DAI Dragon

Product Details & Payoff Scenarios

Deposit DAI and earn a high fixed yield.

Strategic Use Cases

• You’re holding DAI and looking to accumulate ETH

• You want to earn yield in DAI

• You’re comfortable buying ETH for a discount + yield when market conditions are favorable (-5%)

Conversion likelihoods are based on backtesting data (Jan 2023 - Jan 2024)

Note: The DAI Dragon product tracks the ETH/DAI price.

Payoff Scenarios

For each scenario below, assume the following:

$100K DAI investment in the 'DAI Dragon' Vault

DAI Dragon terms:

1. Investment duration: 27-day

2. Underlying asset = DAI

3. Strike price = 95%

4. APY = 50% (4% per 27-day vault)

5. ETH price on Day 1 = $1895

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Scenario 1: No Currency Conversion - Deposit DAI, Receive DAI

Example Scenario: ETH price movements during 27 day period

What happens in this scenario?

• TLDR: deposit DAI, receive DAI

• ETH price on Day 1 is $1895 and ends on Day 27 at $1920 which is above the strike price of $1800 (95% of Day 1 price). Thus the vault trade expires and no currency conversion occurs.

• The full principal that was deposited by the user is returned ($100K DAI). The user earns 4% yield paid in DAI (same currency as deposit)

• Deposit and yield are automatically reinvested for compounding returns into a new 27-day vault

What is the payoff for the investor?

• Initial deposit = $100K DAI

• Deposit returned = $100K DAI

• Yield earned = $4,000 DAI

  • APY = 50%, single 27-day vault yield = ~4%

• Total payoff = $104K DAI after 27 days (deposit + yield)

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Scenario 2: Currency Conversion - Deposit DAI, Receive ETH

Example Scenario: ETH price movements during 27 day period

What happens in this scenario?

• TLDR: deposit DAI, receive ETH

• ETH price on Day 1 is $1895, and on Day 27 ends below the strike price of $1800 (95% of Day 1 price). This results in a currency conversion.

• Upon conversion, ETH is purchased at a 5% discount to Day 1 prices at the strike price.

• The user also earns the 4% yield which is paid in ETH, effectively increasing the net discount to 9% for acquiring ETH

What is the payoff for the investor?

• Initial deposit = $100,000 DAI

• Deposit returned = 55.6 ETH

  • $100K DAI buys 55.6 ETH @$1800 (5% discount to Day 1 price)

• Yield earned = 2.2 ETH

  • 4% yield * $100K DAI deposit used to buy more ETH @$1800

• Total payoff = 57.8 ETH in 27 days

  • Net price discount on ETH = 9%

  • Average ETH acquisition price = $1730 ($100K DAI ÷ 57.8 ETH) vs. $1895 Day 1 price

Scenario 3: Price Moves Below Strike During Trade

Example Scenario: ETH price movements during 27 day period

What happens in this scenario?

• TLDR: deposit DAI, receive DAI

• ETH price on Day 1 is $1895 and on Day 10 moves below the strike price of $1800 (95% of Day 1 price). However this doesn't matter because currency conversion is only evaluated on Day 27. In this example, ETH rallies by Day 27 to end at $1920 which is above the strike price. Thus the vault trade expires and no currency conversion occurs.

• The full principal that was deposited by the user is returned ($100K DAI). The user earns 4% yield paid in DAI (same currency as deposit)

• Deposit and yield are automatically reinvested for compounding returns into a new 27-day vault

What is the payoff for the investor?

• Initial deposit = $100K DAI

• Deposit returned = $100K DAI

• Yield earned = $4,000 DAI

  • APY = 50%, single 27-day vault yield = ~4%

• Total payoff = $104K DAI after 27 days (deposit + yield)