The Fulcrum Strategy is designed to optimize returns and capital efficiency by leveraging interest-bearing assets.
Overview
The Fulcrum Strategy allows users to leverage quality interest-bearing assets with options for up to 10X leverage. This strategy is implemented through two main components:
- Lending Vault
- Leverage Vault
Mechanism
1. Lending Vault
- Deposits: Users can deposit stablecoins like USDC or USDT into the lending vault.
- Earnings: Lenders earn yield as a reward, which is influenced by the utilization rate of the pool. The higher the utilization rate, the higher the Annual Percentage Rate (APR) for lenders.
2. Leverage Vault
- Borrowing: The leverage vault borrows USDC/USDT from the lending vault to increase its holdings in interest-bearing assets.
- Purchasing Yield-bearing asset: The borrowed capital is used to purchase interest-bearing assets from other exchanges or DEXs.
- Boosted Yields: This leveraged position allows borrowers to attain higher yields on their borrowed amounts.
Strategy Workflow
- Deposit: Lenders deposit USDC/USDT into the lending vault.
- Borrow: The leverage vault borrows these stablecoins to leverage its position in interest-bearing asset.
- Purchase: The borrowed stablecoins are used to buy yield-bearing asset from other DEXs.
- Yield Generation: Lenders earn yield based on the utilization rate of the lending pool, while borrowers benefit from boosted yields due to their leveraged positions.
Interest Rate Framework
The interest rates in the Fulcrum Strategy are designed to ensure a reliable income stream for lenders and are structured as follows:
- 0-80% Utilization Rate: Interest rates grow linearly from 5% to 15%.
- 80-100% Utilization Rate: Interest rates increase linearly from 15% to 45%.
This progressive increase in interest rates as utilization approaches its upper limit helps balance the attraction of lending capital with the sustainability of the financial ecosystem.
Example Calculation
Lending Vault:
- Pool Size: 1000 USDC
- Borrower Leverages 10X with $100 (borrows $900)
- Utilization Rate: 90%
- Borrow APR: 30%
- Lender APR: 30% x 90% x 0.9 = 24.3% (after 10% protocol fee deduction)
Leverage Vault:
- User Leverages 5X with $1000
- Interest-bearing asset APR: 65.45%
- Lending APR: 25%
- Leverage Yield: [65.45% x (5-1) x (1 - 25%)] + 65.45% = 261.8%
The Fulcrum Strategy is a sophisticated yield optimization approach that leverages interest-bearing assets to maximize returns for both lenders and borrowers. By integrating lending and leveraging mechanisms, it provides enhanced yields and efficient capital utilization.