Wedding Cake Strategy
Shield Staking Vault allows users to choose their level of risk tolerance, with options for Risk-Averse, Risk-Neutral, and Risk-Taker. The amount of deposits deployed as the option trading fund varies based on the user's selected risk tolerance, with only capital placed in the option trading fund being used to execute the option trading strategy.
The wedding cake strategy offers a fixed payout based on the movement of the reference rate within the boundaries of each layer. This strategy is based on the idea of a "wedding cake" with different layers, each representing a different level of risk tolerance. It is designed to maximize the return while protecting the user's principle, making it a robust option strategy under current market conditions.
The above graph is a real-life example of ETH wedding cake strategy, with a reference rate of $1,200. It shows how depositors can benefit from fixed payouts based on the movement of the underlying asset within pre-defined boundaries.
If the settlement price of ETH falls within the boundaries of $1,300 to $1,400, depositors receive a payout of 224.3%.
If the settlement price of ETH falls between $1,200 and $1,300, depositors receive a payout of 116.2%.
Additionally, in situations where the market experiences extreme fluctuations and the price of ETH exceeds the defined boundaries of the wedding cake strategy and the option become worthless, depositors are still eligible to receive their initial deposit through the LP mining fund, ensuring that their principle is protected. This way, they are able to benefit from market volatility while securing funds.
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