Hybrid Vault System

A key part of the Spice Protocol vaults is to ensure we are always generating yield on the assets held in our vaults through DeFi (on-chain) or RWA (off-chain) strategies. To do this we allocate assets across to subvaults that carry out the strategies in the question with the main Hybrid Vault solely responsible for locking a specific asset type (USDC, ETH, BTC etc).

Vault Types

Off-chain Vaults

Off-chain vaults managing RWA yields face a significant challenge: yields are not continuously streamed into the vault. Instead, they are updated in bulk when funds are on-ramped back onto the blockchain after profits are realized from real-world activities. This bulk updating occurs because on-ramping funds after every trade is both costly and operationally cumbersome. It is also highly unreliable for investors who require more up to date yield calculations to make better decisions.

Spice addresses this issue by estimating the yield at the beginning and then recalculating it when yield is allocated back on-chain. This approach is especially valuable for Spice's signature indefinite pools with constant yield extraction, catering to on-chain investors who seek a low-maintenance, "set and forget" vault that automatically rebalances behind the scenes, ensuring a seamless investment experience.

On-chain Vaults

Our on-chain or DeFi vaults leverage lucrative strategies such a LP for lending to generate passive yields. These strategies can also be leveraged by our RWA strategy for off-chain lending to further boost yields from real world activity, essentially double dipping into the value of our collateral to be highly capital efficient and leading to Hybrid Yield.

Allocation

The protocol dynamically allocates assets to optimize yield, with auto-allocation to our on-chain strategy and asset managers directing funds off-chain as needed. This enables us to set competitive interest rates based on capital availability to real world businesses on a trade by trade basis. Following this methodology enables allocation of capital in a fair and democratized way if there is liquidity shortages while incentivizing on-chain investors.

Competition

Spice Protocol outshines traditional financing by replacing centrally dictated interest rates with a market-driven model based on capital availability versus allocation. Unlike banks, where rates are set by reserve banks and lending relies on fractional reserves, Spice Protocol leverages yield-driven incentives to attract democratized investors on-chain, ensuring robust capital supply. All lending is over-collateralized, eliminating the 'print money' approach of traditional finance and bolstering resilience against global economic downturns. This gives us a clear edge over conventional lenders.