Pay-in-Advance Model

The Pay-in-Advance Lending Pools will be aggregated pools based on the underlying of the LPs. To understand the unique appeal of Vaultka's lending mechanism, it's pivotal to focus on three defining features:

• Performance Correlation: The rewards for the lending pool derive directly from the performance of its linked vault.

• Predictable Rewards: Lenders can anticipate the forthcoming rewards with certainty.

• Protected Minimum: The rewards lenders receive will never fall below a defined expected amount and can only increase.

Minimal Maximum Drawdown & Positive EV of Perp DEX LP

The viability of the pay-in-advance model is heavily contingent on the underlying asset exhibiting a low maximum drawdown and a positive expected value (EV) in order to stay protected.

Unlike the conventional DEX LPs, Perp DEX LP depositors remain unexposed to impermanent loss, resulting in a controlled maximum drawdown for liquidity providers.

Furthermore, the inherent positive EV characteristic of Perp DEX LP reinforces the notion that engaging with Perp DEX LP will yield positive returns over the long term. The EV stemming from protocol fees will consistently stay in the positive realm, devoid of negative factors in the equation.

$Total EV\tiny {PerpDEXLPs} \normalsize = EV\tiny Trader PNL \normalsize + EV\tiny Fees$

Where: $EV \tiny Trader PNL \normalsize = 0$, Since Trader PNL is 0 EV

$EV \tiny Fees \normalsize > 0$, Since Fees generate positive EV

Mechanism

To address and streamline the reward distribution process, the protocol now acts as a redistributor, which provides the yield (Base Reward and Bonus Reward) in advance to lending vaults, thereby increasing the value of the WATER tokens.

Reward Distribution Procedure:

1. Vaultka tracks and calculates the unrealized and realized rewards from leveraged positions in the previous epoch (tracks data from the previous week when calculating the Bonus Reward)

2. The Redistributor transfers the reward to the respective WATER vault every hour based on the calculated total reward

3. Realized rewards from closed positions in this epoch will be recorded and transferred to the Redistributor as reserves for distribution

Performance Correlation - Bonus Reward:

• Traditional systems with fixed borrowing costs often do not account for variable asset performance. With Vaultka, a better-performing linked vault translates to higher rewards for lenders.

$\small Bonus Reward = max(0, Rw-Base Reward ±Redistributor Balance Adjustment)$

where $Rw$ denotes the total rewards from all positions in the past week