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ETH Vault


The ETH Vault increases deposited ETH. It does this by combining yields from recursive staking, lending, and market-making. Users can deposit ETH or WETH. Assets are dynamically spread across strategies. The allocation is based on optimal ratios adjusted to market conditions.

The market-making strategy's assets let users earn yields from trading fees. They provide liquidity to the most profitable pools on Swaap Maker based on market conditions.

The assets are allocated to the lending strategy. They let users earn yields from lending interest by supplying assets on AAVE.

The staking strategy's assets let users boost their ETH's yield by borrowing up to 11x on AAVE. They do this by using Paraswap or Odos as the main swap aggregator. This vault's APR is set by the positive yield from staking and supply APRs. It is reduced by the borrowing rate, reflecting the difference between them.

The formula calculates the total APR of the ETH vault from its strategies. We will illustrate it using 12x leverage as an example.

TotalAPR = Market-making APR + Lending APR + (12x (stETH Staking Yield APR + stETH Supply APR)) - (11x ETH Borrow Rate).

Note: Swap fees are incurred when depositing or withdrawing. They include gas fees and swap slippage, mainly during withdrawal. A breakeven period is necessary. Depending on the on-chain swap rate and strategy APR, the breakeven period may vary.


The next part outlines the backend workflows for user deposit and withdrawal. All the steps are executed automatically in 1 transaction.

A) Deposit

We will illustrate with example below:

  • deposit of 1 ETH
  • strategy allocation of 10% on market-making strategy and 90% on recursive staking strategy:

a) 0.1 ETH is provided as liquidity in market-making pools (can be ETH-denominated or not, depending on market conditions to LP into best performing pools)

b) 0.9 ETH is swapped into 0.9 stETH (or flashloan with ETH to get stETH, depending on which approach is more cost-effective);

c) 0.9 stETH supplied on AAVE V3 as Collateral;

d) Using this collateral, borrow 0.81 ETH under E-mode on AAVE;

e) 0.81 ETH is swapped into 0.81 stETH (or flashloan with ETH to get stETH, depending on which approach is more cost-effective)

f) 0.81 stETH supplied on AAVE V3 as collateral (total 1.71 stETH);

g) Repeat steps D, E & F until the position reaches 10.8 stETH supplied as collateral on AAVE (12x). Since the user initially deposited 0.9 ETH, 9.9 ETH had to be borrowed in order to fully leverage his position.

The user ends up with 0.1ETH LPed, 10.8 stETH supplied, and 9.9 ETH borrowed.

B) Yield

After making the initial market-making position, the vault may move assets between pools. The vault does this based on their performance. It ensures that market-making generates high yield.

Once set up, the recursive strategy yields without extra transactions*. This happens if the borrowing rate stays below the staking APR. More people are getting rewards as more ETH is staked. This spreads out the rewards and dilutes the stETH rate. But returns persist under these conditions.

*In the event of an extreme market crash, the collateral ratio may need adjustment. If liquidity reserve for stETH decreases, leveraged stakers may be liquidated due to potential depegging. To fix this, Swaap Earn vaults have liquidation protection. It lets them partly deleverage to counter such risks.

C) Withdrawal

We will illustrate with example below:

  • ETH Vault APR = 10%
  • At 1-year maturity, withdraw total of 1.1 ETH (principal of 1 ETH + interest of 0.1 ETH):

a) Having 0.1ETH LPed, 10.8 stETH supplied, and 9.9 ETH borrowed, to return the user's assets, the ETH LPed has to be withdrawn and the ETH borrowed first has to be repaid. To do so, first withdraw a small part of the collateral (e.g, 0.5 stETH);

b) Swap 0.5 stETH to 0.5 ETH on Paraswap or Odos;

c) Repay 0.5 ETH from the active debt;

d) Repeat steps A, B & C multiple times until all the debt has been repaid (or flashloan with stETH to get ETH in one go to pay back the debt, depending on which approach is more cost-effective), leaving 0.99 stETH as collateral and withdraw the remaining collateral 0.99 ETH (profit from recurving staking strategy: 0.09 ETH).

e) Withdraw 0.11 ETH LPed on Swaap Maker (profit from market-making strategy: 0.01 ETH)

f) Withdraw 1.1 ETH from the vault, and then send it to the user's wallet.