Proposal: Build high-yield Sol, ETH and BTC vaults by automating already-existing and soon-to-be existing features of the Hubble infrastructure into a single product.
Overview: The Hubble borrowing apparatus provides the tools necessary to build unique yield opportunities that have not previously been available on the Solana Network. However many of these opportunities may not be readily apparent to an average investor, who might instead see Hubble as a standard lending protocol akin to Solend or Mango, albeit with fewer borrowing options. Making the value proposition of Hubble apparent and tearing down barriers to entry are critical to the long term success of the protocol.
The existing and soon-to-be existing infrastructure of Hubble can be sequenced in a variety of ways to produce high yields with relatively low risk to the investor. By packaging these strategies into a single product and automating the underlying process, Hubble can establish itself as both a leader in innovation within the Solana DeFi ecosystem and as a high-yield investment platform.
Details: An investor deposits collateral (Sol/BTC/ETH) into the vault (possibly called the Uranus Vault because….space humor.) The vault deposits these tokens into a yield-bearing strategy, as described in the “collateral yield” portion of the Hubble Gitbook, and takes out a 50% LTV USDH loan against the collateral. The USDH is deposited into the Stability Pool, where it earns HBB rewards.
At this point, there are two paths that could be taken. In the Long Orbit Vault, the HBB rewards are staked to earn USDH rewards. The USDH rewards are then used to purchase the L1 token initially deposited and added to the investor’s collateral. In the Short Orbit Vault, the HBB rewards are automatically converted to the L1 token initially deposited, bypassing the HBB staking portion of the cycle, and added to the investor’s collateral.
By continuously adding to the investor’s collateral, the LTV of the loan continuously decreases. To further protect against the risk of liquidation, the vault automatically deleverages positions as they approach 75% LTV by taking the USDH deposited into the stability pool and reducing the open loan to 50% LTV. The end result is a vault that produces high quality and high quantity returns at relatively low risk.
Additional Considerations: Because this strategy is both novel and high yield, it would be justified for the protocol to charge a premium for access and/or performance beyond the loan origination fee. In the case of the Long Orbit Vault, the vault adds funds to the stability pool and automatically stakes HBB, which reduces sell pressure on the HBB token. Because both of these actions are directly beneficial to the protocol, fees should generally be lower in this vault. The loan origination fee, gas fees, and a low premium would be adequate. In the Short Orbit Vault, the vault is again adding funds to the stability pool. However, in this case, there is now automated sell pressure against the HBB token. For that reason, fees should generally be higher and a significant portion of the returns should be passed on to staked HBB tokens.
There are several different ways by which this could be accomplished. For example, the vault could convert the HBB tokens to L1s at a 1.5-2x premium over the spot price of HBB with the difference being split between the protocol and staked HBB holders. This would ensure that the protocol is collecting a continuous premium for service and adding value back to the HBB tokens. A more elegant solution would be to charge a dynamic fee that takes into account the total HBB rewards rate and ratio of staked tokens to Short Orbit tokens. However, the math is this case is less straightforward and beyond the scope of the proposal.
Even with the fee structure in place, there’s still an obvious concern about the effects of automating sell pressure against the HBB token. If we accept that a certain amount of sell pressure will always exist irrespective of automation, by isolating much of that pressure into a single vault product, it gives the protocol loose control and allows for better revenue capture on HBB sales. In addition, if the vault products are successful, it should result in a significant uptick in loan origination fees, which again means more yield for (and therefore more value in) staked HBB.