Understand Vovo Finance in three minutes: a structured protocol that offers principal protection and yield enhancement products on Arbitrum

Written by: angelilu, ForesightNews

In traditional finance, risk-averse investors often have a strong affinity for fixed-income investment products, which allow them to earn returns without risking their principal. However, the low risk comes with low returns. Some structured financial products combine the low-risk nature of fixed-income products with the high-return characteristics of financial derivatives, helping users achieve high returns while providing downside risk protection.

However, such products often come with a high learning curve, requiring an understanding of the financial principles behind the products to make informed investment decisions. Most also have restrictions on investor capital, primarily targeting high-net-worth individuals. But now, in the cryptocurrency space, users can experience such products with just one click through smart contracts, which is what Vovo Finance is doing.

What is Vovo Finance?

Vovo Finance is a crypto-structured protocol designed to meet the investment needs of users with different risk profiles and market views, primarily offering principal protection products and yield enhancement products.

The first principal protection product launched by Vovo

Currently, Vovo Finance has launched its first principal protection product, which integrates Curve and the perpetual spot exchange GMX on Arbitrum, implementing a strategy that protects users' principal while maximizing returns.

Specifically, users can first deposit funds into Vovo Finance's liquidity pools, which currently include ETH Up Vault, ETH Down Vault, BTC Up Vault, and BTC Down Vault, with USDC being the supported deposit currency. More currencies will be added in the future. After depositing, Vovo Finance will allocate users' funds to Curve, using the current approximately 4% Curve stablecoin yield as the base APY.

Then, the earnings will be periodically converted into USDC, and a 15x long or short position in ETH-USD or BTC-USD will be opened on GMX. Trading profits will be regularly collected into the pool. Vovo states that the choice of 15x leverage is the most suitable strategy based on historical data backtesting.

Taking the ETH Up Vault as an example, this vault ensures that the funds deposited by users will not suffer losses when the ETH price falls (except for Curve's slippage). The Vovo APY is half of the base APY and enjoys high returns when the ETH price rises, with the Vovo APY estimated to be 1.5-3 times the base APY.

The liquidity pool charges a 2% management fee and a 10% performance fee annually. If the profit for the week is 0, no performance fee is charged. There is no maturity date for the funds, and withdrawals can be made at any time without withdrawal fees. However, in the short term, the principal may still incur slight losses due to Curve slippage and the protocol's management fees, and investors should be aware of the investment risks.

Currently, the smart contract for this product has been audited by PeckShield and Hashloak, but it is still in the alpha stage. Additionally, since the main principal is in Curve, the risk of the contract also comes from Curve, and developers remind users to invest funds they can afford to lose.

Vovo's upcoming yield enhancement products

In addition, Vovo Finance's ultimate goal is to launch an unlimited number of passive income products that allow users to enjoy customized returns. Vovo will also launch a yield enhancement product for the liquidity provider token GLP on the perpetual spot exchange GMX on Arbitrum, which has already been audited and will be launched after completing more tests. Additionally, a liquidity pool integrated with options is expected to be launched in the second quarter.

Specifically, GMX's liquidity provider token GLP consists of a basket of tokens such as BTC, ETH, LINK, UNI, etc., similar to yield index tokens. Holders of GLP have long-term ownership and governance rights over GMX, earning custodial GMX rewards and 70% of the platform fees distributed in ETH.

What Vovo aims to do is establish a vault that supports users in purchasing GLP, and then use ETH rewards to go long/short on GMX. Additionally, the vault automatically accumulates GLP's staking rewards to earn more ETH fees. Vovo states that if users choose the correct market direction, this will allow them to achieve an APY of 100-150%, and even if they choose the wrong market direction, they can still earn around 20% APY.

Advantages of Vovo Finance

Structured products such as Ribbon Finance and Stake DAO enhance returns for users by combining with options. In comparison, Vovo is more flexible, not affected by any lock-up periods, and profits can be withdrawn at any time rather than only at maturity, providing better on-chain liquidity than options.

Vovo Finance launched later, and after existing derivatives exchanges went live on Layer 2, Vovo is now positioned to create structured products on Layer 2.

By fully executing the above strategies, Vovo Finance can avoid interactions with off-chain liquidity providers through on-chain transactions. Additionally, compared to other protocols that are heavily influenced by market conditions, whether the market is bullish or bearish, users will have a need to allocate part of their funds using products like Vovo Finance.

The Vovo Finance team

The Vovo Finance team is currently anonymous. According to disclosures from team developers on Discord, there are currently three developers, and they hope to add 1 to 2 more developers. Vovo developers stated that they will focus on product development and improvement in the near term and do not plan to issue tokens in the short term.

In addition to launching on Arbitrum on March 14, Vovo Finance also plans to launch on Optimism and zkSync, having been an early testing team for zkSync. Vovo Finance has not disclosed any investment institutions, as the team hopes that early users will focus on the product rather than the aura of any investment institutions.

Competitors of Vovo Finance

Vovo Finance is still in its early development stages but already has applications that adopt similar strategies.

The DeFi application Brahma launched the principal-protected liquidity pool Moonshot DegenVault, which deploys user principal to yield aggregators, using the earnings to take high-yield perpetual futures positions on PerpV2 on Optimism.

Brahma's Moonshot DegenVault was launched on March 15, and within less than 15 hours of going live, the total locked amount reached the $1 million cap. Brahma stated that in the first week, it earned $2,400 from Convex rewards, which has been used to open an 8x leveraged long position in ETH-USD, with the yield yet to be disclosed.

Vovo's principal protection product was launched on March 14, and in the first week, Vovo only used 5x leverage on GMX, with the ETH-Up-Vault and BTC-Up-Vault yielding 5%, which is 1.67 times Curve's 3%, while the ETH-Down-Vault and BTC-Down-Vault yielded 0%, with positions being liquidated but the principal being protected. Vovo stated that after enabling 15x leverage, the yield will be 5 times that of Curve.

Currently, both applications are in their early stages, and based on the publicly available data, it seems difficult to distinguish between them. As more DeFi applications launch on Layer 2, both protocols will integrate more applications and launch more products, allowing users to keep track of the protocols' subsequent developments and choose the ones that suit their strategies.