# USDC Vault

**Status: Live (Phase 1)**

The USDC Vault is Dawn Vault's flagship product. Deposit USDC and earn optimized yield through Kamino Multiply, lending aggregation, and delta-neutral strategies — all managed automatically.

## Overview

| Parameter           | Value                                               |
| ------------------- | --------------------------------------------------- |
| **Deposit Asset**   | USDC                                                |
| **Target APY**      | 9-16% (up to 20% during high FR periods)            |
| **Base Layer**      | Kamino Multiply (primary) + USDC Lending (overflow) |
| **Alpha Layer**     | SOL Delta-Neutral (conditional)                     |
| **Rebalancing**     | Daily to weekly                                     |
| **Decision Metric** | Multiply spread + SOL Funding Rate                  |

## How It Works

```mermaid
graph LR
    D[Deposit USDC] --> V[USDC Vault]
    V --> BL[Base Layer<br>Kamino Multiply + Lending<br>9-16% APY]
    V --> AL[Alpha Layer<br>SOL Delta-Neutral<br>15-20% APY]
    BL --> KM[Kamino Multiply<br>ONyc/USDC ~16%<br>USDG/PYUSD ~9.5%]
    BL --> KL[Kamino Lend]
    BL --> JL[Jupiter Lend]
    AL --> SP[SOL Spot Buy<br>→ dawnSOL]
    AL --> SH[SOL-PERP Short<br>Binance / Bulk Trade]
```

***

## Base Layer — Kamino Multiply (Primary)

Leveraged stablecoin loops via Kamino to earn native collateral yield + borrow rewards.

### Mechanism

1. Deposit a yield-bearing stablecoin as collateral on Kamino
2. Borrow USDC against the collateral
3. Swap borrowed USDC back to collateral and re-deposit
4. Repeat to reach the target leverage multiple
5. Net yield = (Collateral native yield × leverage) − borrow cost

### Active Pools

| Pool                    | Market      | Effective APY  | Leverage | Notes                            |
| ----------------------- | ----------- | -------------- | -------- | -------------------------------- |
| **ONyc/USDC** (Primary) | RWA Market  | \~16% @ 2.5x   | 2.5x     | ONyc native yield via Onre       |
| **USDG/PYUSD** (Backup) | Main Market | \~9.5% @ 5.75x | 5.75x    | Fallback when ONyc/USDC degrades |

### Market Scanner & Pool Switching

The Market Scanner continuously monitors candidate pools and recommends switching only when:

* 24h moving-average APY advantage is large enough to repay estimated switch cost within the configured payback window (7 days)
* The destination candidate clears the live risk gate
* Minimum holding period (3 days) has elapsed

### Multiply Risk Scoring

The **Multiply Risk Scorer** evaluates each pool on **4 dimensions** as a separate risk axis. Risk does not reduce displayed APY — it **gates allocation**, trims oversized positions, and forces exits at explicit score thresholds.

| Dimension                 | Weight | What It Measures                                              |
| ------------------------- | ------ | ------------------------------------------------------------- |
| **Depeg Risk**            | 30%    | Peg deviation + 24h volatility + 7d tail risk                 |
| **Liquidation Proximity** | 30%    | Distance to liquidation at target leverage + stress scenarios |
| **Exit Liquidity**        | 20%    | Swap slippage on emergency exit (via Jupiter)                 |
| **Reserve Pressure**      | 20%    | Reserve utilization + capacity ratios + TVL safety checks     |

**Risk thresholds (live):**

| Score | Action                                                        |
| ----- | ------------------------------------------------------------- |
| < 75  | Normal operation                                              |
| ≥ 75  | Stop new deposits + trim position to dynamic `maxPositionCap` |
| ≥ 90  | Full exit / emergency deleverage                              |

Candidates with score ≥ 75 are excluded from switch targets.

### Deleverage Protection

Multi-stage health rate protection prevents liquidation:

| Health Rate  | Action                                   |
| ------------ | ---------------------------------------- |
| Target: 1.15 | Normal operation                         |
| < 1.10       | Soft deleverage — reduce 20% of position |
| < 1.05       | Emergency full deleverage                |

***

## Base Layer — Lending (Supplementary)

USDC lending on Kamino / Jupiter Lend (3-8%) absorbs capital that cannot be added to Multiply, and enforces diversification.

### Supported Protocols

| Protocol         | Rate Range | Notes                                    |
| ---------------- | ---------- | ---------------------------------------- |
| **Kamino Lend**  | 3-8%       | Established protocol with deep liquidity |
| **Jupiter Lend** | 3-8%       | Growing protocol with competitive rates  |

### Lending Risk Scoring

The **Lending Risk Scorer** evaluates each protocol on **5 dimensions** with APY penalty adjustment:

| Dimension                 | Weight | What It Measures                                                   |
| ------------------------- | ------ | ------------------------------------------------------------------ |
| **TVL Scale**             | 30%    | Protocol total value locked — larger TVL indicates stability       |
| **Protocol Maturity**     | 20%    | Time since launch and operational track record                     |
| **Reserve Utilization**   | 25%    | Borrow utilization rate — high utilization signals withdrawal risk |
| **Deposit Concentration** | 15%    | Depositor concentration — high concentration increases whale risk  |
| **Incident History**      | 10%    | History of hacks, exploits, or operational failures                |

### Protocol Circuit Breaker

Autonomous safety mechanism triggering auto-exit:

| Trigger                    | Action                               |
| -------------------------- | ------------------------------------ |
| TVL crash (-20% in 1 hour) | Immediate withdrawal                 |
| Oracle drift detected      | Pause new deposits + alert           |
| Withdrawal failure         | Immediate withdrawal attempt + alert |

### Protocol Diversification

Maximum **60% allocation cap** per single protocol.

***

## Alpha Layer — SOL Delta-Neutral

A market-neutral strategy that captures SOL funding rate payments while maintaining zero directional exposure.

### Mechanism

1. Split USDC 50/50: half for spot, half for margin
2. Buy SOL spot → convert to **dawnSOL** (Dawn Labs' LST, \~7% staking yield)
3. Open equal-sized SOL-PERP short (1x leverage — margin = position size)
4. Net SOL exposure = 0: spot long cancels out perp short
5. Collect funding rate payments (when positive) + staking rewards

**No leverage is used.** For a $20,000 allocation: $10,000 buys SOL spot → dawnSOL, $10,000 serves as margin for SOL-PERP short. Liquidation risk is effectively zero.

**Perp venue:** Currently **Binance Futures** (default). A **Bulk Trade** connector is implemented and under testnet evaluation — Bulk is a Solana-native on-chain perp DEX that would eliminate CEX counterparty risk. Production migration is planned after Bulk's mainnet launch and security audit.

### Entry / Exit Logic (Live Config)

| Signal             | Condition                          | Action                   |
| ------------------ | ---------------------------------- | ------------------------ |
| **Entry**          | SOL FR > 10% annualized for 3 days | Allocate up to 70% to DN |
| **Exit**           | SOL FR < 0% annualized for 3 days  | Close positions          |
| **Emergency Exit** | SOL FR < -10% annualized           | Immediate full close     |

A "day" means one complete UTC day with all 3 expected 8-hour funding samples recorded. Partial days are ignored. Emergency exit keys off the latest funding print and does not wait for a full day.

### Yield Composition

| Source               | Estimated APY | Condition                                         |
| -------------------- | ------------- | ------------------------------------------------- |
| Funding Rate (net)   | 8-23%         | When FR is positive                               |
| dawnSOL Staking      | \~7%          | Always-on while position is held                  |
| **Weighted Average** | **15-20%**    | During favorable FR periods (allocation-weighted) |

### Backtest Reference

See [Backtest](/dawn-vault/backtest.md) for full methodology, results, and how to run it yourself.

***

## Dynamic Allocation

The vault automatically adjusts the split between Base and Alpha layers using a state machine:

```
BASE_ONLY ←→ BASE_DN
```

| From       | To              | Condition                                      |
| ---------- | --------------- | ---------------------------------------------- |
| BASE\_ONLY | BASE\_DN        | SOL FR > 10% annualized for 3 consecutive days |
| BASE\_DN   | BASE\_ONLY      | SOL FR < 0% annualized for 3 days              |
| BASE\_DN   | EMERGENCY\_EXIT | SOL FR < -10% annualized (no time condition)   |

### Base Layer Internal Allocation

Within the Base Layer, capital flows in a **Multiply-first / Lending-second** mode:

1. `CapitalAllocator` sends deployable USDC to Kamino Multiply first
2. `BaseAllocator` manages lending across Kamino / Jupiter for overflow, diversification, and withdrawal buffer
3. Wallet buffer (5%) is preserved before deployment

***

## Performance

| Metric                | Value                          |
| --------------------- | ------------------------------ |
| **Annualized Return** | 14.04%                         |
| **Sharpe Ratio**      | 27.01                          |
| **Max Drawdown**      | 0.23%                          |
| **Test Period**       | Jan 2024 — Apr 2026 (821 days) |

Multiply generates 79% of total returns. DN contributes a smaller but consistent positive amount during favorable funding rate periods.

For full methodology, scenario analysis, and limitations, see [Backtest](/dawn-vault/backtest.md).

***

## Risk Management

| Layer                        | Mechanism                                           | Trigger                                                                           |
| ---------------------------- | --------------------------------------------------- | --------------------------------------------------------------------------------- |
| **Circuit Breaker**          | Auto-exit from Lending layer                        | TVL crash (-20%/1h), oracle drift, withdrawal failure                             |
| **Multiply Risk Scorer**     | Separate risk axis for candidate / position scoring | 4 dimensions: depeg risk, liquidation proximity, exit liquidity, reserve pressure |
| **Multiply Risk Policy**     | Score-based rebalance rules                         | < 75 → normal, 75-89 → stop adds + trim, ≥ 90 → full exit                         |
| **Lending Risk Scorer**      | APY penalty adjustment                              | 5 dimensions: TVL, maturity, utilization, concentration, incidents                |
| **Protocol Diversification** | Max 60% allocation cap                              | Single-protocol lending exposure limit                                            |
| **Multiply Deleverage**      | Staged health rate protection                       | Target 1.15, < 1.10 → soft deleverage (20%), < 1.05 → emergency full deleverage   |
| **DN Risk Manager**          | FR reversal detection + auto-exit                   | FR < -10% annualized → immediate close                                            |
| **Guardrails**               | Kill switch, SOL balance, price freshness           | Prevents tx fee exhaustion and stale data decisions                               |

For comprehensive risk information, see [Risk & Security](/dawn-vault/risk-and-security.md).


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