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A deep dive into Vector Reserve

Vector Reserve

What is Vector Reserve?

Vector reserve is the protocol behind vETH. Think of Vector as Dr. Frankenstein and vETH as Frankenstein’s monster. Vector blends and taps into a mix of innovative DeFi strategies to create one behemoth of a reserve currency: vETH.

Introducing vETH: DeFi’s first Liquidity Position Derivative (LPD)

LPD? Wus that?

It’s an acronym for Liquidity Position Derivative. It’s a term used for tokenized assets that derive their value from underlying Liquidity Positions (LP). For example, when you deposit ETH + stETH into a liquidity pool, you get a Liquidity Position (LP). If you tokenize this LP position, you get an LPD. Simple, right?

vETH, Vector’s brainchild, is an LPD. You can look at it as an Ethereum index. But with yield and points. Doesn’t get any better than that, so we may just be looking at the king of LPDs here!

How does vETH work?

Being an ETH index, vETH accrues its value from native ETH as well as ETH-based LPs.

These ETH-based LPs are one of the following:

  • LST/ETH pairs, meaning a liquid staked token version of ETH paired with native ETH, or;
  • LRT/ETH pairs, meaning a liquid REstaked token version of ETH paired with native ETH

It’s hard to pick an LST or LRT of choice these days. That’s why it’s so powerful that vETH offers very high yield while still spreading your risk through diversification. vETH allows you to hedge your risk over a number of LSTs/LRTs while still optimizing your yield.

Sounds interesting? To start reaping the rewards you deposit any of the approved LSTs or LRTs on Vector Reserve’s Dapp in order to mint vETH.

After minting, you have two options:

  • stake your vETH in exchange for svETH to start earning yield
  • add liquidity to vETH-denominated liquidity pools from DeFi providers such as Curve and Timeswap to start earning LP rewards of up to 70%

What makes vETH so great?

For me, the absolute biggest benefit is the fact that you earn points for multiple partner protocols. Currently, vETH stakers are earning:

  • EigenLayer Points
  • EtherFi Loyalty Points
  • Kelp Miles
  • Renzo ezPoints
  • Puffer Points

Earning all of these at once is priceless for me. Take EigenLayer for example, their pools are currently closed so you have no way to earn EigenLayer points directly from them.

All of these points are especially interesting considering that these points could very well net you 3-4 figure airdrop depending on your size. Or more, wink wink. Of course, I place an emphasis on the word “coule”, as there are no guarantees for an airdrop.

However, it gets better. Points are not the only thing that this puppy poops out. By holding and staking vETH you also get:

  • Native yield on the underlying re-staked ETH
  • Yield from LP fees & DEX emissions
  • Future yield from SuperFluid Staking, which will be implemented as soon as EigenLayer enables this. In short, it allows Vector to start earning liquidity pool rewards and staking rewards at the same time by restaking the underlying LP positions that vETH is backed by. For example; ETH/stETH.

Imagine all of the benefits listed above, accessible to you in just a couple clicks that are needed to mint vETH 😉

Value capture for Vector Reserve’s token: $VEC

vETH sounds so good that you almost forget there is a native token for the protocol that makes this all possible. After all, everyone knows the name Pinokkio but not everyone knows the name of its creator (Gepetto).

Let’s take a look at some of the impressive stats of the token and the protocol:

This is a snapshot at time of writing (March 12th 2024). $VEC is sitting at a $28.4M market cap with over $40M in TVL, with $550K in history yield paid out to svETH holders. That treasury balance is just simply insane as well.

A token is only as viable as its value capture. In the case of $VEC I think that part is covered; 20% of yield generated by the vETH collateral reserves is captured by VEC. Either as buyback-and burns or by staking yield.

Keep in mind that the backing of vETH, and thus the backing for VEC, keeps growing and growing. The thicker their LP positions, the better the intrinsic value of VEC. Protocol fees are routed toward strengthening the LP positions and boosting the staking yield for VEC.

While the stats above are already quite impressive, the big ecosystem that’s part of Vector Reserve vastly stabilizes and accrues inherent value to $VEC as well:

What’s next for Vector Reserve? Catalysts to look forward to

The Vector team has been shipping hard ever since they first launched their protocol and its baby vETH.

Some upcoming catalysts include:

> Multi-chain expansion. More specifically: to Metis! Vector’s proposal was successfully approved and vMETIS is coming soon. 

> Technically not upcoming, but 10 hours before posting this article, the team announced that they burned 2M USD worth of VEC tokens. That’s an insane amount considering the $VEC market cap is sub $30M right now.

> vBTC is  in the works, which will be a BTC Liquid Staking Token. Just in time for the glorious Bitcoin run. What if all that value is funneled back into $VEC….

> veVEC (vote-escrowed VEC) is being developed as a time-locked version of VEC. Now you hold the power to take in or distribute incentives (bribes) with regard to how the protocol directs liquidity.

Thanks for reading, anon <3

Want to learn more about Vector Reserve? Check out their channels:




Disclaimer: I have a paid partnership with Vector Reserve. I am not a financial advisor, just an anon with a RGB keyboard.

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