Core Functionality

The Core Functionality of Term Strategy Vaults combines the robust, battle-tested foundation of Yearn V3's ERC-4626 implementation with custom integrations and risk management mechanisms tailored to Term's fixed-rate lending protocol. This hybrid design ensures both seamless compatibility with DeFi standards and specialized functionality for managing Term’s unique portfolio requirements.

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YearnV3 Base Operations

The Yearn V3 foundation provides the essential scaffolding for Term Strategy Vaults. By implementing the ERC-4626 standard, Yearn V3 ensures standardized asset operations, including deposits, withdrawals, and share accounting. Key features include:

• Asset Operations: Efficient handling of deposits, withdrawals, and liquidity deployment via hooks like _deployFunds and _freeFunds.

• Profit Mechanics: Smooth profit realization and linear unlocking to prevent manipulation of price-per-share (PPS).

• Fee Management: Transparent performance fee distribution between curators and Yearn governance.

• Security Enhancements: Reentrancy protections, sandwich attack prevention, and robust access controls.

This foundational layer provides Term Strategy Vaults with a secure, modular, and efficient vault structure for managing assets.

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Term Protocol Operations

Building on the Yearn V3 foundation, the Term-specific functionality introduces custom integrations to manage fixed-rate lending portfolios effectively. These include:

1. Liquidity Management:

   • Automated portfolio adjustments using Term-specific hooks like _harvestAndReport.

   • Comprehensive valuation of repoToken holdings, idle liquidity, and pending auction offers.

2. Auction Participation:

   • Controlled submission of auction offers by the designated manager.

   • Real-time validation of repoToken and auction parameters to maintain portfolio integrity.

3. Direct Repo Token Liquidity:

   • Public interface for selling repoTokens into the vault, ensuring efficient liquidity management.

   • Validation and enforcement of portfolio constraints during token purchases.

4. Risk Management:

   • Strict enforcement of portfolio constraints, including:

     • Concentration limits.

     • Liquid reserve requirements.

     • Weighted average duration caps.

     • Collateral quality checks.

   • Continuous monitoring of portfolio health through automated processes.

The Term layer transforms Yearn's flexible vault structure into a specialized solution for managing Term’s fixed-rate lending portfolios while adhering to stringent risk controls.