines how much of each asset needs to be added or removed from the system through determining the delta, the difference between the target allocations, and the actual assets in Gro protocol.
When a user deposits or withdraws, Gro's smart contracts determine which strategies the funds are deployed (or removed) in a way that helps rebalance the system's exposure to the selected strategies. This does not mean the users have to choose one strategy over another; on the contrary, user funds are always exposed to all strategies used at the system level for risk diversification.
On a regular basis, both the trading fees and governance token rewards are harvested and converted into one of DAI, USDC, or USDT. This is why users do not see yields increasing block by block since the yield is only reported at harvest.
Harvests are generally done through Gelato, a platform supporting decentralised harvests, but could at times fall back to manual harvesting. Learn more about harvesting of PWRD and Vault:
How are yields and risk split between PWRD and Vault?
As yields are harvested, they are split between PWRD and Vault users based on the "Utilisation ratio", which is defined as PWRD TVL divided by Vault TVL. The same ratio also determines the risk exposure Vault has to each yield strategy.
Where can I see the Utilisation Ratio?
You can see the utilisation ratio in the PnL smart contract here with the parameter utilisationRatio (see screenshot below). Another way to see that is on the Gro dApp dashboard.
This means the utilisation ratio is at 91.75%
Part of the risk tranching mechanism also means that PWRD deposits or Vault withdrawals could be put on hold when utilisation is high. It is important to understand this protection mechanism even if you only use Vault not PWRD.
Learn more about how Utilisation Ratio is factored into the protection here:
DeFi is still a very new space, and while that's exciting, it comes with risk. Gro Protocol's software helps you access this world, but make sure you do your own research and only supply assets you can afford to lose.