Lever-easy Vaults
Overview
Lever-easy is our new leveraged position service using Kokoa vault’s KSD lending.
Currently, Kokoa users need to go through the following process in order to create a leveraged position.
(Example)
Borrow 250 KSD by depositing $1,000 worth KLAY collateral (LTV ratio: 25%)
Buy $250 worth of KLAY with 250 KSD
Borrow another 62.5 KSD with $250 worth KLAY collateral (LTV ratio: 25%)
Buy $62.5 worth of KLAY with 62.5 KSD
... (repeat)
Repeating this process infinitely, the user ultimately borrows 333 KSD with 1,333 KLAY as collateral(LTV ratio: 25%). From a “leveraged position multiple” perspective, the user has created a $1,333 KLAY long position with only $1,000 worth KLAY, ending up with a 1.33x leveraged position.
Lever-easy will allow users to easily create such leveraged positions without such a tiresome process. Lever-easy utilizes the “Flash Mint” mechanism internally. Unlike the original method of borrowing KSD after the collateralization, Flash Mint creates new KSDs before the corresponding collateralization. Lever-easy vault first uses the newly minted KSD to buy the KLAY necessary, then collateralizes them along with user-deposited KLAY to create the leveraged position in just one click. (However, all actions including minting new KSD and collateralization happen in one transaction, so all KSD are still minted based on tangible collaterals).
The new process can be described as in the following order:
User collateralizes $1000 worth KLAY and mints 333 KSD with Flash Mint
333 KSD is used to buy $333 worth KLAY
$1,000 worth KLAY from step 1 and $333 worth KLAY from step 1 are aggregated ($1,333 KLAY) to be finally collateralized for the 333 KSD that was Flash Minted. (LTV ratio: 25%, Multiple: 1.33x)
Step 1 to 3 all happens in a single transaction, so from the user’s perspective it seems as if:
$1,000 worth KLAY is deposited to create 1.33x multiple lever-easy vaults
In the end, the user owns a $1,333 worth KLAY position(Debt: 333 KSD, LTV ratio: 25%, Multiple: 1.33x).
Risk Management
Leveraged Vault’s LTV(Loan-To-Value) Ratio
Lever-easy is a function suited for users with more active strategies. Thus, Lever-easy vaults carry higher LTV ratios than normal vaults. A higher LTV ratio implies that when liquidation occurs, there is a higher risk that the liquidated collateral is insufficient to pay back the original debt position. To prevent risks of such occasions, Lever-easy’s vault collaterals should maintain a higher level of liquidity. For example, KLAY Lever-easy vaults’ collaterals are not staked in the Klaytn nodes. This is because (1) unstaking staked KLAY requires 1 week and (2) selling AKLAY instead could lead to over-depreciation of AKLAY compared to KLAY.
Stability Fee
Lever-easy vault collaterals thus require a higher stability fee than normal vaults. This is because, in order to keep liquidity levels high, these collateral assets have more restrictions in terms of utilizing for further operations. Nonetheless, in cases where the collateral is an asset that in itself bears future revenue (such as LP tokens) or where higher liquidity doesn’t necessarily restrict yield generation of the vault, higher stability fees may not be required.
Position Status Check
Lever-easy Vault positions can be summarized using these 5 pieces of information.
Total Position
KSD Debt
Net Value (of the Vault)
Multiple
LTV ratio
Let’s take an example of creating a 2x leveraged position using 1,000 KLAY (at $10). This vault can be summarized using these 5 numbers:
Total Position: 2,000 KLAY
KSD Debt: 10,000 KSD
Net Value = 10,000 KSD
Multiple: 2x
LTV ratio: 50%
Since it’s a 2x position from 1,000 KLAY, the total position would be 2,000 KLAY which is fully collateralized to the vault. Of the 2,000 KLAY, the newly added 1,000 KLAY was purchased with 10,000 KSD borrowed from the vault. The vault’s total position here is 2,000 KLAY(=20,000 KSD), KSD Debt 10,000 KSD, Net Value 10,000 KSD(=20,000 KSD - 10,000 KSD), and LTV 50%(=10,000/20,000). Lastly, multiple would be 2x since the user used a net value of only 10,000 KSD to create a position worth 20,000 KSD. Thus, Multiple-LTV ratio relationship can be explained as:
Multiple = 1 / (1 - LTV)
Position Management
There are two ways to alter your Lever-easy vault positions. The first is by changing the multiple. For the example right above, we can newly mint 5,000 KSD and add another 2,500 KLAY long position, thereby raising 2x multiple to 2.5x. (LTV: 50% → 60%). Conversely, lowering your KLAY position by 500 and paying back 5,000 could lower the multiple down to 1.5x. (LTV: 50% → 33%).
The second is by additionally depositing or withdrawing your collateral. Again from the above example of 2,000 KLAY leveraged position, adding another 1,000 KLAY to the vault will change the total position from 2,000 KLAY to 3,000, the net value from 10,000 KSD to 20,000, and the multiple from 2.0x to 1.5x(LTV ratio: 50% → 33%). Conversely, withdrawing 500 KLAY from the vault will bring the total position down to 1,500 KLAY, net value down to 5,000 KSD, and the multiple up to 3.0x(LTV ratio: 50% → 67%).
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