How it Works
- Users deposit their assets into the Twin Peaks vault.
- The protocol auctions the vault to market makers at the beginning of every epoch and settles the trade with the best bidder.
- Epochs are a week long and after every epoch, the profits captured from the strategy are reinvested back into the vault to compound on a weekly basis.
- That's it. The capital always remains safe and doesn't suffer from any losses under any market condition.
- If assets are staked in the middle of an ongoing epoch, they can be withdrawn immediately. This type of withdrawal is called an instant withdrawal
- If a new epoch begins after the assets are staked, they will be used to generate yield in that epoch. They can therefore only be withdrawn after the end of that epoch by adding them to a withdrawal queue.
- Assets in the withdrawal queue become available for withdrawal after the end of that epoch and can be withdrawn at any time after that. They will be kept aside and won't be used to generate yield in subsequent epochs.
Market makers taking the opposite side of the trade pay a fixed interest rate for receiving the capital from the vault. A portion of the interest rate generated is set aside as the base rate, while the rest is used to buy weekly at-the-money barrier options. More specifically, the type of options bought are:
- Up-and-out call option with the spot price as the strike and the barrier representing the upper barrier of the vault range and,
- Down-and-out put option with the spot price as the strike and the barrier representing the lower barrier of the vault range.
During each epoch, one of the barrier options captures the payoff for price deviations of the underlying asset up to the upper or lower barrier respectively. For American style exotic options, the payoff is path dependent and gets knocked any time the price crosses a barrier on either side. At the vault expiry, the return is calculated as,
bonusCouponbecomes zero if the option gets knocked out and is given by,
participationRateimplies the size of the options purchased and
payoffcan be expressed as,
barrierPayoffis given by,
- User deposits 1 ETH
- Range for the vault is between $1,100 and $1,300
- Base yield for the vault is 2%
- Max yield for the vault is 15%
- Current ETH spot price is $1,200
- Generated if ETH price goes outside the range of $1,100 and $1,300 during the vault's 7 day epoch.
- Generated if ETH price remains within the range of $1,100 and $1,300 during the vault's 7 day epoch.