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 leverage relative to their actual deposit to create a much larger notional position e.g. 5x or 7x.
What Leveraged Origami Vaults Are Available at Launch?
The two main Origami v2 vaults lov-wstETH and lov-sUSDe will be available at launch. Other vaults such as lov-weETH, lov-wOETH, lov-USDe will soon follow. These vaults utilise the deposit token as both asset and collateral to generate a relatively delta neutral position. These vaults will deploy user deposits to their respective Morpho or Spark Pools to provide more Points farming power and leverage for any applicable native yield e.g. sUSDe, weETH, wOETH, and wstETH.
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 lov-wstETH vault would borrow more WETH from Spark Finance to increase its wstETH holdings
The Origami user can deposit the underlying YBT 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.
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 APR on the YBT exceeds the borrow APR 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 Protocol fulfills its commitment at the end of Season 2 (and Season 3), Origami users will be able to claim their rewards on a pro-rata basis proportional to the Sats that they've earned through their Origami deposit. In the meantime, the user can assess the implied APR from the Points or Sats through the eAPR vault metric. See the Rewards section for more details.
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