Yields On Prodigy.Fi
In Prodigy.Fi’s structured yield vaults, yields are funded by vault creators and securely locked on chain until the vault expires.
Vault creators utilise structured yield vaults for two main purposes:
Leverage on the market to earn higher returns.
Protect their crypto holdings against potential losses.
For these reasons, vault creators offer attractive yields to vault subscribers who take the opposite side of the trade, based on the risks they are willing to bear. This way, both vault creators and vault subscribers can mutually benefit from volatility exposure.
Learn more about how DCI vaults can be used here.
The Source Of Yield
The yields vault subscribers earn on Prodigy.Fi’s structured yield vaults are curated directly by vault creators in the community, rather than from the protocol or temporary incentives.
When a vault creator launches a vault, they pay the yield upfront, which is securely deposited into the vault and held onchain by smart contracts. This ensures that vault subscribers receive their returns instantly if they participate.
In other words, the yield is funded by real users taking strategic positions, making the yields in structured yield vaults sustainable and backed by genuine economic activity.
Why Do Vault Creators Offer Yields?
1. Hedge Against The Market
Vault creators use our structured yield vaults to protect their crypto holdings from sudden market drops. You can think of it like buying insurance; just as you pay an insurance premium to protect your car from accidents, vault creators pay yields to vault subscribers to protect their assets from volatile price swings.
If the market moves against them, the vault allows vault creators to buy or sell at a pre-agreed price (linked price), reducing their losses. In return, vault subscribers receive those yields as compensation for taking on the market risk of buying or selling the asset at the pre-agreed price.
This creates a win-win situation: Vault creators get peace of mind and price protection, while vault subscribers earn steady, real yields.
Example
If ETH is $10,000, a vault creator might set up an ETH Buy Low vault with a linked price of $9,000 and offer $300 in yield.
If ETH falls to $7,000, a swap occurs at upon expiry, allowing the vault creator to sell ETH at the linked price of $9,000. This limits their net loss at $1,300 (including the $300 yield paid to vault subscribers bearing the market risk), rather than losing $3,000 from ETH’s price drop.
2. Earning Higher Returns
Vault creators offer high yields because these vaults allows them to amplify potential returns while limiting their losses. By setting target buy or sell prices, they can aim for higher returns if the market moves in their favour, while their maximum loss is limited to the yield paid to vault subscribers.
Example:
A vault creator sets up an ETH Sell High vault with a linked price of $3,000 and offers $200 in yield to vault subscribers.
If ETH rises to $4,000, a swap occurs upon expiry, allowing the vault creator to buy ETH at the linked price of $3,000, resulting in a $1000 gain while risking only the $200 paid as yields.
Yield As Option Premiums
Another way to understand structured yields is like option premiums in traditional finance: a fee paid for the right to buy or sell an asset at a set price in the future.
In Prodigy.Fi, vault creators pay these yields to protect their positions and manage market outcomes, while vault subscribers earn them by taking the other side of the trade.
This setup fosters a win-win situation, as vault creators secure their desired outcomes and vault subscribers earn reliable returns from the yields.
What Drives Yields
Yields in structured yield vaults, like option premiums, are influenced by several factors, with the most noticeable being:
Market Volatility: Bigger price swings lead to higher yields due to increased uncertainty.
Time to Expiry: Longer vault durations mean more exposure, resulting in higher yields.
Distance from Target Price: Vaults with target prices closer to the current market price generally has higher risk, resulting in higher yields.
While other factors can also affect yields, these are the key drivers. Since structured yield vaults respond to real market conditions, yields naturally adjust, so when markets are more volatile, yields increase, turning uncertainty into opportunity for Vault Subscribers.
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