Covered Calls & Secured Puts Vaults Architecture
The V2 Covered Call and Secure Put selling Vaults have the following key features:
- Run on European Options Infrastructure: European options create better capital efficiency for option buyers, thereby increasing yield for users.
- Option Liquidity Mining Capability: The V2 vaults allow for staking vault tokens for distribution of rewards from liquidity mining partners.
- Vault bidding through Serum: Democratizes access to the options sales, anyone with an internet connection can bid on the options sales and the process is completely transparent. Opening up demand to anyone also increase yield for users.
- Ability to charge fees: Fees help value accrue to the PsyFi DAO and thereby the PSY token.
- Auto deposit/withdrawal of user funds: Users will automatically receive vault tokens for their pending deposits at the start of the subsequent epoch after their deposits. Likewise when processing withdrawals users will receive their withdrawn assets at the start of subsequent epochs.
The PsyFi Vaults have a number of key system roles and terms which will be described in detail below:
- User: A user is any party which deposits or withdraw funds to the vault to earn or collect yield.
- Vault Owner: The Vault Owner is a special role with authority to configure parameters of a vault, namely the fee structure, contract size and vault capacity.
- Vault Manager: The Vault Manager is a special role that manages the minting and sale of option tokens minted by the Vault. The primary functions of the Vault Manager is to select the strike price and expiry of the options before each weekly mint, as well as setting the the options sale price to Market Makers. The Vault Manager role will be performed by the PsyFi team, until future vaults automate its operation.
- Vault Tasker: The Vault Tasker is a special role that signals to the Vault the end of each Epoch. This role is handled by a script set up by the PsyFi Team.
- Epoch: An epoch is a set period of time in which one cycle of option minting, selling and expiration/execution occurs. Currently each epoch is set to begin at 00:00 UTC each Saturday and end 23:59 UTC the following Friday.
- Market Makers: Market Makers are PsyFi partners who purchase the option tokens that the Vault mint to generate yield for users.
Weekly strike price selection for our Vaults are conducted by the Vault Manager, based on the market demand and risk of execution - to be maintained between a range of 10-25% from the spot price based on back tested models, underlying asset, and volatility. This method will shift to an algorithmic method once liquidity in the Solana options ecosystem is more established.
The V2 vaults run their option sales through a Serum orderbook. Once the option market is created, a reserve price is set and a URL to a the Vault Token Sale site is shared with the PsyFi community and partners. Interested parties then have a fixed amount of time (currently 30 minutes) to post unblind limit buy orders for their options of interest. After the time expires options are sold through the bids on the orderbook, given the reserve price is met.
PsyFi V2 vaults mint tokens using PsyOption's Tokenized European protocol, which is a fully collateralized and cash-settled protocol.
Deposits and Withdrawals To Vault
To maximize the yields generated for users, PsyFi vaults uses 100% of available assets in the vault to mint options each weekly epoch. Since the assets are used to mint the options directly on PsyOptions, it is locked until the option expiry, which is at the end of each epoch.
Before an Epoch begins, users are able to instantly deposit and withdraw funds into the Vault. However, to facilitate Deposits and Withdrawals requests during epochs while assets are locked, PsyFinance utilizes a receipt mechanism:
- Deposits - When users deposit their assets during an epoch, their funds will be shown as "Pending Deposit" until the start of the subsequent epoch. At that time, cranks will transfer users vault tokens and they will start earning yield.
- Withdrawals - When users request for a withdrawal during an epoch, a withdrawal receipt is stored on chain. User funds will be shown as "Pending Withdrawal" until the start of the subsequent epoch. At that time, cranks will transfer users funds to their wallet.
Our Vaults have a fee structure of the following:
- Performance Fee: 10% of total yield returned to the user each epoch is gathered as a performance fee. If the vault returns no yield, there are no performance fees.
- Withdrawal Fee: 0.1% of total assets withdrawn from the vaults is gathered as the current withdrawal fee.