If you're new to cryptocurrency and decentralized finance (DeFi), you might have heard about "yield farming" or "staking" as ways to earn passive income. But with so many platforms and complex strategies, it can feel overwhelming. That's where Aarna's âtv vaults (app.aarna.ai) come in. These vaults are designed to automatically optimize your earnings by staking your assets in the best available opportunities across different DeFi platforms. Let's break down how they work in simple terms.
What Are âtv Vaults?
Imagine you have a smart piggy bank that not only holds your money but also lends it out to earn interest, reinvests the profits, and adjusts its strategy to maximize your returns—all without you having to do anything. That's essentially what an âtv vault does.
These vaults are special smart contracts (self-executing computer programs on the blockchain) that take your deposited assets (like stablecoins or other cryptocurrencies) and put them to work in various DeFi lending platforms. The goal? To maximize your earnings with minimal effort on your part.
How Staking Works in âtv Vaults
When you deposit assets into an âtv vault, the system automatically stakes (or lends out) a portion of those assets to external DeFi protocols. This process is called yield aggregation, where the vault automatically finds and deploys your funds into the best available yield-earning opportunities across multiple platforms. Here’s where the vaults operate and how they do it:
Ethereum (Mainnet)
Ethereum is the most well-known blockchain for DeFi, hosting some of the most established lending platforms. On Ethereum, âtv vaults aggregate liquidity across three major protocols:
Aave: Aave is a popular decentralized lending and borrowing platform where users can earn interest on their deposited assets.
Compound V2: An earlier version of the Compound protocol, known for its straightforward lending and borrowing mechanics.
Compound V3: The latest iteration of Compound, offering improved efficiency and flexibility.
By spreading your assets across these platforms, the vault can secure better interest rates and diversify risk, ensuring optimal returns for users.
Arbitrum
Arbitrum is a Layer 2 network that works on top of Ethereum, offering faster and cheaper transactions. On Arbitrum, the vaults stake assets via a diverse range of protocols:
Aave: Similar to Ethereum, Aave on Arbitrum offers competitive lending rates.
Compound V3: The latest version of Compound, optimized for performance on Arbitrum.
DForce: A comprehensive DeFi platform offering lending, borrowing, and yield farming opportunities.
Morpho: A protocol that enhances lending efficiency by matching lenders and borrowers directly.
Dolomite: A lending and borrowing platform focused on providing liquidity to the Arbitrum ecosystem.
This multi-protocol approach ensures that your assets are deployed in the most profitable opportunities available on Arbitrum, maximizing returns for users.
Sonic
Sonic is another blockchain ecosystem where the vaults operate. Here, the strategy is a bit more advanced. First, assets are staked into Aave, and then the staked assets (specifically aUSDC) are further supplied into Pendle LP pools. Pendle is a platform that allows users to trade yield-bearing tokens, adding an extra layer of earnings on top of the base lending yields from Aave. This unique approach on Sonic captures not only the base lending yields from Aave but also additional yield potential from trading fees and liquidity provision within the Pendle ecosystem, offering a more complex and potentially higher-yielding strategy.
The Mechanics of Staking and Unstaking
Understanding how assets move in and out of these staking positions is key to grasping the efficiency of the system.
Staking: How Your Assets Are Deployed
When you deposit assets into an âtv vault, the system doesn’t immediately stake everything. Instead, it follows a predefined strategy based on a stakePercentage (let’s call this x%). Here’s how it works:
During Cumulative Swaps:
A "cumulative swap" is a periodic event where the vault rebalances its assets to optimize yields. During this event, the vault stakes x% of its total assets into the lending protocols (like Aave or Compound).
The remaining (100 - x)% stays on the âtv base contract, which acts as the vault’s main treasury. This ensures that some assets are always readily available for withdrawals or other needs.
Why This Matters:
By only staking a portion of the assets, the vault avoids locking up all your funds in lending protocols. This flexibility allows for quicker withdrawals and better liquidity management.
Unstaking: Getting Your Assets Back
When you decide to withdraw your funds (also called redemption), the vault needs to unstake (or retrieve) the portion of your assets that were lent out. Here’s how it works:
During Redemptions or Queued Withdrawals:
If you request a withdrawal, the vault first calculates how much of your assets are staked (x%) and how much are available on the base contract ((100 - x)%).
The system then unstakes x% of the required amount from the external lending protocols and sources the remaining (100 - x)% directly from the vault’s treasury.
Why This Design?:
This approach ensures that the vault doesn’t have to unstake large amounts from lending protocols every time someone withdraws. This reduces transaction costs and speeds up the withdrawal process.
It also means that the vault can continue earning yields on the remaining staked assets, keeping your overall returns high.
Rewards and NAV: Tracking Your Earnings
As your assets are staked in lending protocols, they generate rewards like interest or additional tokens. These rewards are collected by the vault and contribute to its overall value. The total value of the vault, minus any liabilities, is divided by the number of shares to give you the Net Asset Value (NAV). The NAV is a key metric that tells you how much your share of the vault is worth at any given time.
Emergency Withdrawals: A Safety Net
Even the most robust systems can encounter issues. To manage risks like smart contract vulnerabilities or sudden market downturns, âtv vaults include emergency withdrawal functions. These functions allow the vault to quickly retrieve assets from lending protocols if needed, ensuring that your funds remain safe and liquid.
Why This Matters to You
As a newcomer to crypto, the idea of manually managing multiple lending platforms, tracking yields, and adjusting your strategy can be overwhelming. Aarna’s âtv vaults (app.aarna.ai) simplify this process by automating the entire yield