How Does a Leveraged Origami Vault Work?

Why Is Origami Needed?

Historically, users could increase their exposure to a yield-bearing token (YBT) or airdrop farming strategy by depositing that same token to borrow on a money market where it was whitelisted as a collateral. The borrowed funds would be swapped to generate more of the same collateral. By looping or folding this debt position repeatedly, a highly leveraged exposure up to 10x or more could be achieved depending on the maximum LTV (Loan-to-Value) parameters for the pool.

However, manually entering the folded position this way was tedious, risky, and gas-intensive. The user would have to carefully monitor their health ratio to ensure that market volatility or high interest rate would not bring their debt position above the liquidation threshold.

How Did Origami Devs Fix This?

Origami Leveraged Vault (lov) also known as lov-Strategy vaults simplifies the entire folding process into a one-click experience. Users can instantly create a leveraged yield-bearing token position that automatically maintains a consistently high LTV to maximise returns for select YBT such as sUSDe while minimising liquidation risk. In the case of USDe for farming Ethena Sats, users may maximise their potential farming power by applying 5x leverage relative to their actual capital.

What Leveraged Origami Vaults Are Available at Launch?

The two main Origami v2 vaults lov-stETH and lov-sUSDe will be available at launch. These vaults utilise the deposit token as both asset and collateral to generate a relatively delta neutral position on Morpho Finance to further mitigate liquidation risk. The lov-USDe and lov-sUSDe vaults will deploy user deposits to their respective Morpho Pools to provide users with more Ethena Sat farming power and any native yield (sUSDe only).

Where Does the Origami Vault Borrow Liquidity Come From?

The liquidity required for lov-Strategy vaults may be supplied externally through a lending platform such as Spark Finance or Morpho Finance. The specific token pairing in each lov-Strategy vault cannot be changed and is tied to the lending platform to which the vault is integrated. For instance, the lov-USDe would borrow more DAI from Morpho Finance to increase its USDe holdings, whereas the upcoming lov-stETH vault would borrow more WETH from Spark Finance to increase its wstETH holdings

The Origami user can deposit the underlying YBT token or whitelisted target farming token into a lov-Strategy vault to mint vault share tokens (lov-Token). The reserve asset in a lov-Strategy vault is the actual yield-bearing or collateral token e.g. sUSDe for the lov-sUSDe vault and USDe for the lov-USDe vault. The user deposit enables the vault to apply leverage on the user’s behalf by using its USDe or sUSDe reserves as collateral to access lending liquidity.

How Do I Claim My Vault Yield?

The user's share of the lov-Token supply reflects their share of the lov-Strategy vault’s withdrawable reserves. The non-withdrawable portion of lov-Strategy reserves is used to collateralise the outstanding loan principal and any accrued interest.

Similar to other repricing share tokens that are redeemable for assets e.g. Spark Dai (sDAI), as the ratio of USDe-to-sUSDe grows, the amount of reserves required to back the outstanding loan will decrease, which in turn increases the amount of sUSDe that users can withdraw when they redeem their vault shares. The amount of user-withdrawable reserves will grow on a per lov-Token basis as long as the yield on the YBT exceeds the borrow APY from the lender over time.

For lov-Strategy vaults such as lov-USDe, the farmed points that reflect the total vault farming potential is reflected on the front-end and updated daily. When Ethena fulfills its commitment to reward ENA tokens to the community, Origami users will be able to redeem their rewards on a pro-rata basis proportional to their share of the Origami vault over their deposit period.

Positive yield spread in a lov-Strategy vault is not guaranteed! A negative yield spread stemming from high interest rates on the vault-specific external lending market may impact returns. For more information, see the Risks section.

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