About the Rotation Vault & stAMPL
Last updated
Last updated
Rotation is the process of withdrawing stale collateral from SPOT and replacing it with tranches minted from the new minting bond. To understand the importance of rolling over in a broader context see About SPOT. Timely rotations ensure the SPOT collateral set remains filled with fresh senior AMPL tranches so the system can perpetually reduce volatility.
The Rotation Vault automates the process of rotations, so anyone can participate in rotations passively, through a staking mechanism. Stakers do not need to manage intermediate tranches or pay gas fees for each operation. With the current SPOT configuration, rotations happen weekly.
For an overview of how the rotation vault fits into the high level architecture of the SPOT protocol pelase see About Spot.
stAMPL is a staked AMPL that represents a holders position in the rotation vault. The token is a freely redeemable claim on assets in the rotation vault. Additionally it pays or extracts an unsigned fee to those who stake. Like SPOT, stAMPL features free-floating price and proportional redemption.
Example 1: Imagine Alice has 1000 AMPL, the rotation vault also currently has 1000 AMPL in it, and there are 10K stAMPL in circulation. If Alice deposits all her holdings into the rotation vault she will own 50% of the assets in the vault. In return she will receive 10K stAMPL and total supply of stAMPL will increase to 20K stAMPL.
At present, rotations are configured to recur weekly. At the time of rotation, the vault automatically:
Tranches: Automatically separates AMPL into fixed-term seniors and juniors using SPOT's minting bond
Rotates: Automatically exchanges Maturing senior tranches for newly minted seniors into SPOT's collateral set.
The newly minted juniors created as a byproduct of tranching, remain in the rotation vault balance where they are held until they mature into raw AMPL, to be used for future rotations. The diagram below shows the flow of assets.
Referring to the diagram above, at the weekly time of rotation :
The maturing Sr0 tranche rotates into the stAMPL vault and beomes raw AMPL. The maturing Jr0 tranche becomes raw AMPL.
AMPL is tranched into fresh (Sr3, Jr3) pairs. The new Jr3 remains in the stAMPL rotation vault. The new Sr3 tranche rotates into the SPOT collateral set.
Note: In the case where the AMPL balance in the vault does not cover the entire rollover, it rotates as much as possible.
Rotation Vault v2 allows users to swap between AMPL and SPOT for a fixed percentage fee (4%), which goes to vault participants who provide liquidity for swapping. How Swaps Work Internally
When the vault has excess capital after rollovers, it allows users to swap AMPL for SPOT. Internally it:
Tranches excess AMPL for Seniors and Juniors
Uses seniors to mint SPOT
Returns the minted spot back to the user
Holds the Juniors until maturity
Alternatively, when users want to swap SPOT for AMPL the vault:
Redeems the user’s SPOT tokens for senior tranches,
Melds the senior tranches with the juniors it already holds (which are created during the normal course of rotation) to retrieve AMPL
Returns AMPL to the user
The rollover reward or fee is calculated based on the relative demand for stability and volatility (seniors and juniors) respectively.
To gauge relative demand, the protocol looks at the balance of assets in the rotation vault relative to SPOT's total supply to determine a deviationRatio (dr):
totalRolloverCapital: is the total amount of AMPL in the rotation vault
requiredRolloverCapital: is the amount of AMPL required to sustain the SPOT supply.
At the time of rotation, a fee is applied by adjusting the exchange rate between tranches entering and exiting during the rotation operation.
When the dr = 1, the system is considered perfectly balanced. No rotation fee is applied.
When the dr < 1, the system is considered "under-subscribed", a positive rotation fee is applied which means spot holders are paying vault holders a percentage fee for rotation (for the privilege of stability). This results in spot debasement (or inflation)
When the dr > 1, the system is considered "over-subscribed", a negative rotation fee is applied which means vault holders are paying spot holders a percentage fee for rotation (for the privilege of leverage). This results in spot enrichment.
This fee percentage is applied based on a sigmoid function of the system’s deviation ratio. SPOT debasement is capped at 10% per annum and the enrichment is capped at 20% per annum.
Enrichment and Debasement is measured as the ratio between SPOT supply and senior AMPL tranches in SPOT's reserve.
When SPOT pays the Rotation Vault a reward on rotation, more senior tranches leave SPOT's reserve than enter it, debasing SPOT's value as measured in senior AMPL tranches.
When SPOT extracts a reward from the Rotation Vault, more senior tranches enter SPOT's reserve than exit it, enhancing SPOT's value as measured in senior AMPL tranches.
We can help ground this with an example:
Example 2: Imagine Alice wants to rotate 1000 Sr tranches. If the demand for stAMPL > SPOT (ie: the system's deviation ratio is greater than 1), she will have to deposit > 1000 fresh Sr tranches in, in order to rotate 1000 mature Sr tranche out. Because more collateral exists in SPOT's collateral set after this rotation, and there haven't been any changes to the supply of SPOT tokens, the redeemable value of any single SPOT has increased as a result of this rotation.
The effect of this dynamic exchange rate between fresh Sr tranches in, and maturing Sr tranches out, is what we call enrichment. You can think of this as similar to having a physical coin comprised of 95% copper, 5% gold. The coin would be enriched if it were comprised of 94% copper, 6% gold because the raw material value of a given coin has increased.
The enrichment rate is an AMPL denominated value. It is annualized rate at which the exchange-rate between SPOT and AMPL is changing. Because AMPL is CPI-tracking, this number really reflects a rate of purchasing power change.
Separately from the rollover reward and fee described above, stakers who deposit AMPL into the rotation vault automatically generate yield by:
Providing Tranche Liquidity: Users who want to redeem SPOT for AMPL before senior AMPL tranches reach maturity can take advantage of the junior AMPL tranches in rotation vault's collateral set to redeem for a fee. See Swapping.
Governance token (FORTH) Emissions: Users who hold stAMPL receive an emission of FORTH governance tokens based on the size of their position and time staked.
At steady state, the rotation vault holds a combination of fixed-term junior AMPL tranches and raw AMPL (there are times when the vault will hold senior tranches as well, but this is rarely a significant portion of the vault, with most being paired with their junior tranche to combine back into AMPL). As a result, holding stAMPL is similar to holding a higher volatility AMPL.
The base rate volatility multiple of stAMPL can be calculated as a function of the quanitity of AMPL and junior tranches in the vault and the tranche ratio.
Lower (senior:junior) tranche ratios correspond with higher volatility stAMPL.
Higher (senior:junior) tranche ratios correspond with lower volatility stAMPL.
Recall that in the SPOT collateral set if rotations halt the senior AMPL tranches mature progressively into raw AMPL which makes the SPOT token more volatile (bending rather than breaking). Similarly, in the rotation vault if rotation halt, the junior AMPL tranches mature progressively into raw AMPL. However, in this case the net effect is the collateral in the rotation vault becomes less volatile, because raw AMPL is less volatile than juniors.
