The Exotic Vaults exchange

Figure 3 - The DEX

The Exotic Vaults DEX, as visualised in Figure 3, will use USDC as the stablecoin currency for all transactions on the protocol.

The cornerstone of the Exotic Vaults DEX will be the Vaults. Vaults have two components:

1. A collection of assets of similar characteristics, whose owners are represented by a Vault specific Vault Token

2. A Liquidity Pool composed of a Vault Token-USDC token pair funded by Liquidity Providers, whose funders are represented by a Vault specific Vault Liquidity Token

To create a Vault, any asset owner must deposit their ERC-721 token [4] and define a strategy. The strategy must define the characteristics of the assets the Vault will hold, most importantly provenance of the tokens themselves

The original asset owner will then receive an ERC-20 Vault Token [5] to represent their ownership in the Vault.

To enable trading of the Vault Token, a liquidity provider must deposit equal amounts of USDC to the initial value of the Vault Token [6]. In a best case scenario, the first liquidity provider will be one of the initial Vault Token holders, a third party with large cryptocurrency reserves who will have purchased the Vault Token privately from a Vault Token holder to seed the Vault. Subject to DAO approval, the first Vaults may be seeded using treasury funds earmarked for liquidity..

The liquidity provider will then receive Vault Liquidity Tokens [7] representing the liquidity they deposited in the Vault. Liquidity providers will be able to redeem those tokens back to the Vault at any time in exchange for the token pair locked in the Vault at the current balance ratio. In the initial phases of the DEX, liquidity providers will receive $XVAULT tokens for every month they lock liquidity within any Vault on the platform, regardless of the use of the Vault [4]. Liquidity providers will of course benefit from a proportional percentage of the fees levied on every trade that occurs within the vaults they provide liquidity to, as well as an entry fee whenever someone joins a vault [8].

After seeding of the initial liquidity pool within the Vault, any USDC or Vault Token holders will be able to provide further liquidity to the Vault. To simplify this process, a “zap” solution will be implemented, allowing token holders to provide one side of the liquidity, and the Vault automatically swapping for its pair without any calculations needed by the liquidity provider.

Once both sides of the liquidity for the Vault’s Liquidity Pool are provided at an appropriate volume, Secondary Traders can begin to buy and sell ownership of the Vault at the standard k = x * y formula.