THORFi Savings - Single-sided asset exposure using Synthetics
Users can gain yield with single sided asset exposure using Synthetics. See the PR here and article here.
Firstly, the User mints a Synthetic asset - this is an asset that retains 1:1 purchase rights on the underlying L1 asset. Then the User locks this synthetic asset in a Savings vault, and they are issued Saver Units - units that track their ownership of the total vault balance. The protocol monitors the yield the underlying Synth liquidity is earning, and pays that yield directly into the vault. The user can then reclaim their principle and earnings at any point later.
As locked synth holders take on significantly less risk than an LP, they earn 50% (SynthYieldBasisPoints) of the yield generated by the synth collateral. The rest is captured by the LP (so they should be earning twice the yield of Savers).
Every time a swap is made in the L1 pool, the fees & rewards that were meant to be added to the pool is divided against the SynthYieldBasisPoints, then divided against the depth of the Savers Vault vs the Depth of the Pool (in terms of asset qty), then paid directly into the vault:
At any point later, the Saver can re-claim their share of the vault, which would be their principle, plus all the yield they are entitled. The asset being claimed is a synth quantity, which is then swapped out to the L1 asset.
Where does the yield come from?
Swap fees and liquidity rewards.
Is Saver holding an L1 asset, or a claim on an L1 asset?
The Saver holds Saver Units, which is a claim on a Vault Balance, which holds Synthetic Assets, which is a claim on L1 Liquidity, which can be swapped at 1:1 purchasing power to the L1 Asset. So, they are holding a claim on an L1 asset.
What are the risks?
There may be an economic bug in Synths, leading to breakdown in the accounting of the claims. The risk of this goes down everyday, and to date no bug in Synths has been found since they were turned on in June 2022. There may be a technical bug leading to a loss of L1 assets in the vaults. This risk is non-zero and all custodians (decentralised or centralised) contain this risk.
Why are there fees to enter or exit?
Savers pay a liquidity fee to enter and exit, as well as network fees to pay for gas. Liquidity fees are demand-responsive and prevent economic attacks. Network fees to pay for gas ensure the system is sustainable.