Launched for 4 days with over 30 million USD TVL, what is the innovation of Vector Reserve?

Original Author: Meteor, ChainCatcher
Original Editor: Marco, ChainCatcher

If 2023 was the year of LST (Liquid Staking Tokens) dominating the DeFi space, then 2024 will be the year of LRT (Liquidity Re-staking Tokens) leading DeFi. With the Ethereum Cancun upgrade approaching, the Ethereum staking and re-staking track has been reignited. This has led to the emergence of many new protocols and concepts based on LRT, with the new project Vector Reserve combining the two popular concepts of LPD and LRT/LST.

Regarding LPD (Liquidity Providing/Position Derivatives), during the peak of the LSDfi track, some projects proposed LPDfi—liquidity derivative finance, and there are many projects in the market with LPDfi concepts, such as Logarithm Finance, Limitless, Entangle, Good Entry, etc.

LPD products aim to address the impermanent loss issues caused by active LPs in DeFi protocols based on Uniswap V3, maximizing LP returns.

"One Fish, Multiple Meals," LST, LRT, and LPD Progressing Layer by Layer

LST stands for Liquid Staking Tokens (e.g., Rocket Pool's rETH, Coinbase's cbETH, etc.), allowing users who stake ETH to obtain the value and staking rewards of their holdings through tradable liquidity tokens.

LRT stands for Liquidity Re-staking Tokens (e.g., Retake Finance's rstETH, Renzo's ezETH, and Ether.fi's eETH, etc.), which is the next step for increasing yields from LST, utilizing mechanisms provided by EigenLayer, allowing ETH and LST holders to earn more rewards by re-staking their assets.

LPD represents Liquidity Position Derivatives, a new asset class designed to capture the full value of the LST/LRT market in a low-risk, diversified manner, thereby providing higher returns.

Compared to the re-staking yields of LRT, LPD goes further by enhancing staking yields again through EigenLayer's Superfluid Stake (re-staking rewards and Superfluid Stake rewards). Superfluid is part of the Eigenlayer mechanism, which can be understood as allowing users to stake LP tokens, a concept that has garnered significant attention since its launch.

"The concept of Superfluid Stake was initially proposed by Osmosis and launched the Superfluid Stake feature in March 2022. Osmosis's Superfluid Stake feature allows users to stake LP tokens from the OSMO pool, securing the Osmosis network while earning additional rewards. Subsequently, Eigenlayer also launched the Superfluid Stake feature, allowing users to stake LP tokens from liquidity pools that include ETH or ETH derivatives, enhancing the yield for LP token holders from trading fees."

Introduction to Vector Reserve

Vector Reserve is a DeFi project that combines the concepts of re-staking and liquidity derivatives. The core of Vector Reserve is to utilize LST and LRT to create diversified LPDs within traditional ETH/LST or ETH/LRT LPs, further enhancing yields through Superfluid Stake.

In simple terms, the biggest highlight of vETH is that it allows staking LP tokens instead of traditional single tokens. Vector leverages Superfluid Stake to stake LP tokens back to EigenLayer for additional rewards, making the yield of vETH far exceed that of merely staking on a single LST platform or re-staking through LRT.

Innovative vETH and VEC

The Vector Reserve ecosystem includes two types of tokens: vETH (staked LP tokens) and VEC (native governance tokens).

vETH: The LPD of Vector Reserve

vETH (Vector ETH) is an ERC20 token pegged to ETH, obtained by pairing ETH with LST/LRT deposited in LP (minted), representing a tokenized asset valued in ETH relative to LST and LRT, and providing a sustainable, risk-managed, and high-yield asset for DeFi market participants. vETH provides liquidity in the form of LST and contributes to the liquidity of the VEC token. This dual utility makes vETH a multifunctional and valuable asset (providing a sustainable income source and governance token VEC's reserve support).

vETH is also a yield composite, with sources of income including:

• LST and LRT yields: vETH holders benefit from the yields generated by Vector Reserve's LP and LST, LRT.

• Trading fees and emissions: Participating as LP across multiple chains and DEXs allows vETH to accumulate trading fees and emissions, enhancing its yield potential.

• Staking: Utilizing EigenLayer's Superfluid Stake, vETH allows re-staking of ETH LP tokens.

The advantages of vETH compared to current DeFi LST/LRT are:

• Increased yield opportunities: The returns provided by LPD exceed those of holding the underlying asset alone.

• Diversification: Unlike single-point investments, LPD offers a range of ETH exposures, spreading risk across multiple platforms and protocols.

• Flexibility and liquidity: LPD maintains the liquidity of the underlying assets while increasing utility and yield potential, providing stability and flexibility for investors.

• Market correlation: LPDs like vETH maintain a close correlation with their underlying ETH-valued assets, providing deep liquidity, stability, and higher yields.

VEC: The Governance Token of Vector Reserve

VEC is the cornerstone of the Vector Reserve ecosystem, serving multiple roles with use cases in value accumulation, incentives, utility, and governance. VEC and vETH work together to create a sustainable circular ecosystem. VEC incentivizes the minting of vETH, which in turn helps to increase the reserve support and value of VEC.

The VEC token is designed to appreciate over time, achieved through a sustainable token economic model that includes actual income generation from vETH and strategic fund management:

• Revenue sharing: A portion of the revenue and fees generated by vETH will be directly used to maintain the value of VEC, creating a sustainable economic cycle.

• Fund management: Vector Reserve adopts an ETH-based fund management strategy to ensure the long-term economic stability of the VEC token.

Considering the supply balance and controlled nature of the VEC token, along with the vision of long-term value stability and increasing protocol deposits, VEC will:

• Discount issuance to promote growth: VEC tokens can be minted at a discounted price, encouraging growth while maintaining value.

• Control inflation: Manage the supply of VEC and VEC bonds to prevent excessive inflation.

Like other DeFi protocols, VEC token holders have governance rights over the protocol, allowing them to participate in key decision-making processes for the future of the Vector Reserve protocol. Token holders can propose changes and vote, ensuring that the protocol's development aligns with the community's interests, with a transparent governance process that fosters a community culture among VEC holders.

Vector Reserve Token Economics

Currently, the initial supply of the native token VEC in the Vector Reserve ecosystem is 10,000,000.

Pre-sale: 500,000, provided to early supporters of the protocol, with no vesting period (the pre-sale raised a total of 180 ETH, and it has now ended);

Fjord Foundry LBP: 500,000, available for sale in the LBP, with no vesting period;

Advisors: 500,000, with a 12-month linear unlock;

Reserve: 500,000, for market making, with a 12-month linear unlock;

Treasury: 2,000,000, for partnerships and ecosystem growth, with a 2-year linear unlock;

Incentives: 6,000,000, for liquidity incentives, with a 3-year linear unlock.

Conclusion

As of the publication date, the Vector Reserve website shows that the protocol has received deposits of 2,244 ETH (approximately $5.15 million), with a protocol TVL exceeding $30.42 million, and the price of the VEC token is around $40. Its treasury assets are also publicly transparent.

Currently, after nearly 4 days of launch, with over $30 million in TVL, Vector Reserve's data has surpassed the popular liquid staking protocol ether.fi in 2023.