Vovo Finance is Live on Arbitrum Mainnet!

The first ever DeFi Principal Protected Products were born today.

It is with great excitement that we announce the launch of Vovo’s Principal Protected Products on Arbitrum Mainnet! While this release marks the months of hard work from our team, we’re just getting started and a few more products are coming within the next few months.

We’d like to take this moment to thank our community for being patient and open to continuing to learn and build together.

Overview of Vovo Principal Protected Products

Principal Protected Products (PPPs) are among the most traded products in traditional finance, but almost no one has built it in DeFi successfully. “Be prepared to lose all your money” has been the common advice to crypto traders. What if you are guaranteed to keep all your money while having the potential to get 1.5x-3x or even 10x of normal APY?

In traditional finance, PPPs guarantee a rate of return of at least the principal amount invested with a potential upside. A PPP is structured as a zero-coupon bond — a bond that makes no interest payment until it matures — and an option with a payoff that is linked to an underlying asset, index, or benchmark.

With the composability and transparency of DeFi, the product can be constructed in a more flexible and potentially more profitable way. Instead of buying fixed interest rate products to earn yield, Vovo PPP does direct yield farming into pools and collects rewards, which is more flexible and free from any locked period like normal fixed interest rate products. Periodically, Vovo Principal Protected Product collects and invests whatever daily floating profit into high-risk/reward products.

Also, while traditional products normally buy options to generate profit with a fixed expiry, Vovo has the flexibility of investing in products like high leverage perpetual swaps (e.g., 15x leverage), which has better on-chain liquidity than options and their profit can be collected anytime rather than only at expiry. Vovo closes the leverage position periodically to harvest the trade profit and reinvest into yield farming pools. This could potentially bring more profit compared to traditional Principal Protected Products if the trade direction is correct.

Vovo’s first PPP is built by using Curve as a farming pool and GMX as the perpetual swap exchange on Arbitrum.

APY of Vovo Principal Protected Products

As explained in the previous post, the APY of each vault depends on:

• The base APY from Curve pool
• Whether the vault bets on the right market direction

While the backtests we did previously show the weekly 20x leverage trading has the best performance, it also shows positions are liquidated more than 60% of time. To reduce the likelihood of liquidation at the initial launch, we set the initial leverage as 15x, and its APY is not too different from the 20x leverage.

If we use the current Curve stablecoin yield of ~4% on Arbitrum as the base APY, the Vovo APY is estimated to be 1.5x-3x of the base APY if users bet on the right market direction for the next few months, and around half of the base APY if betting on the wrong direction. However, these are average APYs if you stay in the same vault for a few months. The actual weekly APY ranges from 0% to over 80% for the past 4 years. Around 40% of the weeks have 0% APY when the positions are liquidated, but for the other 60% of weeks, the APYs are positive and sometimes above 3x of the base APY.

Compare the Principal Protected Products with Decentralized Option Vaults

Decentralized Option Vaults(DOVs) are structured products which have gained great adoption recently, largely because of its high yield generated from selling options. While most option vaults advertise over 30% annual yield, this is based on the assumption that the options always expire out of the money. If the options expire largely in the money a few times a year, the yield won’t be good. In fact, the historic performance of many of the existing option vaults are negative because of the recent high volatile market conditions. Nevertheless, while you may not make much profit if your fund stays in the same DOV for a year, it is still a very profitable strategy for a certain period if you think the market won’t move against the direction you believe in, or you have hedged the delta risk via other instruments. Vovo is also planning to launch option vaults soon.

In short, the DOV is a structured product providing good returns most of the weeks and potentially big negative returns for a minority of weeks. There is a risk of losing principal even in the long term.

In comparison, Vovo PPP provides a medium or good return for around half of the weeks, and 0% return for the other half of weeks, without having the risk of losing principal.

Investment Strategies of Users

As discussed in the previous post, here are two types of strategies users can consider:

• If you are bullish or bearish on a certain token for the next few months, but have no particular view on the short term, then you can park the fund into the vault that matches the market view to achieve 1.5x to 3x of the base APY.
• If your market view changes frequently, then it is best to transfer funds into different vaults periodically with one click. If you are right most of the time, it is possible to achieve 10x of the base APY.
• At the end of the day, you should not lose a penny (except for a small slippage from Curve) even if you are wrong all the time, as only the farming yield is used to open the trade, while your principal remains untouched.

Risk of Vaults

The vault smart contract has been audited by PeckShield and Hashloak, but is still in alpha mode. Please risk only what you can afford to lose. At the alpha launch, each vault is capped at 0.5m USDC and will gradually increase the cap over the next few weeks.

User Guide

After opening https://vovo.finance/, you will see all the vaults. There are four vaults at the launch: ETH UP Vault, ETH DOWN Vault, BTC UP Vault, and BTC DOWN Vault.

After clicking into the vault that fits your market view, you can see the description of the vault and click the “Deposit” button. You first need to click “Approve USDC” to give permission to the vault contract to spend your USDC.

Then, you can click the “Deposit” button to deposit the amount you want. After the deposit is successful, you will see a notification.

You can withdraw your fund anytime you want, but you are advised to keep the fund for at least a week before the withdrawal, as instant withdrawal after deposit may result in a small loss(less than 0.1%) of the fund.

If you ever change your market view, to be bearish on BTC or become bullish/bearish on ETH instead, you can go to the “Transfer” tab, and transfer your fund into another vault with one click.

What’s next for Vovo?

Principal Protected Vault is only the start of a series of Vovo’s structured products. We have also recently completed the audit for a vault built with GMX LP tokens recently and will be launching the product after more testing is completed.

In addition to that, we are also in the process of building option vaults that allow people to earn a high yield while expressing their market views, which is expected to be launched in Q2.

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Visit website: www.vovo.finance