Bitcoin Dollar Carry Vault

BTC carry vaults are not a novel concept. You use BTC as collateral to borrow USD as cheaply as possible and then deposit that USD into a higher-yielding dollar strategy. Whatever spread you earn between your USD borrowing costs and your higher-yielding strategy is compounded back into BTC as it accumulates. From the user's perspective, BTC in and, at some point in the future, more BTC out.

There is an inherent risk/reward tradeoff in any BTC carry trade. The more USD you borrow against your BTC, the more spread you can earn, but also the higher your LTV will be, increasing liquidation risk during a BTC crash.

There is also the question of buffers. How much BTC is kept idle (not being used as collateral) to honor instantaneous withdrawals without affecting LTV and potentially forcing an unwind, which incurs costs that ultimately suppress the profitability of the vault?

The Bitcoin Dollar Carry Vault has a few superpowers worth sharing that make it less risky, more liquid, and more efficient than other carry trades on the market.

First, you need to understand what we use as our "higher-yielding dollar strategy" that every carry needs. It's Bitcoin Dollar's USD Vault. This is a simple 2X levered loop that programmatically maintains a very safe 50% LTV. Adding a little leverage to increase yields is nothing new. What's different about the USD Vault is that it borrows wBTC to create its leverage. Right now, one could borrow hundreds of millions of dollars worth of BTC from Aave, Spark, Compound, etc., if one could supply sufficient collateral. While we can't directly access these rates without sBTCD being approved as collateral, the USD Vault does have lower borrowing costs than its USD borrowing competitors.

For now, the USD Vault borrows wBTC against sBTCD collateral from an isolated Morpho market. That market has a 10X higher wBTC borrowing rate than Aave but is still quite cheap compared to USD at ~3.5%. For our wBTC Carry Vault, this is a lovely place to park a large buffer which simultaneously earns the lending rate, ensures the USD Vault has sufficient liquidity for the carry portion of the trade without increasing borrowing rates, increases liquidity to support instantaneous withdrawals, and takes pressure off the LTV risk/reward tradeoff.

TL;DR, the Bitcoin Dollar Carry Vault is more robust and efficient because it actually has two yield sources within it: an atomically redeemable high-yield lending source alongside a dollar carry strategy that everyone else is doing.