Vesper Finance: How Vesper's DeFi Grow Pools Work

A Grow Pool gathers deposits of one asset and runs them through one or more strategies. When you deposit, you get a vToken representing your share, such as vETH for ETH ⁶. Yield is auto-compounded in the asset you deposited, so a USDC pool pays out in USDC ⁷. To exit, you withdraw from the pool's "manage" section in the app and receive the underlying asset ⁶.

You choose a pool, not a strategy. The pool's logic decides which strategies to use ⁸. Strategies range from a plain deposit into a lending market, to liquidity-provider positions, chained deposits across platforms, and leverage loops. In a leverage loop, the asset is borrowed against itself and redeposited. In a borrow strategy, collateral is used to borrow a different token, which is routed into another Vesper pool ⁸. Pools come in conservative and aggressive variants. They differ in how readily they take extra loans when capital arrives or prices rise, and how they repay when capital leaves or prices fall ⁷.

Administrators can switch a pool's strategies and upgrade contracts without stopping the pool ⁴. The docs warn users never to send assets straight to a contract address, because upgradeable contracts can make such transfers unrecoverable ⁶.

No signup or identity check is required. You connect a wallet and transact ². On Optimism and Base you need assets already on that network ⁵.

Vesper charges a single universal fee of 2% per year on your deposited principal. It is collected from earned yield each time the pool rebalances ¹⁰. If 2% of principal would exceed half of the yield earned in that period, the fee is cut to 50% of the yield, so the fee does not reduce principal ¹⁰. There are no deposit or withdrawal fees. The APY shown in the app is after fees ¹⁰. In community pools, the strategy author receives a 5% share, paid in the pool's asset ¹⁰.

Illustration (assumptions stated): a $10,000 deposit for a full year owes a $200 fee if the pool earns at least $400 in that time. If it earns $300, the fee is capped at $150. Network gas for deposits and withdrawals is extra.

Pool participants earn VSP on top of yield. VSP is issued block by block and delivered when they withdraw ¹¹. Locking VSP for between one week and two years mints esVSP, an ERC-721 position with up to a 4x weighting for the longest lock ¹². esVSP holders receive VSP bought back from the market with protocol revenue. After a pause, governance restarted buybacks at a target of $3,000 per month, with a stated aim of moving back toward up to 40% of revenue ¹¹. Unlocking early costs a penalty that starts at 50% and falls linearly to zero by the end of the lock. The penalty goes to the DAO treasury ¹².

Governance borrows from Compound's model but runs mostly as Snapshot signal votes. These last 72 hours and need 30,000 esVSP in favor to pass ¹³. The docs state that only whitelisted "core" addresses can create Snapshot proposals, and that results are executed "in good faith" ¹³. Day-to-day control of pool parameters and upgrades rests with a multisig of founding team members and external partners ³.

Vesper says every user-facing contract and strategy is audited and cites "well over 50 audits" in its public GitHub directory. Coinspect and CertiK audited the launch code ¹⁴. Audits lower risk but do not remove it.

The docs list the main risks themselves ⁹:

• Flash crashes. Leveraged or borrowing strategies can be partially liquidated by the underlying lending protocol, at a cost to the pool.
• Integration exploits. A hack of Vesper or of any protocol it routes funds through can cause losses.
• Stablecoin depegs. Stablecoin pools can lose value if the stablecoin breaks its peg.
• Negative yield. Borrowing costs can briefly exceed earnings.

Two more points follow from the design. First, upgradeable contracts and multisig control mean users trust the keyholders ³⁴. Second, the latest quarterly report in the docs covers Q3 2022 ¹⁵, so current treasury and revenue disclosures are thin.