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Product Architecture
PsyFinance's Vaults

PsyFi V2 Vaults

PsyFinance has an upgraded V2 product architecture that will soon be replacing all existing vaults. While there are both V2 and V1 vaults on the PsyFinance platform, users will see a V1 or V2 badge on each vault page to differentiate between them.
The V2 vaults have the following key benefits over V1 vaults:
  • 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 PSY DAO and thereby the PSY token.
  • Auto deposit/withdrawal of user funds: Users of the V1 vaults will be glad to know there are no more deposit or withdrawal receipts that have to be exchanged for when users want to deposit or withdraw from vaults mid-epoch. 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 Likewise when processing withdrawals users will receive their withdrawn assets at the start of subsequent epochs.

Vault Roles and Terms

The PsyFinance 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 PsyFinance 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 PsyFinance 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 PsyFinance partners who purchase the option tokens that the Vault mint to generate yield for users. All Market Makers are whitelisted for security purposes on V1 Vaults.
  • Liquidators (not used in V2): If options are exercised they may result in an asset which is not equivalent to the users deposit asset. In this case, Liquidators are partners who would swap the asset to the deposit asset. Liquidators are whitelisted accounts for security purposes.

Vault Architecture

Strike Price Selection

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.

Option Token Sale

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 PsyFinance 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.
The V1 Vaults have a built in escrow program to enable on-program OTC sales of the minted option tokens with whitelisted market makers. Sales price will be set by the Vault Manager at market rates.

Option Type and Settlement Architecture

PsyFinance's V2 vaults mint tokens using PsyOption's European V1 protocol, which is a fully collateralized and underlying settled protocol.
PsyFinance's initial vaults mints tokens with PsyOptions American V1 protocol, which is a fully collateralized and asset settled protocol.
Deposits and Withdrawals To Vault
To maximize the yields generated for users, PsyFinance's 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:
  • V2 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.
  • V2 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.
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  • V1 Deposits - While options are minted by the Vault, users can create a deposit receipt for how much funds they want to deposit. This receipt stores deposit details on-chain to be read by the Vault. User funds will start earning yield from the subsequent epoch onward. Users can then return anytime after the epoch which they created the deposit receipt has ended to exchange the receipts for the appropriate amount of Vault tokens.
  • V1 Withdrawals - While options are minted by the vault, users can create a withdrawal receipt for how many Vault tokens they want to withdraw. This receipt stores withdrawal details on-chain to be read by the Vault. The Vault locks in the exact amount each token is valued at the end of the epoch and stores it in a special account for withdrawal. Users can then return anytime after the week in which they created the withdrawal receipt to exchange the receipt for the appropriate amount of funds.

V1 Put Selling Vaults

If Options are Exercised:
In this example a USDC Secured BTC Put selling vault is used an example. If the options are exercised by the option holder, USDC held as collateral will be used to purchase BTC at the option strike price. In this scenario, the Vault will hold both USDC and BTC.
To enable the full Vault asset to be used as collateral for minting options in the next epoch, the BTC will be placed up for sale at market_rate * (1 - slippage_tolerance) to a set of whitelisted wallets. For security purposes, only whitelisted wallets will be able to interact with the Vault initially.
The Vault Manger can configure the both the whitelisted wallets and slippage_tolerance. The slippage will be set at competitive rates, ideally less than 0.5%, to provide an incentive for Liquidators to swap the BTC back to USDC, while the market_rate provided by Pyth's price oracle.

V1 Covered Call Vaults

If Options are Exercised
In this example a BTC covered call vault is used an example. If the options are exercised by the option holder, the BTC held as collateral will be used to purchase BTC at the option strike price. In this scenario, the Vault will hold less BTC than used to mint the options, producing negative yield for the week. However, since the price of the underlying asset has risen, your total funds in USD fiat will have increased regardless. Since option exercising scenarios are rare, holding funds in the vaults over the long term should counteract negative yields from exercised options.

Fee Structure

V2 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.
PsyFinance does not charge any fees on its V1 vaults.
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Last modified 1mo ago