Choosing a Strategy

Select the right strategy for your vault based on risk tolerance, target market, and goals.

Overview

The strategy defines your vault's core economics and risk parameters. This critical decision affects:

• Interest rates earned

• Types of managers attracted

• Risk exposure

• Liquidation behavior

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Strategy Types

Immutable Fixed Rate Strategy

Best for:

• Conservative vaults

• Predictable returns

• Long-term stability

Characteristics:

• Fixed interest rate

• Fixed bond requirements

• Cannot be changed after deployment

• Maximum safety for LPs

Mutable Strategy

Best for:

• Adaptive risk management

• Changing market conditions

• Experimental vaults

Characteristics:

• Adjustable parameters

• Can respond to market changes

• Requires active management

• Higher governance overhead

Variable Rate Strategy

Best for:

• Market-driven pricing

• Optimizing utilization

• Competitive yields

Characteristics:

• Rate adjusts based on utilization

• Higher rates at high utilization

• Encourages repayments

• More complex modeling

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Key Parameters

Interest Rate

Low (5-10%): Conservative, lower returns
Medium (10-20%): Balanced risk/reward
High (20-50%+): Aggressive, higher returns but riskier

Bond Ratio (minBondRatio)

High (30%+): Very safe, limited leverage
Medium (20-30%): Balanced safety
Low (10-20%): Higher risk, more leverage allowed
Very Low (<10%): High risk, avoid unless expert

Liquidation Buffer

High (15%+): Early liquidations, safer
Medium (10-15%): Standard safety margin
Low (<10%): Riskier, later liquidations

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Decision Framework

1. Define Your Target Market

Conservative LPs:

• Low interest (5-12%)

• High bond ratio (25%+)

• Large liquidation buffer

• Blue-chip assets only

Moderate LPs:

• Medium interest (12-20%)

• Medium bond ratio (20-25%)

• Standard buffer (10-15%)

• Established assets

Aggressive LPs:

• High interest (20%+)

• Lower bond ratio (15-20%)

• Smaller buffer

• Diverse assets

2. Select Allowed Assets

Conservative:

• USDC, USDT, DAI

• WETH, WBTC

• Top 10 tokens only

Moderate:

• Major stablecoins

• Top 20 tokens

• Established DeFi tokens

• Blue-chip NFTs

Aggressive:

• Long-tail assets

• Newer protocols

• Exotic derivatives

3. Choose Strategy Type

Use Immutable if:

• Targeting conservative LPs

• Want maximum trust

• Don't need flexibility

• Long-term focus

Use Mutable if:

• Need to adapt to markets

• Experimental approach

• Active management planned

• Willing to manage governance

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Example Configurations

Conservative Vault

Strategy: Immutable Fixed Rate
Interest Rate: 8% annual
Bond Ratio: 30%
Liquidation Buffer: 15%
Allowed Assets: USDC, WETH, WBTC only
Target Utilization: 60-70%
Expected LP APY: ~5%

Moderate Vault

Strategy: Immutable Fixed Rate
Interest Rate: 15% annual
Bond Ratio: 20%
Liquidation Buffer: 12%
Allowed Assets: Top 20 tokens + major LP positions
Target Utilization: 75-85%
Expected LP APY: ~11%

Aggressive Vault

Strategy: Variable Rate
Base Rate: 20%
Max Rate: 50%
Bond Ratio: 15%
Liquidation Buffer: 10%
Allowed Assets: Diverse (50+ assets)
Target Utilization: 85-95%
Expected LP APY: ~17%+

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Risk Considerations

Strategy Immutability

Pros:

• LPs trust parameters won't change

• No governance overhead

• Predictable behavior

Cons:

• Cannot adapt to market changes

• Stuck with initial parameters

• May become suboptimal

Asset Selection

Fewer assets:

• Easier risk management

• Better liquidity

• Lower complexity

More assets:

• More manager flexibility

• Higher utilization potential

• More complex risk

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Related Documentation

• Strategy Selection - Detailed strategy guide

• Creating a Vault - Vault deployment

• Access Policy Selection - Access control

• Strategy Concepts - Understanding strategies