[Company Watch] Vesper, Simplicity is Beauty
Since its launch earlier this year, Vesper Finance has been quietly gaining momentum. To-date, its the 2nd largest yield aggregator according to Defillama, surpassing Yearn and a few other earlier reputable competitors:
Simplicity is Beauty
The design of Vesper is simple. Unlike Yearn’s complex ecosystem, Vesper offers users to deposit and earn, and nothing else. Its returns of live pools are listed on the front page of its website and the founders do not tweet much.
Vesper is run by a company rather than a decentralised project team. Vesper’s founder is Jeff Garzik, ex-Bitcoin Core developer and the co-founder of Bloq, a blockchain infrastructure solution company. The other core team members like Vesper’s co-founder Matthew Roszak, Jordan Kruger, blockchain engineer Gabriel Montes, principal engineer Manoj Patidar, were all from Bloq. In other words, Vesper is another division of Bloq, run by the same team of people.
As a public team, Vesper has a more well-thought vision and long-term plan (v.s. Andre’s test in prod), which offers stability to users, maybe at the cost of flexibility. It has proper audits, timelock, and risk scores (details from official website). It also believed that Vesper is a combination of professionalism and decentralisation, so the team reserves some management rights over the protocol, and will only transfer such rights over time to DAO.
Vesper, like Bloq, was also backed by VCs, including Kenetic Capital, and raised a strategic round of $2.5m recently (seemingly for 1,625,000 VSP, or $1.54 per VSP).
Strategies — Traditional but with Some Innovations
As an aggregator, Vesper has modules that allows it to interact with different platforms. Currently, according to its Gitbook page, “Each Vesper Grow strategy represents some combination of interactions across various DeFi platforms. This includes, but is not limited to: MakerDAO, Aave, Compound, and Yearn. “ Also in a medium article, Vesper explains that, “Our vWBTC front pool has interfaced with two different strategies: Maker-DAI-Aave and direct-to-Aave, swapping when one strategy outpaces the one currently in place.” That suggests Vesper either directly deposits users’ funds into Aave or pledge them in MakerDao for DAI and then deposit DAI into Aave.
In other words, Vesper’s strategies are similar to Yearn’s two versions: Earn and Vaults. Vesper also supports multi-pool, e.g. Investing into different platforms in one strategy, which is also similar to Yearn’s V2. A variation of Vesper is that its strategy can be programmed to potentially allow users to deposit coin A to earn coin B, e.g. deposit ETH to earn USDC.
Overall, Vesper classifies the risk levels (medium or high) of its strategies according to interactions with contracts, and conservative/aggressive according to the leverage ratio, i.e. liquidation risk.
Vesper’s platform token, VSP, is value-accrual. Vesper is not free: currently, it charges users 0.6% fee upon withdrawal and 15% performance fees. 95% of these fees collected will be used to buy back VSP and add to the staking pool of VSP. Currently, the VSP staking pool has a 83% annual return.
Revenue and Valuation
Taking the current TVL and the average yield of each pool, it’s estimated that Vesper will earn generate $28m in yields. 15% performance fees on these yields will be $4.2m in revenue to the protocol.
On the withdrawal fee, we have calculated backwards based on vVSP earnings that, based on the current vVSP earning rate, users withdrawn about 1.6% of TVL per day, or 5.7x of TVL per annum. (The calculation of withdrawal amount is using 1,770 VSP x $60.84 / 95% — performance fee earned per day, divided by 0.6% withdrawal charge.) This gives a withdrawal fee earning of $37.2m; combined with the performance fee of $4.2m, Vesper protocol revenue is $41.4m.
This gives VSP a PE ratio of 14.6x on a fully diluted basis (or 3.2x taking Coingecko’s current market cap of $129m). However, a large portion of the revenue comes from withdrawal fees, and it’s hard to make a judgement now whether this will be stable.
Rewards and Incentives
Based on the above screenshot, Vesper is buying back 1,770 VSP per day. For a 30-day month, this will be 53,100 VSP. This is far less than the current emmision of VSP of 294,266 (150,000 pool rewards and LP rewards of 144,266 per month), even Vesper had finished the aggressive VSP rewards in the first opening month.
Currently, liquidity providing incentives are given to 4 platforms, Uniswap, Sushiswap, 1inch and Loopring. On Sushiswap, there’s 215,800 VSP worth of liquidity and the monthly incentive is 75,000 VSP. This gives a monthly return of 34.8%, annualised to be 417%. The rewards will be claimable on Pure Finance after the team announces the Merkle ID for Pure Finance.
Uniswap now has 144,982 VSP worth of liquidity, and 50,000 VSP will be rewarded in one month, making the monthly and annualised returns comparable to Sushiswap. Uniswap LPs have to stake on Geyser and claimable under the competitive mechanism of Geyser.
It’s also worth highlighting that Vesper provided the ETH portion of liquidity on Sushiswap and Uniswap since inception, and did not go through any bootstrapping or public fundraising.
Conclusion
We have earlier commented that there will be more competitors of Yearn coming out. Vesper is a project by a credible team, with similar strategies, but simpler UI. Its token VSP are highly inflationary now like Curve, and whether its value will hold, depends largely on whether its business level will grow.
(Serenity Team, 25 March 2021, twitter: https://twitter.com/SerenityFund)
