💰Interest Rate, Exchange Rate, Fees

Learn more about interest rates and fees for Flexible Term USD Vaults.

Summary

TLDR; Returns (and losses) are calculated by pegging the vault token price to the underlying price of the collateral (SHYG). As the collateral increases in value, so do the vault tokens, and vice versa.

In the Flexible Term High Yield Corporate Bond Vault, Lender's returns (and losses) are pegged to the performance of the underlying vault collateral (SHYG) via a Collateral Rate, which is reflected on-chain as an exchange rate between USDC and XHYC.

The vault also displays an indicative interest rate, which is the average yield to maturity for the ETF's underlying bond holdings. The indicative interest rate is used to provide Lender's an idea of the types of returns the ETF could experience if all its holdings were held to maturity.

Actual returns (and losses) are determined via the Collateral Rate which reflects the total return of the underlying ETF shares and is expressed on-chain as an exchange rate between USDC and XHYC.

Collateral Rate

The collateral rate determines the gains (and losses) of a Lender's loan on a daily basis.

It is calculated by applying the sum of income received by the Borrower with respect to the Collateral (including any amount of net profit realised through the sale or redemption of the Collateral) with respect to that Loan and any increases to the market value of the Collateral (and deducting any decrease to the market value of the Collateral, such that the Collateral Rate may be negative). The collateral rate is calculated daily and expressed as an annual percentage yield (APY).

The following calculation is used to determine the Collateral Rate

Daily Collateral Rate* =

(Collateral value T1 - Collateral value T0) + Income**​

—------------------------------------------------------------------— x100 - Daily Fee

Collateral value T0

*If “ending value” is lower than the initial value, the daily interest can be negative.

**Income refers to any coupons or dividend payments actually paid (not declared) onto the Borrower's account

Collateral Value

The collateral value is calculated by the Investment Advisor using the following formula:

(Total Number of Collateral Shares on T-1) x ( Collateral Share Price on T-1)

Collateral share price is based on publicly available data sourced via Bloomberg Terminal.

Exchange Rate

In the Flexible Term High Yield Corporate Bond Vault, the lender is issued vault tokens (XHYC) based on an exchange rate updated each business day by the Investment Advisor. The exchange rate is a on-chain reflection of the Collateral Rate. This enables vault tokens to track the following values:

1. Estimated value of the vault's collateral

Total Vault Tokens Outstanding * Exchange Rate

2. Portion of the vault collateral a specific lender has a claim over

Vault Token Balance / Total Vault Tokens Outstanding

3. Estimated amount a lender would get for withdrawing at any point in time.

Vault Token Balance * Exchange Rate

Calculation and Setting the Exchange Rate

The Investment Advisor updates the exchange rate at 9:30am GMT each day (T0) based on US market close price for the prior day (T-1).

The calculation for the exchange rate is as follows:

Exchange Rate = [ (Total Number of Collateral Shares) x ( Collateral Share Price) ] + (Cash) ]-(Daily Fees) / Total Tokens Outstanding

Example

Collateral:

• 1,000,000.00 SHYG Shares @ $90.00 pps

• $1,000,000 cash

Closing Price T-1: $90.00

Total Vault Tokens Outstanding: 10,000,000

[ (1,000,000.00 SHYG Shares x $90.00 pps) + $1,000,000.00 ] – ($1801.80) / 10,000,0000 ]

Exchange Rate = 9.0998198200

Indicative Interest Rate

The indicative rate represents the “target yield” of the product, but not a committed rate to be paid to the client.

For the HYCB Vault, the Indicative interest rate is the Weighted Average Yield to Maturity of the ETF, less OpenTrade fees. Targeting between 6 and 8% p.a.

Fees

The total fees charged for the product is 0.50% per annum. This is translated into a Daily Fee and deducted from the exchange rate, such that fees are accrued off-chain and not explicitly paid by Lenders.

The breakdown is as follows

Term	Definition	Payable By / To	Amount
Advisor Fee	A fee charged by the Advisor to cover the costs of advising OpenTrade SPC in buying / selling and managing the portfolio of Loan Collateral.	Payable by the Borrower Paid to the Advisor	0.10% per annum
Platform Fee	A fee charged by the Platform Provider to cover the costs of developing and maintaining the OpenTrade Platform and related expenses.	Payable by the Borrower Paid to the Platform Provider	0.20% per annum
Liquidity Fee	Paid to the Platform Provider to cover the cost of providing liquidity as required to ensure interest is payable immediately.	Payable by the Borrower Paid to the Platform Provider	0.20% per annum

Example of Fee Calculations

We convert 0.50% p.a. into a per business day fee:

1/252 * 0.50% = 0.0000198

We multiply that by the collateral value each day:

Collateral Value * 0.0000198 = Daily Fees

And then subtract Daily Fees from the exchange rate before fees

Collateral Value – Daily Fees / Total Outstanding Vault Tokens