Tulip Protocol is the first yield aggregation platform built on Solana with auto-compounding vault strategies. The dApp (decentralized application) is designed to take advantage of Solana’s low cost, high efficiency blockchain, allowing the vault strategies to compound frequently. This allows stakers to benefit from higher APYs without requiring active management.
What is the unique selling point?
Currently, Tulip Protocol (formerly known as SolFarm) supports compounding vaults for Saber, Raydium, and Orca. That is over 40 active vaults, and the team is actively adding more.
When assets are deposited into the vault then shares are generated. This architecture enables other teams to build on top of Tulip for further DeFi composability or stacking of strategies. However, to avoid anyone trying to game the vault’s rewards these shares are locked for 50 minutes. Once the shares are unlocked, it’s possible to unstake them.
Leveraged Yield Farming
Much like taking a margin position when trading crypto, leveraged yield farming enables you to borrow against collateral to increase your position size. Currently, Tulip supports up to x3 on the platform.
As you can see the projected APY is much more attractive than in the regular vaults. The following diagram from Tulip’s documentation outlines how leveraged yield farming works:
Note that this type of farming comes with risk of liquidation. You need to manage your risk and check the dashboard regularly on any leveraged farming position. The required Loan to Value ratio (LTV) is 85%. Any user that does not maintain their LTV value will face liquidation. Its a way for the protocol to ensure lending funds are safe and that lenders will contain to deposit into the platform.
Interest is collected on your deposits, which are lent to LYF customers. This annual percentage yield (APY) represents your yield.
Untimely liquidation, in which a liquidation occurs, but there are insufficient assets to pay back lenders in full, is a risk that lenders may face. They liquidate at 85% Loan to Value, leaving a 15% cushion, which has shown to be more than adequate so far.
V2 Autovaults is Tulip’s latest upgrade in autocompounding vault system. The rearchitecture allows for more flexibility.
Vault shares are generated when assets are deposited, this allows for other protocols to compose on Tulip. To avoid gaming of vault compounding rewards, vault shares are locked for 20 minutes. Once the timer has elapsed, funds can be released and unstaked at any time.