Operations

As described in 80-20 Strategy, 80-20 vaults approximate a UNI v2 payoff by keeping at least 80% of TVL in external yield-generating LP tokens and at most 20% of TVL in concentrated liquidity on Rage Trade. The vault relies on three core operations: Update Range, Rebalance PnL, and Reset Liquidity.

Initially, 100% of TVL lives in a yield generating LP position (outside of Rage). Meanwhile, the vault provides a concentrated liquidity position around the current price (with an equal amount of vUSDC and vETH).

As the ETH price moves, the LP vault accumulates directional perp positions. For example, as the ETH price increases, the vault becomes short ETH perps. The Rebalance PnL operation realizes the PnL from these perp positions and transfers the assets to/from the yield generating service. This maximizes capital efficiency and maintains sufficient collateralization.

As the ETH price moves, the concentrated liquidity position may hold an imbalance of vETH and vUSDC. Once a day, the Update Range operation withdraws the current range order and deploys a new range with equal parts USDC and ETH centered around the new price. This maintains balanced amounts of ETH and USDC liquidity around the current price.

After a large price move (~100% increase or ~50% decrease), the vault will have accumulated a large perp position. Once the size of this position exceeds 20% of the vault's value, the Reset Liquidity operation closes it to manage risk. It then redeploys liquidity based on the new vault size (returning the vault back to the Initial State).

NOTE: Reset Liquidity events are subject to the MAX_SLIPPAGE threshold. This forces the vault to close its position slowly over time, giving arbitrageurs time to correct any price discrepancies.