The Risk-Off Vault is a low risk USDC lending vault. It lends USDC to the Risk-On Vault which uses the USDC to short the ETH & BTC exposure in GLP.
The Risk-Off Vault earns interest on the entire USDC position residing in Aave as collateral for the Risk-On Vault’s short position. So for every $1 the Risk-Off Vault lends to the Risk-On Vault, the Risk-Off Vault earns interest on a position of $2-3. This process is how the Risk-Off Vault earns leveraged yield on Aave.
To boost yield even further, the Risk-Off Vault also earns a fraction of ETH yield from GLP based on the Utilisation Ratio of the vault.
Utilisation Ratio = USDC Lent to Risk-On Vault / Risk-Off Vault TVL