Introducing Vaults and Revenue Sharing
From the beginning, Temple has had one mission in mind: To be a low-risk, best-in-market DeFi solution for investors. Temple CORE has been designed to accomplish this mission while solving the sustainability issue inherent in the previous yield token model.
Temple CORE evolves the existing Temple protocol design by shifting away from the yield token model and introducing the concept of revenue sharing vaults. This vehicle enables $TEMPLE holders to harness the investment power of Temple’s treasury and earn a share of the revenue that it generates simply by locking $TEMPLE into the vault(s) of their choosing.
In addition to leveraging exposure to market-leading DeFi investment strategies through Temple CORE, users benefit from automation and reduced gas costs in the process. The protocol does all the work with no user maintenance required — just stake and chill.
In this section, we will walk through the basic anatomy of Temple CORE to get a fundamental understanding of how it works.
The overarching concept of Temple CORE is simple: TempleDAO earns revenue which is then distributed to $TEMPLE stakers. We’ll begin our exploration of the inner workings of this process by understanding the Temple Treasury.
At the heart of the Temple CORE model is the Temple Treasury, which generates revenue for $TEMPLE stakers.
The treasury is made up of assets that fall into three main categories:
- Primary assets: $FRAX, $FEI
- Strategic assets: $FXS, $CRV, $CVX
- Temporary assets: varied, earned from investments, and converted to one of the above
Primary assets are utilized in Temple’s primary farming strategy, which reflects the ethos of TempleDAO on the whole– safe, low risk. Strategic assets are utilized in reinvestment strategies, which provide additional layers of revenue generation. Temporary assets come from vote bribe collection and any yield earned which doesn’t fall into the primary or strategic asset categories.
Primary Farming Strategy
The primary farming strategy is the baseline or default revenue strategy for yields that get distributed to $TEMPLE holders staked in vaults. The strategy currently involves depositing $FRAX into the FRAX3CRV pool on Curve Finance, staking the Curve LP (liquidity pool) tokens on Convex, and earning $CRV and $CVX yield in addition to LP provider fees on Curve.
Over time, the primary farming strategy will include more investments. Templars interested in proposing potential investments or getting in on these discussions may do so in the Enclave of Logic.
As mentioned above, the primary farming strategy currently generates yield in the form of $CRV and $CVX. The reinvestment strategy goes a step further in this case by locking $CRV and $CVX in Convex, earning an additional layer of yield on top. This is achieved by selling half of the $CRV tokens into $cvxCRV and adding liquidity to the cvxCRV/CRV Curve pool to earn more $CVX and $CRV. The $CVX yields are auto locked on Votium and delegated to receive bribes. The reinvestment strategy is applied to multi-month vaults, explained below.
Revenue Sharing Vaults
Under the Temple CORE model, $TEMPLE holders earn a share of revenue by locking their $TEMPLE into vaults. These vaults will become available in varying lock term lengths to suit user preference.
Vaults operate on a monthly schedule regarding revenue allocation, regardless of lock term length. Revenue earned is allocated to the vaults at the end of each month. However, what happens after that allocation depends on the lock term length of the vault.
1 Month Vault
The shortest duration that a user can lock $TEMPLE is one month. At the end of the month, revenue allocated to this vault is liquidated to $TEMPLE and distributed to users locked in the vault during the applicable lock term.
Users lock $TEMPLE in these vaults for multiple months. At the end of each month, revenue allocated to these vaults will be reinvested on behalf of the vault (reinvestment strategy) for the duration of the lock term length, compounding the revenue earnings. At the end of the lock term, the total revenue earned for the vault is liquidated to $TEMPLE and distributed to the users who were locked in the vault for the applicable lock term.
Initially, Temple CORE will launch with the one-month vault option. Soon after, the team will roll out multi-month vaults.
From a user perspective, so far, we know the following:
- The Temple Treasury is the engine that generates protocol revenue via its primary farming strategy.
- Users lock $TEMPLE into the vault(s) of their choosing to earn a share of the revenue.
- Revenue earned is allocated to vaults at the end of each month.
- For multi-month vaults, revenue allocated to them each month is reinvested for the duration of the vault lock term to compound the revenue earnings of those vaults.
- At the end of any given vault’s lock term, the total revenue allocated is liquidated to $TEMPLE, which in turn is distributed to the users in each vault.
At a foundational level, locking $TEMPLE into vaults is a simple way for users to leverage exposure to leading DeFi investment strategies via the Temple Treasury without the hassle of managing it all themselves. Nevertheless, this is not the only advantage. Let us dive even deeper into how this vault system works to understand this further.
To lay the groundwork for this part, let’s align on some foundational concepts that will be referenced throughout the remainder of this article.
- Temple Treasury — The engine that generates protocol revenue.
- Vaults — Users lock $TEMPLE into vaults to earn a share of that revenue.
- Entry/Exit Window — The span of time at the beginning of each vault cycle where a user may deposit or withdraw $TEMPLE into or out of a vault.
- Base Revenue — The revenue that the Temple Treasury generates via the primary farming strategy and reinvestment strategy.
- Base Revenue Share — The amount of base revenue “owned” by each vault, based on weighting explained below.
- Vault Multiplier — A mathematical factor increasing your base revenue share if you stake in a vault of longer duration.
- Final Revenue Share — The amount of revenue an individual user receives from a vault at the end of each vault term.
Vault Revenue Allocation
As we know, the base revenue generated by the Temple Treasury is allocated to Temple Vaults at the end of each month. But how is the allocation determined? Let’s dig into this with a hypothetical example. We’ll start by assuming three different vaults with an equal amount of $TEMPLE initially locked into each.
3 Vaults with 750 $TEMPLE equally dispersed and locked across them:
- Vault 1 (1 month lock, no multiplier) — 250 $TEMPLE locked in vault
- Vault 2 (multi-month lock, 1.1x multiplier) — 250 $TEMPLE locked in vault
- Vault 3 (multi-month lock, 1.3x multiplier) — 250 $TEMPLE locked in vault
To determine the amount of base revenue allocated to each vault, we must first calculate a proportional weighting for each vault. To achieve this, we must consider the amount of $TEMPLE locked in each vault, factoring in multipliers.
Multipliers are applicable to the specific vault lock term lengths and applied to the amount of $TEMPLE locked.
We can now calculate the locked $TEMPLE weightings for each vault:
- Vault 1 = 250 $TEMPLE x 1 = 250 weight
- Vault 2 = 250 $TEMPLE x 1.1 = 275 weight
- Vault 3 = 250 $TEMPLE x 1.3 = 325 weight
To calculate the total base revenue allocated to each vault, we must sum the total number of weightings first. In our example, that looks like:
- 250 + 275 + 325 = 850
With this sum total figured, we can now calculate the percentage of total base revenue allocated to each vault:
- Vault 1 = 250/850 = 0.294 = 29.4%
- Vault 2 = 275/850 = 0.324 = 32.4%
- Vault 3 = 325/850 = 0.382 = 38.2%
Taking these percentages into account, we can now determine how much base revenue is allocated to each vault. For our example, let’s say that in month 1, the value of total base revenue generated is $1000. Using the vault weightings we have just calculated, the base revenue is allocated to the vaults at the end of the month as such:
- Vault 1 (29.4% allocation) = $294
- Vault 2 (32.4% allocation) = $324
- Vault 3 (38.2% allocation) = $382
As was pointed out earlier in this section, what happens to the allocated revenue for each vault is specific to the applicable vault lock term. Continuing with our example, let’s recap that using the figures we have calculated here for month 1:
- For Vault 1 (1-month lock term), $294 worth of base revenue is liquidated to $TEMPLE and distributed to the users locked in the vault during month 1.
- For Vault 2 (multi-month lock term), $324 worth of base revenue is reinvested on behalf of the vault. This reinvestment of allocated base revenue continues each month until the end of the vault lock term. At this time, the total revenue allocated to the vault is liquidated to $TEMPLE and distributed to the users locked in the vault for that lock term.
- For Vault 3 (multi-month lock term), $382 worth of base revenue is reinvested on behalf of the vault. This reinvestment of allocated base revenue continues each month until the end of the vault lock term. At this time, the total revenue allocated to the vault is liquidated to $TEMPLE and distributed to the users locked in the vault for that lock term.
Users can claim revenue more frequently by locking $TEMPLE in a one-month vault. But by locking into multi-month vaults for longer durations, users benefit from having a larger share of revenue relative to the size of their $TEMPLE holdings due to vault multipliers and compounding reinvestment.
Vault Revenue Distribution
With a fundamental understanding of how base revenue is allocated to vaults under our belts, let’s now take a closer look at what happens when it’s time to distribute it to users. We’ll refer to the revenue distributed to users as the final revenue share.
Conversion To $TEMPLE
As we’ve established, users receive their final revenue share in the form of $TEMPLE tokens. But the base revenue earned by each vault is made up of multiple different tokens, which must be liquidated to $TEMPLE. To accomplish this, all base revenue is first liquidated to $FRAX and $TEMPLE tokens are then market bought from the Temple AMM and subsequently distributed to stakers.
In combination with appropriate Temple Growth policy specs, this method ensures that new $TEMPLE is only minted when price is sufficiently high.
Users receive their final revenue share directly into the vault(s) they are staked in, automatically adding to their staked $TEMPLE holdings. This means that no additional transactions are required if they choose to keep their $TEMPLE staked for another vault lock term and rewards auto-compound in that instance.
An individual user’s final revenue share is a percentage of the vault, determined by the weighting of their staked holdings relative to the total holdings staked in the vault. In terms of accounting, for users staking into a vault after the start of the vault’s entry/exit window, a joining fee is calculated and applied to the staked balance upon entry to adjust their revenue share weight fairly.
The fee is equivalent to the rewards that would have been earned up until the point of entry, had they been staked from the beginning.
To illustrate the concept, consider an example where two Templars enter a vault with equal amounts at separate times:
- Templar A is staked in the vault with 1000 $TEMPLE since the start of the entry/exit window. No fee is taken because this user will be staking for the entire vault cycle.
- Templar B enters the vault at the end of the entry/exit window with 1000 $TEMPLE. Consider for this scenario that this Templar would have earned 5 $TEMPLE up to that point if they had been staked from the beginning. A joining fee of 5 $TEMPLE will be applied and the balance they enter the vault with will be 995 $TEMPLE.
In the above example, even though Templar A and Templar B staked the same amount of $TEMPLE, Templar B has a slightly lower final revenue share weight for the vault cycle due to not being staked as long during the vault cycle. This design ensures a fair system for early stakers in any given vault that have earned a little more than those who join the vault later. The joining fee amount for any given entry is always visible on the “Stake” section of the vault user interface, so users can always see the information before staking.
Claiming And Unlocking
When users are ready to claim $TEMPLE from a vault, they may do so within the entry/exit window of any vault lock term. The amount of $TEMPLE claimed is up to the user, and any unclaimed $TEMPLE will remain in the vault and continue to earn revenue as described. Any $TEMPLE not claimed within the entry/exit window will be locked again for the duration of the next vault lock term.
Temple CORE evolves the Temple protocol model into an infinitely sustainable revenue sharing system while adhering to the core principles established at genesis. Simply put, users lock $TEMPLE into vaults and receive revenue-fueled yield in return.
- TempleDAO’s treasury composed primarily of $FRAX is the engine that generates base revenue via the primary farming strategy.
- Base revenue is allocated to vaults, and at the end of each vault lock term, the revenue is distributed to users locked in the vault in $TEMPLE tokens.
- Multi-month vaults enable users to earn a larger revenue share thanks to multipliers and compounding reinvestment.
- Users save gas through protocol management of investment strategies and automatic deposit and vault lock term rollover, minimizing network transactions.
- Protocol health support and treasury growth are built into the system.
We’re excited to usher in a new era of sustainable yields at TempleDAO and can’t wait to share it with you, Templars!