Shield SS-Vault: A decentralized options vault for project parties, breaking the dilemma of traditional single-coin staking

Author: Shield SS-Vault

Introduction

Bear markets are torturous for holders of long-tail assets, caught in the dilemma of whether to sell or hold.

On one hand, as the market turns bearish and project interest declines, the trading volume of the project's tokens continues to shrink, liquidity is low, users suffer significant losses, and they attempt to cut losses but feel reluctant; on the other hand, long-tail assets differ from mainstream assets, lacking appreciation and financial management channels, leaving users worried about further depreciation of value while holding.

How can we solve the above problems and allow long-tail assets to continue to appreciate in a bear market? The decentralized perpetual options protocol Shield has launched a decentralized options vault financial product ------ "Shield Vault." This product allows project parties or market makers to apply customized on-chain options strategies without permission, issuing diversified options vaults (SS-Vault/M-Vault/LP-Vault) to improve the risk-return profile of project token holders.

This article focuses on the SS-Vault, which is a unilateral staking vault designed to apply financial engineering to refine traditional single-token staking, providing a more scientific liquidity and market value management toolkit. Users can independently formulate strategies based on their needs, specific exercise prices, and specific tokens' APY. Since August 5, SS Vault has announced partnerships with ten projects including iZUMi, XCarnival, Duet Protocol, Drive2, SOULMETA, Metagame, Socaverse, NAOS Finance, BovineVesre, and TMON to establish decentralized options vaults exclusive to their communities.

At the same time, Shield has launched the "Garden Planet" event on Project Galaxy, where users can complete related token staking tasks to earn NFT rewards; in just over half a month, more than 20,000 users have participated in this event through SS Vault, making it a top project on Project Galaxy; brand exposure has exceeded 40,000 people, bringing an average of over 500 new holders per project, with unprecedented impact.

As a creator of perpetual options, Shield's transformation not only breaks the traditional single-token staking market predicament but also meets the demand for financial products in a bear market, representing a continuous breakthrough in self-realization.

I. SS-Vault: A Single-Token Staking Platform Based on Options Strategies

SS-Vault is an important core component of Shield Vault and is currently the first vault product launched.

According to the official introduction, SS-Vault is a unilateral staking vault that enables vault issuers to customize on-chain covered call redemption strategies for on-chain long-tail assets; each SS-Vault is issued by a specific protocol, helping to maximize capital efficiency; using SS-Vault, users can independently formulate strategies based on their needs, specific exercise prices, and specific tokens' APY.

Each SS-Vault has two APYs, and based on real-time token prices, an SS-Vault can be either unexercised or exercised. For unexercised vaults, users receive token-based returns. For exercised vaults, users receive dollar-based returns, which will be higher than the initial deposit value.

(SS-Vault Product)

In simple terms, SS-Vault is a single-token staking lock-up mining platform based on options strategies. Below, we will introduce its specific gameplay with a case study:

• User Xiao Wang holds 100 A tokens and wants to participate in the SS-Vault for A tokens on Shield;
• At this time, the price of A token is $1, and Xiao Wang chooses a deposit period of 30 days with an exercise price of $2, agreeing on an "Exercised APY" of 20% (in U) and an "Unexercised APY" of 30% (in token);
• After 30 days, based on the market price at that time, there could be two scenarios:
• If the price of A token equals or exceeds $2, the exercise conditions are triggered, and Xiao Wang's earnings will be calculated based on U, meaning he will receive: {20% annual return / 365 days * 30 days + 1} * (100 tokens / 2 dollars) = 50.82 tokens. If the token price is $4 at that time, Xiao Wang's total return in U is: 50.82 * 3 = $152.46;
• If the price of A token is less than $2, the exercise conditions are not triggered, and Xiao Wang's earnings will be calculated based on tokens, meaning he will receive: {30% annual return / 365 days * 30 days + 1} * (100 tokens) = 102.465 tokens. If the token price is $1.5 at that time, Xiao Wang's total return in U is: 102.465 * 1.5 = $153.7.

The above strategy is also a commonly used covered call strategy in traditional options. However, traditional covered call strategies do not provide users with exercised APY returns, which is a revolutionary upgrade by Shield based on the characteristics of crypto finance. From the gameplay introduction above, we can summarize a characteristic of SS-Vault:

a) If the price rises after expiration and triggers the exercise conditions, although the number of tokens received by the user is less than the original deposited amount, the actual value ($203.28) compared to the original value (100 tokens * $1 = $100) has significantly increased. In this case, the user has truly held onto the tokens, not losing their chips, and has genuinely benefited from the price increase.

b) If the price does not reach the exercise trigger conditions after expiration, the number of tokens received by the user increases. Even if the price drops (assuming it drops to $0.5), the specific actual value (over 100 tokens) is still much greater than the initial value of simply holding 100 tokens, which adds a return for the user, commonly referred to by investors as "earning tokens in a bear market."

Traditional single-token staking is essentially a market value management tool, responsible for locking liquidity for project parties and boosting token prices. However, in terms of final effectiveness, traditional single-token staking has not fulfilled its intended role and instead presents significant problems.

To stimulate user participation in staking, annualized returns are generally set above 30%, and some new platforms even offer returns exceeding 100%; however, as the token price rises, users' actual returns exceed the initially set rates. Moreover, staking has become a selling pressure expectation, preventing new users from entering; when price increases lose momentum, users obtain tokens through staking and ultimately sell them on the market, leading to severe price impacts and creating a death spiral. Therefore, many investors jokingly refer to traditional staking as a fast-paced game.

However, the SS-Vault launched by Shield effectively addresses the above issues. When the market price has not reached the exercise price, the token-based returns are fixed, but once the exercise price is triggered, the number of tokens in the user's hands actually decreases, which also reduces the market selling pressure caused by staking.

Furthermore, staking returns are correlated with market price changes, transitioning from the initially rough APY of traditional single-token staking to a more precise and flexible APY, which can be flexibly set based on exercise prices, allowing for more accurate market circulation adjustments.

Finally, the rewards users receive are closely related to market prices; without considering time factors, the further the market price exceeds the exercise price, the less token-based return; the closer the market price is to the exercise price, the more rewards, effectively avoiding more severe selling pressure on the market due to price increases, breaking the death spiral expectation and enhancing holders' confidence.

For this reason, many users who have used SS-Vault refer to it as the "light of the bear market" and "the next generation leader of single-token staking."

II. Shield's Transformation in the Bear Market, Building Structured Financial Products

The ability to build structured financial products based on options strategies is no coincidence for the decentralized derivatives protocol Shield; it has always been an old player in the options space.

Last year, to address the persistent issues in the DeFi derivatives space and promote its development, Shield proposed a series of innovative solutions, including dual liquidity pools (P2DP), decentralized broker systems, third-party clearing mechanisms, and more. As the first product of this protocol, Shield launched decentralized perpetual options, which do not require manual rollovers and offer an experience similar to perpetual contracts, while also possessing the characteristics of options such as "high leverage," "unlimited profits, limited losses," and "no liquidation risk"; more importantly, the dual liquidity pool (P2DP) can provide infinite liquidity and enable users to trade with zero slippage.

However, after a year of practical implementation, Shield found that the demand for DeFi derivatives in the current market development stage is not strong. The DeFi derivatives boom last year was more driven by regulatory demands and short-term trends, which cannot be sustained.

Data shows that in June this year, the trading volume of crypto derivatives reached $27.5 trillion, accounting for 66.1% of the total trading volume, with the vast majority of trading volume contributed by CeFi platforms; a report from Jump Crypto indicated that decentralized derivatives trading volume accounts for only about 1% of the total.

Moreover, in terms of trading volume, decentralized derivatives platforms are currently not competitors to CEXs. The highest daily trading volume of the decentralized derivatives trading platform dYdX is below $700 million, while CEXs focusing on derivatives trading, such as Bybit, FTX, and Bitget, have daily trading volumes exceeding $8 billion. In fact, dYdX has barely maintained its trading volume through liquidity mining, and it currently seems unrealistic to become an on-chain FTX.

Additionally, with the crypto market entering a bear market this year, mainstream coins and altcoins have experienced corrections, with an average decline of over 50% in the past quarter, leading to a significant shrinkage in both spot and derivatives trading volumes, making DeFi derivatives trading appear to be a poor route. In a bear market, the demand for chasing profits has become a thing of the past, and the need for stable financial management has begun to emerge.

Against this backdrop, Shield began its transformation, building structured financial products based on "traditional skills" options strategies ------ "Shield Vault." This product allows project parties or market makers to apply customized on-chain options strategies without permission, issuing diversified options vaults (SS-Vault/M-Vault) to improve the risk-return profile of project token holders.

(Shield Vault Product)

Why are there different types of options vaults? It mainly serves different types of on-chain assets. Shield categorizes on-chain assets into three main types: first, equivalent assets of Bitcoin and Ethereum, such as stETH, rETH, etc., which are currently not accepted as financial products by centralized platforms and can only seek channels on-chain; second, a large number of sub-mainstream assets that have emerged on-chain, such as some GameFi tokens, which are also not supported by centralized platforms; third, long-tail assets that lack liquidity and continue to shrink in trading volume, which centralized platforms also struggle to cover.

Therefore, M-Vault is designed to serve mainstream and sub-mainstream assets, earning returns from deposits in mainstream tokens or stablecoins by running options strategies tailored by market makers; SS-Vault serves long-tail assets, maximizing capital efficiency, reducing market selling pressure, and helping project parties manage the market; LP-Vault supports reducing LP token value loss through running customized options hedging strategies, earning staking returns without risk.

This transformation has allowed Shield to truly combine options strategies with on-chain financial management, providing investors with a good return in a bear market.

III. SS-Vault is Highly Praised by the Market, More Collaborations in the Pipeline

In the previous section, we discussed the essential need for SS-Vault from the user's perspective. Next, we will talk about which projects are suitable for the application scenarios of SS-Vault from the project party's perspective.

First, for asset projects that have just launched on trading platforms, the sustainability of project interest is limited, and the likelihood of token price declines is high. To maintain price stability and reduce selling pressure, they can use SS-Vault to set interest rates themselves, allowing users to stake without incurring significant costs that could lead to a price crash.

Furthermore, for projects that are already listed on trading platforms, they may need to cooperate with news to boost token prices, and SS-Vault can also be used as a short-term financial tool to lock in market circulation and reduce selling pressure. Finally, for some projects that need to maintain low-frequency interest in a bear market, SS-Vault can recharge faith for token holders, maintain community relationships, and avoid panic selling and group exits.

In fact, since the launch of SS-Vault, it has indeed been highly sought after in the market. Since August 5, iZUMi, XCarnival, Duet Protocol, Drive2, SOULMETA, Metagame, Socaverse, NAOS Finance, BovineVesre, and TMON have all partnered with "SS Vault," with ten partners entering the "SS Vault" ecosystem and establishing their community-exclusive decentralized options vaults.

Additionally, Shield has also collaborated with Project Galaxy to launch the "Garden Planet II" event, where users can complete the aforementioned token staking tasks to earn NFT rewards; in just over half a month, more than 20,000 users have participated in this event through SS Vault, making it a top project on Project Galaxy; brand exposure has exceeded 40,000 people, with unprecedented influence. (Note: Garden Planet is held every two weeks; interested users can visit the official community participation page.)

(One of the Project Galaxy Events)

More importantly, the aggregation effect generated by this event has also brought new users and funds to the projects participating in SS Vault, gaining new market attention. According to official sources, this event has brought over 500 new holders to the project parties, and the data continues to rise as the event progresses.

As a permissionless vault issuer, SS-Vault is being adopted by more and more protocols to issue vaults to retain holders who have lost confidence in the bear market. At the same time, an increasing number of holders are proposing vault issuance proposals in the community.

As a creator of perpetual options, Shield's transformation not only breaks the traditional single-token staking market predicament but also meets the demand for financial products in a bear market, representing a continuous breakthrough in self-realization.