Under the Hood: Savers Vaults & Protocol Owned Liquidity

THORChain University
4 min readSep 1, 2022

Savers Vaults (or Single Sided Yield, or Single Sided LP) and Protocol Owned Liquidity on THORChain: how do these features work?

First, we need to understand how THORChain Synthetics (or Synths) work. There are many resources (e.g. https://medium.com/thorchain/activation-of-synthetics-5064e0f43301), but tl/dr: minting a Synth essentially deepens the respective liquidity pool (LP) to an equal value, split into 50:50 Asset:RUNE.

Before this, only arbers were holding Synths since there was no yield. But the Savers Vaults design will create a mechanism where users can deposit native gas assets (e.g. BTC, ETH, BNB; all auto converted into Synths) to earn yield, which would be 50% of the earnings earned by the respective LP.

Savers Vaults:

  • are backed by the respective LP
  • earn a part of the yield from swap fees using THORChain LPs
  • are always redeemable (with slippage) to the native coin
  • have no RUNE price exposure
  • have no impermanent loss exposure

Here is an overview/example of depositing & withdrawing from Savers Vaults:

Credit: https://twitter.com/familiarcow

Protocol Owned Liquidity (POL)

The expectation is that Synths, because of their multifaceted appeal, may quickly reach their utilization limit (at the time of writing, at maximum 60% of LP depth), as users mint Synths to enjoy the Savers Vaults.

Enter: Protocol Owned Liquidity (POL). The THORChain Reserves will deposit RUNE into the LPs if the Synth utilization for each pool reached >50% of LP depth. This will deepen the pools, and thus reduce the % of Synth utilization per pool, allowing for more Synths to be minted.

Conversely, the POL RUNE will be withdrawn from the LPs if the Synth utilization for each pool reached <40% of LP depth. POL will neither be deposited not withdrawn when Synth utilization resides between 40 to 50% of LP depth. [Update: starting Nov-2023, POL withdraw trigger will be at 10% Synth utilization. Deposit trigger unchanged at 50% Synth utilization.]

Credit: https://twitter.com/familiarcow

The amount of POL RUNE contributed at the feature’s outset will be limited to a small % of total Reserves, and will be gradually increased over time to battle test these features. In theory, the amount of POL will be limited by the hard cap (i.e. total pooled RUNE = total bonded RUNE by the lowest 67% of nodes). In practice, as POL grows the pools → the Incentive Pendulum will favor the nodes over the LPs → Synths yield decrease → users redeem Synths back to native coins → Synths % decrease → Reserves remove POL → equilibrium reached.

The flexibility of always creating space for more Synths (via the POL) is also a key enabler for the future Order Book feature, as pending limit orders are held by the protocol in the form of Synths.

FAQ:

1. Will the Savers Vaults be offered for all assets, including native RUNE?

No. Savers Vaults will only be offered for gas assets of each external blockchain (BTC, ETH, BNB, BCH, DOGE, LTC, ATOM, AVAX), and not for native RUNE. In the future, certain non-gas assets (e.g. stablecoins) may be considered for Savers Vaults.

2. Will Savers Vaults reduce demand for native RUNE?

No. Savers Vaults means minting/holding Synths, which will be split into 50:50 Asset:RUNE in the LP. Therefore, a user minting Synths with assets will drive buy pressure for RUNE.

3. Will Savers Vaults negate the 3x non-RUNE TVL deterministic pricing?

The additional dynamics of Savers Vaults and POL may mean the target Incentive Pendulum of 2 bonded RUNE : 1 pooled RUNE may not be the equilibrium anymore. However, the hard cap will ensure a minimum deterministic pricing of 2x non-RUNE TVL. Time will tell, but it could be that an equilibrium deterministic pricing will float between 2 to 3x non-RUNE TVL.

Credit: https://twitter.com/familiarcow

4. How does Savers Vaults benefit THORChain?

As depositors of Savers Vaults are technically holding Synths behind the scenes, this is deepening the LPs → reducing slippage for traders → increasing swap volume → increasing fees collected → increasing users deposit to chase the yields → liquidity black hole.

5. What are the risks of Savers Vaults?

The main risk is, as always, protocol risk (code exploits, etc.) of the THORChain protocol itself. Also, there is a risk of experiencing high slippage, which is dependent on deposit/withdrawal size:: liquidity pool depth ratio.

Github:

Savers Vaults: https://gitlab.com/thorchain/thornode/-/issues/1342

Orderbooks: https://gitlab.com/thorchain/thornode/-/issues/1364

Feel free to hop into the TC University Discord to chat about this, or any other THORChain questions that you may have.

Explore THORChain: Website, X, Telegram, Developer Discord.

Explore Maya Protocol, the first friendly fork of THORChain: Website, X, Discord, Telegram.

Decentralized, permissionless, non-custodial, trust-minimized, open-sourced, economic-secured, non-wrapped, native-to-native cross-chain swaps, savings and soon, lending!

--

--

THORChain University

THORChain University aims to educate communtiy users on how to optimally engage with the @THORChain Network