Locus Finance
Locus Finance is an asset management platform that facilitates access to DeFi passive income through on-chain vaults containing selected strategies. [1]
When a user deposits funds into a Locus vault, they receive a vault token representing their position. The token's value is determined by the performance of the strategies used within the vault. [1]
Overview
Locus.finance provides a variety of vault options, ranging from conservative blue-chip assets to trending assets. [2]
In October 2023, Locus Finance announced the migration to v2 vaults. After the migration, the vaults maintained constant synchronization with market dynamics and strategy rewards. A detailed P&L was introduced within each vault, enabling users to observe rewards distributed according to strategy. This feature provided transparency regarding the performance of underlying tokens and the corresponding portion of rewards. The code of BaseVault was rewritten from the insecure and legacy Vyper programming language to the secure and widely used Solidity programming language. Additionally, the contract was made upgradable. [13]
In February 2024, the team announced a series of updates including product positioning and the transition from vaults to indexes, index updates and new market strategies, and updates on the security and UI features. [14]
On December 30, 2023, Locus vaults were compromised, resulting in a loss of $320,964 due to a developer’s private key leak, allowing the hacker to drain assets. Following the breach, Locus took immediate action by securing remaining funds, initiating legal proceedings, and enhancing security practices. Despite offering a bounty to the hacker, there was no response. The breach occurred during a CTO transition due to the absence of multisig security. Locus has since implemented robust multisig processes to prevent future breaches. [15]
Locus Vaults
xETH Vault
The xETH vault offers Ethereum yield strategies, aiming to provide users with diversified DeFi ETH yields for optimal risk-adjusted returns. Its strategies include liquidity provision to DEXes and using ETH liquid staking derivatives when feasible. The Locus team adjusts vault strategies based on market conditions to ensure their relevance. [3]
xDEFI Vault
The xDEFI Vault is a yield-bearing index consisting of major DeFi protocol tokens on Ethereum and LP positions. It aims to provide accessible DeFi assets and yield farming opportunities. User assets are converted into FXS, CVX, and ETH, then deposited into LP positions within the respective protocols. Tokens selected for the xDEFI Vault belong to established Ethereum DeFi protocols with strong fundamentals and potential for long-term growth. [4]
xARB Vault
The xARB vault consists of Arbitrum-based protocols and yield farming positions. The Arbitrum ecosystem has seen growth, with GMX gaining traction even in bearish market conditions. The network has attracted talented teams to develop innovative products. [5]
Assets in the xARB vault include GMX, GNS, and JOE tokens, associated with the "real yield" narrative in DeFi. Holding and staking these tokens allows users to earn a share of the protocol revenue. GMX and GNS focus on attracting DEX liquidity and trading volumes, while Trader Joe innovates concentrated liquidity provision with its V2 pools and liquidity bins. Each project contributes to DeFi-native financial instrument development. [5]
xUSD Vault
The xUSD vault contains multiple yield-bearing stablecoin strategies, aiming to offer exposure to diverse stablecoin strategies across different networks. Assets in the vault are stablecoins pegged to the U.S. dollar, ensuring price stability for the vault token, which gradually increases as rewards accumulate. xUSD combines top-tier stablecoins with niche and experimental ones to provide competitive returns. Stablecoins are selected based on various factors such as protocol design, counterparty risk, smart contract security, and decentralization, and are weighted accordingly. [6]
Detailed PnL
The detailed Profit and Loss (PnL) report consists of two sections: [7]
- Vault Harvested
- Strategies Volatility
Strategy Volatility refers to the fluctuation in the value of a vault caused by the underlying tokens utilized by its strategies. A vault collects deposits from users and allocates these assets across various strategies to generate yield. Each strategy employs specific tokens, as described in the vault's documentation. The "Strategies Volatility" section displays the current balance of underlying tokens held within the vault. Changes in the value of these tokens directly impact the overall value of the vault; if the strategy tokens appreciate, the vault's total value increases, and vice versa. [7]
Vault Harvested represents the rewards earned by the vault strategies. These rewards reflect the returns generated by the strategies over the course of your investment. They are automatically reinvested, contributing to an increase in the vault token price. These rewards are integral to the vault's performance and cannot be separated from its overall price. The "Vault Harvested" section provides details on the Annual Percentage Yield (APY) earned by the vault strategies. [7]
Vault Fees
The fees applied to each vault depend on its specific characteristics. There are two types of fees: [8]
- Reward Fee: This fee, ranging from 0% to 5%, is deducted from the funds gathered every time the vault harvests income. The percentage varies for each vault; for example, xETH may have a 5% reward fee, while xDEFI may have 0%.
- Annual Streaming Fee: This fee, typically between 0.5% and 1.5% annually, is retained by the vault based on its total assets. The specific percentage varies by vault; for instance, xUSD may have a 0.5% streaming fee, while xDEFI may have 1.5%.
Fees are deducted by minting new shares of the vault to the Locus treasury balance during harvests and are calculated based on the time elapsed since the previous harvest.
Strategies Allocation Scoring
In the process of creating or upgrading vaults, the Locus team uses a method called Strategies Allocation Scoring. This method helps select strategies for the vault, assess risks, and maintain a balance between profit and risk. [9]
The due diligence process for strategies within a vault includes evaluating tokens and protocols. This evaluation focuses on the security and sustainability of these tokens and protocols, as well as the viability of their business models. [9]
Strategies are scored relative to each other, guiding the allocation of specific strategies within the vault. [9]
- Liquidity treasury / TVL ratio: The Liquid Treasury-to-Total Value Locked ratio is a metric used to assess a project's capacity to compensate users in the event of a shortfall. In this context, "liquid" assets refer to those unaffected by the protocol's exploits, such as blue-chips, stablecoins, and tokens excluding those issued by the protocol itself. A higher score indicates a greater proportion of assets in the protocol's treasury relative to its TVL.
- Circulating supply: As the circulating supply of an asset increases, the expected sell pressure decreases, suggesting a lower likelihood of long-term price depreciation.
- Unresolved vulnerabilities
- Yield source
- Protocol TVL
- Pool TVL
- Time elapsed since the last hack
Vault Rebalancing
Rebalancing involves adjusting the asset allocation in an investment portfolio to maintain the desired level of risk and return over time. As market conditions change, the original allocation may deviate from the intended proportions. [10]
The Locus team has developed vaults that automate the tracking of key metrics for projects used in the vault, reducing the need for manual oversight by customers. An advanced alerting system allows vaults to adjust the balance between risk and reward. [10]
Vault Safety Score
The overall vault score is an assessment of anti-risks based on general criteria, largely adapted from Yearn. It serves as a simplified safety rating to help users estimate the risk of a particular vault. [11]
Locus Token
Locus token is the platform's utility token, providing holders with benefits such as a share of revenue from Locus Finance, vault incentives, and participation in governance through DAO voting. [12]
The total supply of LOCUS is 15,000,000 tokens vested over 10 years. The supply allocation is as follows: [12]
- Midas Migration: Around 2,000,000 LOCUS tokens allocated for Midas migration contract.
- Reserved for LOCUS Staking: 3,900,000 LOCUS tokens with a vesting period of 120 months.
- Reserved for Vault Staking and Liquidity Providing Incentives: 6,425,500 LOCUS tokens with a vesting period of 120 months.
- Reserved for Liquidity on Uniswap: 750,000 LOCUS tokens.
- LOCUS Token Pre-Sale: 45,687 LOCUS tokens.
- Locus Team Allocation: 500,000 LOCUS tokens distributed linearly over 24 months, with a delay of 12 months since the token launch.
Model of Supply Distribution, Emission Calculation, and Financial Models
The upgraded 15 million tokenomics model for Locus includes various supply distribution strategies aimed at ensuring long-term sustainability and ecosystem growth. With allocations for migrations, staking incentives, liquidity provisions, and team distribution, the model aims to balance token distribution while maintaining liquidity and incentivizing participation. [12]
Estimation of APR's
The estimation of Annual Percentage Rates (APRs) for Locus token holders is based on factors such as staking rewards, vault incentives, and liquidity provision rewards. These APRs may vary over time depending on market conditions, token utilization, and network activity. Investors are encouraged to monitor updates and changes in the ecosystem to make informed decisions regarding token utilization and investment strategies. [12]
Liquidity Bootstrapping Pool (LBP) Sale
Locus conducted an LBP sale of LOCUS token hosted on Fjord Foundry. The sale commenced on Monday, November 27,2023, and lasted for 72 hours. [16]
A liquidity bootstrapping pool, abbreviated as an LBP, functions as a means to distribute tokens and raise capital. It operates as a liquidity pool with preset selling pressure. During a sale, an LBP pool sells a defined amount of tokens into the pool. LBPs can be likened to automated versions of Dutch auctions, wherein the price decreases until participants make bids. [16]
The Locus Liquidity Bootstrapping Pool (LBP) sale lasted for 72 hours, starting from Monday, November 27, to Thursday, November 30. The initial price for LOCUS tokens was $4.5, with a circulating supply of 4,500,000 $LOCUS out of a total supply of 15,000,000 LOCUS. [16]
Locus Staked token (stLocus)
The stLocus token offers staking rewards, entitling holders to a 50% share of the protocol's revenue, and serves as a governance token. Staking incentives follow a linear emission, starting at approximately 12% APR and decreasing over 10 years to 6% APR. [12]
