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MegaVault FAQ

Frequently asked questions on the new MegaVault

dYdX Operations Services Ltd. avatar
Written by dYdX Operations Services Ltd.
Updated this week

What is MegaVault?

MegaVault is a user-facing feature which enables users of dYdX* to add USDC funds to support markets on dYdX. The funds you add will be used to run automated trading strategies across dYdX markets. These include high risk, illiquid and volatile markets, and accordingly there is material risk of loss. MegaVault is designed to support the protocol and not maximize trading returns.

*dYdX means the dYdX open source software blockchain protocol

How does MegaVault generate returns for MegaVault users?

Returns may be generated by positive PnL on sub-vault positions, funding rate payments, trading fee revenue share or other protocol incentives devised by the community. MegaVault is designed to support the protocol and not maximize trading returns.

Can you lose money by adding funds to MegaVault?

Yes. MegaVault is designed to support the protocol and not maximize returns. MegaVault’s positions may have negative trading PnL, and those losses could outweigh returns from protocol fee sharing or other sources of return. MegaVault takes automated positions in the associated protocol, and therefore is not a source of guaranteed positive yield, as yield depends on many factors including market conditions, vault positions, etc. For example, if the vault strategy has a long position in a particular market and that market’s price drops, then the value of the vault position will decrease. In this example, the user’s percent ownership of the vault remains the same (assuming no new vault entrants), but the value of the ownership decreases. Thereafter, new entrants to the vault may buy vault ownership at lower vault values and dilute existing vault owners’ claim on future fees, or future vault PnL.

Will I receive the MegaVault APR shown in the front-end?

The APR is an estimated representation of annualized returns based on past performance which fluctuates significantly. Increases in MegaVault TVL will likely lead to reductions in APR as more users share the protocol revenue received by the MegaVault. For example, if protocol revenue is $10 and MegaVault has a TVL of $50, MegaVault APR will be 20% (10/50*100%). However, if the TVL increased to $100 and the $10 revenue was unchanged, MegaVault APR will reduce to 10% (20/100*100%).

The APR reflects past 30 day performance of the MegaVault, and is not an indicator of future performance. Performance is defined as PnL, protocol fees, and any other incentives provided by the community. The performance of MegaVault depends on many factors that are outside of the protocol’s control. MegaVault has no track record and any historical performance is not indicative of future performance, or actual results.

Megavault returns are also only paid out once funds are removed and are subject to slippage (discussed below), so actual returns over the period of time the funds are in MegaVault may vary significantly from estimated APR shown at the time the funds were added.

How is MegaVault APR calculated?

The APR shown on the UI is calculated by taking MegaVault’s total returns over the past 30 days (or lesser period if 30 day data is not available, such as the first month of MegaVault’s operation) and multiplying it by 365/30 (i.e. ~12) to estimate the yearly return. In the initial month of the MegaVault, for example, the APR will reflect returns during the few days the MegaVault has been operational, extrapolated to the next 12 months.

MegaVault returns can come from various places (e.g. positive PnL on vault positions, funding rate payments, trading fee revenue share, and other protocol incentives). MegaVault is likely to take positions in sub-vaults that are making losses. MegaVault APR may be positive notwithstanding trading losses as the losses may have been offset by other revenue sources.

The APR is calculated as follows:

  1. if there is 30 days of data for MegaVault:

    (30 day PnL/current TVL) * (365/30) 

  2. if there is less than 30 days of data for MegaVault:

    (total PnL/current TVL) * (365/number of days for which data was available) 

Where,

30 day PnL is calculated as follows:

current PnL of MegaVault - previous PnL of MegaVault at the beginning of the 30 period  

current TVL is calculated as follows:

sum of all USDC held by MegaVault + current value of all positions held by MegaVault 

The current value of all positions held by MegaVault is calculated by summing the value of each position held by MegaVault.

Value of each position held by MegaVault is calculated as follows:

size of position * oracle price 

PnL of MegaVault is calculated by summing (i) the profit or loss on each position held by MegaVault; (ii) the protocol fee revenue paid to MegaVault; (iii) funding rate payments made to MegaVault; and (iv) other protocol incentives paid to MegaVault.

total PnL is calculated as follows:

current PnL of MegaVault - previous PnL of MegaVault at the beginning of the period 

What sort of restrictions are placed on removing funds from MegaVault?

There are no restrictions removing funds except for when launching a new market. When a user launches a market, they must add 10,000 USDC to MegaVault, which is then locked for an estimated 30 days.* After the lock up period has passed, the funds can be removed. Other than restrictions related to new markets, funds can be removed subject to slippage that may occur (discussed below). Read more about instant market listings here.

* The funds are locked for 2592000 dYdX protocol blocks.

Why would closing my MegaVault positions incur “slippage"?

When closing positions from MegaVault, “slippage” can occur. Slippage is a fee that you pay when you remove your funds and thereby cause the MegaVault to increase leverage. When funds are removed, MegaVault updates traded positions and frees up assets to meet your request. The removal of funds reduces the amount of collateral MegaVault holds for each sub-vault position traded and increases MegaVault leverage. The slippage fee is in proportion to how much funds removal increases the MegaVault leverage. An estimate of the slippage amount is shown on the UI. Slippage rates can be low, and may be very high. MegaVault does not provide the ability to set the slippage level when removing funds. There are no hard limits on the leverage MegaVault assumes.

The greater the impact of funds removal on MegaVault leverage, the greater your slippage fee. For example, assume the following in each of the below scenarios:

  • MegaVault has TVL of $100k

  • MegaVault users A, B and C, each hold $50k, $30k and $20k respectively.

Scenario 1 (low leverage)

Scenario 2 (medium leverage)

Scenario 3 (high leverage)

MegaVault has not assumed any leverage and all assets are in an idle sub-vault.

  • A removes $50k, A would pay 0 % slippage fee and receive $50k

  • Subsequently, B removes $30k, B would pay 0% slippage fee and receive $30k

  • C is the final party to remove funds, C removes $20k and pays would pay 0% slippage fee and receive $20k

MegaVault has one isolated margin sub-vault position with 1x leverage, and no balance in the main vault.The isolated margin market has an initial margin fraction of 10% and maintenance margin fraction of 50%. The subvault has quoting parameters of a half-spread of 30bps and a skew of 2.

  • A removes $50k, A would pay 4.9% slippage fee and receive $47,550

  • Subsequently, B removes $30k, B would pay 19.06% slippage fee and receive $24,280.26

  • C is the final party to remove funds, C removes $20k and would pay 35.5% slippage fee and receive $12,900.18.

MegaVault has one isolated margin sub-vault position with 8x leverage, and balance in the main vault. The isolated margin market has an initial margin fraction of 20% and maintenance margin fraction of 10%. The subvault has quoting parameters of a half-spread of 30bps and a skew of 2.

  • A removes 50k, A would pay 100% slippage fee and receive $0

  • Subsequently, B removes 30k, B would pay 100% slippage fee and receive $0

  • C is the final party to remove funds, C removes 20k and would pay 100% slippage fee and receive $0

When I add funds to MegaVault, where is it taken from?

MegaVault will use cross-margined funds. Thus, when you add funds to MegaVault position while having any cross-positions open, your cross margin usage will increase.

Who will custody my MegaVault position?

You. When you add funds to MegaVault, you maintain control over your funds via the private keys associated with your wallet address. The funds you add to MegaVault will automatically participate in MegaVault trading strategies, but only you can remove your funds and access your USDC.

Can anyone add funds to MegaVault?

No. If you reside in, are located in, or have a registered office in the United States, Canada, or any other prohibited jurisdiction, you may not add funds to MegaVault. dYdX open source software is not permitted to be deployed or accessed by users in certain prohibited jurisdictions, and detailed information can be found here.

Can my position be diluted?

Yes, the number of users who may participate and the amount of funds they add to MegaVault is unlimited and each addition of funds will dilute the proportion of fee revenue and PnL attributed. For example if protocol revenue is $10 and MegaVault has a TVL of $50 from two users Alice ($40) and Bob ($10). Alice will receive 80% of MegaVault future revenues (i.e. $8) and Bob will receive 20% of future revenues (i.e. $2). However, if protocol revenue is unchanged at $10 and instead instead TVL increased to $100 from three users Alice ($40), Bob ($10) and Carl ($50), Alice’s will receive 40% of revenues (i.e. $4), Bob will receive 10% of revenues (i.e. $1) and Carl will receive 50% of revenues (i.e.$5).

Who operates MegaVault?

In addition to using automated trading strategies, MegaVault depends on an operator to oversee market allocation and make periodic adjustments to automated trading parameters as needed. An operator would typically be appointed by community grants program and community vote. Users should assume that the operator has little or no operating history and the user should not place undue reliance on the community vote. Users should independently research the applicable operator and determine whether the operator is a suitable party to manage MegaVault.

How does MegaVault keep track of user’s positions?

MegaVault keeps track of the proportion of MegaVault held by each user. Below is an example of how MegaVault does this.

Example Sequence of Events

Event #1: MegaVault has a total of 0 and Alice adds $90.

Results After #1:

  • MegaVault total : $90

  • Ownership

    • Alice: 100%

  • Pre-slippage position

    • Alice: $90

Event #2: Bob adds $10.

Results After #2:

  • MegaVault total: $100

  • Ownerships

    • Alice: 90%

    • Bob: 10%

  • Pre-slippage positions

    • Alice: $90

    • Bob: $10

Event #3: MegaVault receives $10 from protocol revenue share

Results After #3:

  • MegaVault total: $110

  • Ownerships

    • Alice: 90%

    • Bob: 10%

  • Pre-slippage positions

    • Alice: $99

    • Bob: $11

Event #4: A sub-vault’s equity decreases by $20

Results After #4:

  • MegaVault total: $90

  • Ownerships

    • Alice: 90%

    • Bob: 10%

  • Pre-slippage positions

    • Alice: $81

    • Bob: $9

Event #5: Carl adds $10

Results After #5:

  • MegaVault total: $100

  • Ownerships

    • Alice: 81%

    • Bob: 9%

    • Carl: 10%

  • Pre-slippage positions

    • Alice: $81

    • Bob: $9

    • Carl: $10

Disclaimer and Terms

This document may provide information with respect to the dYdX Chain software, and/or non-mandatory guidelines and suggestions that may help with using dYdX Chain software. dYdX Operations Services Ltd. does not run dYdX Chain validators nor operate or control the dYdX Chain network. dYdX Operations Services Ltd. is not responsible for any actions taken by other third parties who use dYdX Chain software. dYdX Operations Services Ltd. services and products are not available to persons or entities who reside in, are located in, are incorporated in, or have registered offices in the United States or Canada, or Restricted Persons (as defined in the Terms of Use). The content provided herein does not constitute, and should not be considered, or relied upon as, financial advice, legal advice, tax advice, investment advice or advice of any other nature, and you agree that you are responsible to conduct independent research, perform due diligence and engage a professional advisor prior to taking any financial, tax, legal or investment action related to the foregoing content. The information contained herein, and any use of products or services provided by dYdX Operations Services Ltd., are subject to the Terms of Use.

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