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On November 1, 2022, THORChain nodes began the ceremonial vote for the addition of ‘THORChain Savings Vaults’ to the protocol’s list of offerings. To approve the addition, 2/3rds of the THORChain nodes must signal their support for said vaults. When this 2/3rds majority is reached, admin mimir will be the vehicle to enable vault yield accrual. The admin mimir can be overridden by the nodes at a later date. For now, however, once the 2/3rds is reached it is the developers wish to control it for a while in case any system bugs are discovered during rollout. [See, e.g. Kadesh. Nodes Begin Voting On Savings Vault. (Accessed November 4, 2022)].

Before going any further, why are these ‘Savings Vaults’ such a big deal. Their purpose is two-fold: 1. the promotion of network growth by incentivizing more synths to be created as more liquidity is added in the pools making them deeper thereby attracting even more liquidity and creating cheaper swaps, all having the effect of increasing TVL; and, 2. to increase L 1 assets to the continuous liquidity pools by removing exposure to Rune. [See, e.g. GrassRoots Crypto. THORChain Yield Bearing Synths and POL. (Accessed November 4, 2022)].

To accomplish these purposes, the previously non-yield bearing synths must become yield bearing (any yield now earned by a synth’s pool ownership presently is passed on to the LP, not the owner). To make the synth yield bearing one must first acquire the synth and then lock it to a vault. Synths locked in this fashion will generate yield, with the network minting additional synths into the vault. From a conceptual standpoint, this follows the established ERC-4626 vault standard. [See, e.g. THORnode. Single-sided Asset LPs without RUNE exposure. (Accessed November 4, 2022)].

Note, that as synth exposure is single-asset, there should be zero exposure to impermanent loss, and as the locked synth holder takes on significantly less risk than a locked LP, yield is reflected downward (yield would be 50% of the locked position with the remaining 50% inuring to double-sided LPs). [See, e.g. Id].

As synths are now yield bearing, it is a safe assumption that the demand for them will ‘expode’. This ensures two results: 1. that the synth cap will be hit; and 2. non-allowance of further asset deposits into the pools even if the pools have available space. So, how is this dilemma rectified? The answer is simply employ the protocol-owned liquidity within the system. [See, e.g. Id].

Although the 170 million Rune in the protocol reserve is used mainly for block rewards, it can be made available for other uses within the system. On a per-pool basis, the network will monitor the synth utilization. If the synth utilization is greater than the utilization cap minus 5%, under these circumstances the reserve (POL) would asymmetrically add liquidity to lower the synth utilization back below cap (minus 5). If the synth utilization is below the utilization cap, the reserve (POL) will asymmetrically remove liquidity to restore the cap (provided the reserve has an existing LP position in the pool). [See, e.g. Id].

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There remains several pros and cons meriting discussion concerning this mechanism. On the pro side of the coin:

• Investors may earn asset on asset returns (BTC on BTC, ETH on ETH, etc.) without assuming any exposure to Rune risk.
• There are no significant changes to protocol UI.
• The reserve assumes a portion of the leveraged rune price risk in place of the LP’s. The reserve correspondingly earns a yield to counter this risk.
• There is no change required to the existing pool structure, mathematics, or yield/reward systems. There likewise is no change relative to ownership of any component asset.
• The reserve experiences increased longevity as a result of yield generated.
• Synth savers entering or exiting the system are required to pay a small slip-based fee. The fee is intended to prevent price dislocation as a result of a mass exodus as well as to encourage arbitrage thereby tightening prices.
  [See, e.g. Id].

And on the con side of the coin:

• Rune deployed to the pool by the reserve has the effect of reducing block rewards in the normal course.
• As the reserve is taking on all of the price risk associated with acquisition of all required assets by the protocol operation, the nature of the reserve’s capital may shift to that resembling a crypto ETF of some type.
• Buy/sell pressure on Rune is created by every entry/exit of a pool by the reserve. Additionally, when the price of Rune decreases, the reserve asym will add Rune to the pool toward achieving equilibrium but creating sell pressure upon the Rune asset. Correspondingly, when the price of Rune increases, the reserve asym will withdraw Rune from the LP position within the pool. thereby creating buy pressures on the Rune asset.
  [See, e.g. Id].

“The additional dynamics of Savers Vaults and POL may mean the target Incentive Pendulum of 2 bonded RUNE : 1 pooled RUNE may not be the equilibrium anymore. However, the hard cap will ensure a minimum deterministic pricing of 2x non-RUNE TVL. Time will tell, but it could be that an equilibrium deterministic pricing will float between 2 to 3x non-RUNE TVL” [LP University. Under the Hood: Savers Vaults & Protocol Owned Liquidity. (Accessed November 4, 2022)].

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It is worthy to note that no savers vault will be available for native Rune. Savers vaults will only be available for gas assets of the following blockchains: BTC, ETH, BNB, BCH, DOGE, LTC, ATOM, and AVAX.

TABLE OF AUTHORITIES

• Kadesh. Nodes Begin Voting On Savings Vault. (Accessed November 4, 2022).
• GrassRoots Crypto. THORChain Yield Bearing Synths and POL. (Accessed November 4, 2022).
• THORNode. Single-sided Asset LPs without RUNE exposure. (Accessed November 4, 2022).
• THORNode. Singlesided LP with deposit insurance. (Accessed November 4, 2022).
• LP University. Under the Hood: Savers Vaults & Protocol Owned Liquidity. (Accessed November 4, 2022).
• THORChain Docs. Yield Bearing Synths. (Accessed November 4, 2022).
• THORChain Docs. Deterministic Value of RUNE. (Accessed November 4, 2022).
• THORChain. Twitter Thread. (Accessed November 4, 2022)