Principal Protected Products
Background
“Be prepared to lose all your money” has been the common advice for crypto traders. What if you are guaranteed to keep all your money while having the potential to get 70% APY or higher? With principal protected products, the advice should be changed to “be prepared to lose all the profit”.
In traditional finance, a principal protected note (PPN) is a structured finance product that guarantees a rate of return of at least the principal amount invested, as long as the note is held to maturity. A PPN is structured as a zero-coupon bond – a bond that makes no interest payment until it matures – and an option with a payoff that is linked to an underlying asset, index, or benchmark.
Vovo PPN
Is there a way to reinnovate PPN as a native DeFi products rather just copying it over from traditional finance?
Absolutely. With the composability and transparency of DeFi, PPN can be constructed in a more flexible and potentially more profitable way. Instead of buying fixed interest rate products to earn yield, Vovo PPN can buy floating interest rate products or even directly do yield farming and collects rewards, which normally provides a higher return than fixed interest rate products. Everyday, Vovo PPN can collect and invest whatever daily floating profit into high risk/reward products.
Also, though traditional PPN normally buy options to generate profit with a fixed expiry, Vovo PPN has the flexibility of investing in products like high leverage perpetual futures(e.g., 20x leverage), which has a better on-chain liquidity than options and their profit can be collected anytime rather than only at expiry. Vovo protocol can rebalance the future position daily to harvest the future profit and reinvest with the new profit from interest rate products. This could potentially bring more profit compared to traditional PPN.
How it works on Solana?
User deposits funds into Vovo Vault.
The vault deposit user funds to Mercurial Finance(or any interest rate products or protocols that offers high yield farming rewards).
The vaults periodically collect farm rewards and convert the rewards into USDC using Serum DEX.
The vault uses the USDC to open a 20x long/short positions on Bonfida Perpetual Swap exchange.
The vault periodically close the leverage positions and collects profit(if any) to the vault.
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