Loop strategies for yield-bearing assets

TownSquare's leveraged yield vaults accept yield-bearing assets and principal tokens (PT) as deposits for leverage strategies.

The loop strategies for these assets primarily depend on the following factors:

• LTV of the correlated assets

• Leverage amount

• Pricing of the deposit asset

We take the example of PT-aprMON and shMON as deposit examples:

• PT-aprMON/MON loop strategy: User deposits PT-aprMON into the PT-aprMON/aprMON strategy vault. The money market sets a 91.5% LTV for the PT-aprMON/MON efficiency pair, allowing users to choose a leverage range between 1x to 10x. One single loop includes the following steps:

  • User deposits PT-aprMON into the loop vault

  • Vault borrows MON with no collateral via a flash loan

  • MON is swapped for more aprMON

  • aprMON is used to mint more PT-aprMON

  • PT-aprMON is deposited as collateral in TownSquare

  • MON is borrowed against the PT-aprMON collateral

  • Borrowed MON repays the initial flash loan

  • User earn PT-aprMON yield at an x leverage

The process (loop) is repeated x amount of times depending on the selected leverage. Dependency: as long as the PT-aprMON yield is higher than the cost of borrowing MON, the strategy is profitable. Alternative: similarly, such PT-based strategies can be paired up into PT-aprMON/aprMON against LSTs directly.

• shMON/MON loop strategy: User deposits shMON LST. The money market sets a 91.5% LTV ratio for the PT-aprMON/MON efficiency pair, allowing users to choose a leverage range between 1x to 10x. The deposit is made to the vault, which borrows MON in the money market against the shMON deposit, stake MON into shMON, and uses the levered shMON to borrow more MON x amount of times. One single loop includes the following steps:

  • User deposits shMON into the loop vault

  • Vault borrows MON with no collateral via a flash loan

  • MON is staked into more shMON

  • shMON is deposited as collateral in TownSquare

  • MON is borrowed against the shMON collateral

  • Borrowed MON repays the initial flash loan

  • User earn shMON yield at an x leverage

The process (loop) is repeated x amount of times depending on the selected leverage. Dependency: as long as the shMON yield is higher than the cost of borrowing MON, the strategy is profitable. Alternative: similarly, such PT-based strategies can be paired up into PT-shMON/MON against its PT.