This section provides the formal definitions and equations that govern Blend’s strategies, as detailed in the whitepaper.
Core Variables
| Variable | Definition |
|---|
A | Vault token (base asset) |
P | User principal in A |
C | Yield-bearing collateral asset |
F | Flash loan size in A |
B | Amount borrowed against C |
qC | Units of C supplied as collateral |
Implicit Leverage
The effective leverage on strategy-allocated capital is derived from the Loan-to-Value (LTV) ratio:
ℓ = F / (F - B) = 1 / (1 - LTV)
For an LTV of 80% (0.8), the implicit leverage ℓ is 5x.
Delta Neutrality Condition
The position delta ∆ is the rate of change of the portfolio value with respect to the price of the base asset A (SA).
Δ = ∂/∂SA(qC * SA - B * SA) = qC - B
qC ≈ B and the collateral asset C is closely correlated to the base asset A.
Net APR Model
The blended net APR is a weighted average of the base vault yield and the leveraged strategy yield.
APRnet = x * rv + (1 - x) * ℓ * rl
| Variable | Definition |
|---|
x | Fraction of capital retained in vault |
rv | Vault APR (base yield) |
(1-x) | Fraction of capital in strategy |
rl | Strategy spread APR (yield - borrow) |
ℓ | Effective leverage on strategy portion |