Brahma proposes Gearbox deploys a new credit manager with higher borrow limits (2000ETH, approx. 8% of the WETH pool supply) for Brahma Vaults. This will enable Brahma to scale and expand its offering of risk-managed vaults built on top of GearboxV2 more efficiently and drive further Gearbox TVL growth and pool utilisation.
Brahma launched the TopGear Vault built on Gearbox V2 on the 8th of November. The vault aims to unlock the composable leverage and capital efficiency that GearboxV2 provides and allows users to earn leveraged stETH yield on their FRAX deposits with real-time automated risk management of positions.
The core value proposition of the vault is three-fold.
- Real-time automated risk management of positions. While the power of composable leverage is endless, this leverage needs to be managed or the multitude of crypto risk factors (pegs, oracle deviations, SBF etc.) can lead a degen’s position into ruin. Those who don’t want to manage these risks themselves can simply deposit into TopGear and the vault takes care of the rest.
- The missing middle. With the current minimum borrow amounts, smaller degens may be missing out on composable leverage. For example, a user wanting to take a 5x ETH borrow would need starting capital of around $18000. TopGear gives these users access to Gearbox even though Ivan hates poor people. And this access comes with automated risk management and complete gas cost subsidisation.
- Withdrawal liquidity. Currently, the partial withdrawal of capital from a credit account is not enabled and users need to close their credit account to gain access to their capital. TopGear’s vault structure provides users improved withdrawal flexibility by utilising the liquidity in vault buffer funds as well new depositor liquidity.
The Vault had an initial cap of 350k FRAX and was filled within 72hours. In the weeks since, the vault has deployed this capital over two credit accounts and scaled into the leveraged long steth short eth position in a gradual manner to minimise risks. The vault has now reached its steady state at its current target leverage and the risk management and monitoring infrastructure is up-and-running.
Given the current eth pool maximum borrow limits of 600 ETH, the current ETH price and expected strategy leverage scaling TopGear to $1m TVL would require up to 5 separate credit accounts. Scaling to $10m TVL would require 50 separate credit accounts, hence the need for higher borrow limits in order to scale Brahma vaults in a more efficient manner.
Vault Page: https://degenv2.brahma.fi/vault/topgear
Vault Docs: https://docs.brahma.fi/products/degenvaults/topgear
Blog Post: https://blog.brahma.fi/introducing-topgear-vault-on-gearbox-v2/
Credit Account 1:
Credit Account 2:
Nr. of deposits: 45
Average Deposit Amount: 8364.53 (FRAX)
Median Deposit Amount: 2500.55 (FRAX)
Total Gas Costs Subsidised: 0.0948ETH
Gearheads may be concerned about the risks that larger credit manager debt limits present to the protocol. These risks include bad debt risks and borrower concentration risks.
We believe Brahma’s risk management infrastructure provides a significant first line of defence for the protocol against bad debt. We also believe incentives are aligned here. Clearly, a liquidation event is the worst outcome for one of Brahma’s vaults and the risk management framework is designed with capital preservation given the utmost priority. This means vault positions are automatically reduced well before being flagged for liquidation.
More details about Brahma’s approach to automated position management are broken down below:
- First and foremost, user capital must be protected. This means block-by-block monitoring of credit account health factors and positions are closed if the health factor drops below the hard limit. The key here is that de-risking should occur before a credit account is flagged for liquidation.
- Secondly, the position leverage is continuously monitored. The position leverage is used to assess the overall position risk by analysing the liquidation point relative to previous moves and the current health of stETH liquidity pools. Continuous monitoring of oracle prices, Curve Pool states and interest rates provides actionable strategy intelligence. (A range-bound methodology is used to minimise execution costs and prevent over-trading)
- Lastly, the differential between stETH staking yields and Gearbox WETH borrow rates are monitored and leverage adjusted to best capture opportunities.
For further details and a historical analysis of this framework in action, we refer readers to the TopGear blog post.