I used to think a bigger TermMax vault had to be a better vault. More deposits, deeper liquidity. Pretty simple.
Except deposits don’t manufacture fixed-rate demand.
TermMax curators can set a vault’s capacity and allocate its capital across orders. That makes capacity more than an administrative limit. It’s also a yield-control decision.
Suppose a vault has $1 million matched at 10% fixed and no other capital. Ignoring fees and compounding, its gross annualized rate is 10%.
Now deposits grow to $2 million, but matched demand stays at $1 million. If the unmatched half earns a 4% base yield, the blended rate becomes 7%.
Push total deposits to $4 million with the same $1 million of fixed demand, and the blended rate falls to 5.5%. TVL quadrupled, yet the depositor’s blended rate nearly halved.
That isn’t a criticism of base yield. It cushions capital while it waits. The point is that new supply can still dilute the result if real borrowing demand doesn’t grow with it.
A capacity set too low may leave useful demand unserved. Set too high, it can weaken returns and increase exposure to the underlying base-yield source.
So “vault full” isn’t automatically bullish, and a capacity increase isn’t automatically an improvement.
I’d rather track the matched share of capital, realized blended yield, and demand that returns after incentives fade. TVL tells me how much money arrived. Capacity discipline tells me whether that money found a useful job.
@TermMax #TermMax
Except deposits don’t manufacture fixed-rate demand.
TermMax curators can set a vault’s capacity and allocate its capital across orders. That makes capacity more than an administrative limit. It’s also a yield-control decision.
Suppose a vault has $1 million matched at 10% fixed and no other capital. Ignoring fees and compounding, its gross annualized rate is 10%.
Now deposits grow to $2 million, but matched demand stays at $1 million. If the unmatched half earns a 4% base yield, the blended rate becomes 7%.
Push total deposits to $4 million with the same $1 million of fixed demand, and the blended rate falls to 5.5%. TVL quadrupled, yet the depositor’s blended rate nearly halved.
That isn’t a criticism of base yield. It cushions capital while it waits. The point is that new supply can still dilute the result if real borrowing demand doesn’t grow with it.
A capacity set too low may leave useful demand unserved. Set too high, it can weaken returns and increase exposure to the underlying base-yield source.
So “vault full” isn’t automatically bullish, and a capacity increase isn’t automatically an improvement.
I’d rather track the matched share of capital, realized blended yield, and demand that returns after incentives fade. TVL tells me how much money arrived. Capacity discipline tells me whether that money found a useful job.
@TermMax #TermMax
