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Technology
Velvet DAO provides all the necessary infrastructure for financial product development being integrated with AMMs, Lending protocols and other DeFi primitives to give users a diverse asset management toolkit.
Every time a new product/fund is launched, a new series of smart contracts with the architecture below gets deployed, each product/fund is independent and is entirely created & managed by the fund manager.
Since the funds/products can be tokenized, the contract has a creation/redemption (mint/burn) mechanism, which works similarly to the process used by ETFs in traditional finance:
- When the user deposits funds, they get traded into the target assets via the Trading module, and the portfolio-backed token representing user's share in the fund/product gets minted and sent to the user (e.g., as an ERC-20 token)
- When the user withdraws the funds, the same process happens in reverse: the token gets burnt and the underlying assets get exchanged back and sent to the user
This module ensures that the product-backed token is always 100% backed by the underlying assets. The users will also have an option to redeem the underlying assets directly to their wallet without exchanging them back.
Oracle module helps fetch and derive prices and other market data for the assets used in the products/funds. We are using Chainlink - an undisputed industry-leading oracle, and in the future will be adding other solutions and our own oracles to increase the overall protocol security.
Chainlink is a blockchain oracle network intended to be used to facilitate the transfer of tamper-proof data from various sources to on-chain smart contracts, including price feeds for assets that can be used within Velvet (can be found here)
Each product will have a Strategy module that calculates key parameters (e.g., weights, constituents, rebalancing triggers) and passes them to the Creation & Redemption or Trading & Rebalancing modules.
The Trading & Rebalancing module works closely with the Strategy module and Creation & Redemption module. Its function is to calculate and execute trades according to the logic received from those modules whenever there is creation, redemption or rebalancing that needs to happen. This modules allows to batch tens and hundreds transactions into one, finding the most optimal route for many-to-many swaps.
There's also a manual trading functionality integrated with top liquidity aggregators such as 1inch, 0x, Paraswap, Open Ocean and Cow Swap to provide superior trade execution capability with minimal slippage.
Each product has its separate vault set up upon product creation. Velvet never takes custody of the user funds, and there are three custody options clients can choose from:
- Non-Custodial Vault - the underlying assets are stored in a smart contract vault, no one (not Velvet, not vault owner and not users) have keys from the vault. The funds can be added or taken out only via the Creation/Redemption module
- Self-Custody via Multisig - the underlying assets are stored in a Gnosis Safe vault (Gnosis is an industry-leading provider of multi-sig vaults). The keys can be held by the vault owner (default) or transferred to the end clients (e.g., in the case of individual high-value users)
- Third-party Custody - the underlying assets are stored with an external custodian, which has its own security guidelines and recovery mechanisms.
To create a sustainable yield farming mechanism we are building a dynamic module that will optimize asset allocation across multiple sources of yield across lending, staking and liquidity pools. We will be constantly adding new integrations across multiple chains to broaden the set of available solutions and accommodate increasing TVL minimizing effect on the yield.
Since part of the yield farming rewards is usually paid in native tokens of the project, this module will also be responsible for harvesting this portion of yield and passing it thought the Trading & Rebalancing module to exchange the rewards into the target portfolio assets.
Institutional clients will be able to set up custom fee structure for each of the funds/products, including:
- Management fee
- Performance fee
These fees are embedded in the smart contract logic and deducted automatically.
Last modified 18d ago