💰Interest Accrual
Learn more about interest accrual, exchange rates, and fees for the SOL Staking Yield Vault
Summary
In the SOL Staking Yield Vault, client returns are determined by the performance of the underlying delta-neutral SOL Strategy, and begin accruing following each deposit.
Each day, the total income generated by the strategy is translated into an Interest Rate (expressed as an annual percentage rate (APR)). The Interest Rate for each day is also translated into the exchange rate between USDC and vault tokens (xSOLY) which you receive following a deposit (if you deposit $100 USDC, you receive 100 xSOLY) and allow you to track the value of your position over time.
The vault also provides an indicative interest rate, which is the trailing 12-month return on the strategy. The indicative interest rate is used to provide Lender's with an idea of the types of returns the vault could experience but are not indicative of future results.
Calculating net client returns based on the strategy's performance
The net returns from the strategy are calculated using the following formula:
Net Strategy Value = Long Value + Short Value - Daily Fees
Where:
Long Value = (Quantity of staked SOL (Q) + quantity of SOL rewards paid (R)) x spot price in USD on Day (P)
Short value = (Q) ×(entry price (P0)− ( P) ) + (R ) x (entry price (P0)− ( P) ) if hedged
Daily Fees = [ 0.9% x Total Principal Earning Interest + 0.2% x Long Value] / 365
Example:
Total Principal Earning Interest (PEI): 1,000,000 USDC
Entry Price in USD (P0): 180
Spot Price in USD (P): 190
Quantity of Staked SOL (Q): 5555.56
Quantity of Rewards Paid (R): 1.5
Long Value = (5555.56 (Q) + 1.5 (R)) * 190 (P) = USD 1055841.40
Short Value = (5555.56 (Q) x (180 (P0) - 190 (P))) + (1.5 (R) * (180 (P0) - 190(P))) = USD -55570.6
Daily Fees = 0.9% x 1,000,000 (PEI) + 0.2% x 1055841.40 (Long Value) / 365 = 30.44
Net Strategy Value = USD 1055841.40 (Long Value) + USD -55570.6 (Short Value) - USD 30.44 (Daily Fees) = 1000240.36
Valuations are made using publicly available data sourced from the exchange on which the collateral is held.
Translating the strategy's performance into an interest rate
The interest rate is an expression of net returns as an APR.
The following calculation is used to determine the Interest Rate:
Daily Interest Rate* =
(Net Strategy Value T1 - Net Strategy Value T0) + Net Income*
—------------------------------------------------------------------— x100 - Daily Fee
Strategy value T0
*Income refers to yield payments actually paid onto the strategy management account
Example:
Net Strategy Value T0 = USD 1,000,000
Net Strategy Value T1 = USD 1,000,500
Net Income = 250
Daily Fee = 0.003%
Daily Interest Rate = ((1,000,500 - 1,000,000 + 250)/1,000,000) x 100 - 0.003 = 7.5%
Exchange Rate
The exchange rate between xSOLY and USDC can be used to determine the value of a given position and calculate returns time. For more on exchange rates, read here.
Vault tokens (xSOLY) are purely 'receipt' tokens and are not transferrable
Calculation and Setting the Exchange Rate
The Investment Advisor, Five Sigma, updates the exchange rate at 9:30am GMT each day (T0).
The calculation for the exchange rate is as follows:
Net Strategy Value / Total Vault Tokens Outstanding
The exchange rate can be used to determine several important data points:
Current value of your position in USDC (including net returns)
Net returns over time expressed as an absolute %
Where:
Et = exchange rate at the later time t
Et0 = exchange rate at the earlier time t0
ΔE = absolute change in the exchange rate
If you want the percentage change (relative change) instead of the absolute difference:
Example
On Day 1, the exchange rate between xSOLY and USDC will be 1.00000. The collateral returns 15.00% APR in 12 months. The exchange rate after 12 months will be 1.150000, meaning 1 xSOLY can be redeemed for 1.15 USDC. When the lender redeems 1 xSOLY, they receive 1.15 USDC representing a return of their principal (1.00 USDC) and their accrued interest (0.15 USDC).
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