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Watermark and recovery

A staked yb-LP position has a watermark, the level that its value must regain after losses. The position is "underwater" when its value has fallen below its watermark. The gap between the two is the watermark shortfall. Until later gains close that gap, your staked shares can redeem for less than you deposited.

While the gap is open, LT, the market's vault contract, charges no admin fee on new gains. The admin fee is the part of each gain that normally goes to veYB (vote-escrowed YB) holders and the net-pressure reserve. The net-pressure reserve funds a bonus for crvUSD liquidity in a Curve pool. YB emissions continue as your compensation for the wait. For where the admin fee goes, read Where fee value goes in Fees and veYB revenue.

Worked example​

The example uses the position from How YieldBasis works: 1 cbBTC deposited at a BTC price of $100,000. The gauge, the market's staking contract, pays an Emissions APR of 18.25%. If the rate stays the same, that is $50 per day on $100,000 (18.25% × $100,000 / 365). The numbers are illustrative. They assume these conditions:

  • BTC is at $100,000 on each day shown.
  • There is no Temporary Redemption Discount (TRD).
  • Your shares are the only staked shares, so the $50 a day stays fixed.

The example tracks two values that LT stores: staked, the value that the staked side holds, and ideal_staked, the watermark. The following list tracks both values through each period of the example:

  • Day 0. You stake the yb-LP from your deposit at a price per share (PPS) of 1.0. staked = 1.00 cbBTC and ideal_staked = 1.00 cbBTC.
  • Days 1–30. Rebalancing cost exceeds fees by 2%. staked drops to 0.98, and ideal_staked stays at 1.00. Your YB emissions accrue at $50 per day.
  • Days 31–60. The vault gains 1.5% net, with no admin fee. Your pro rata share of the gain narrows the gap, so staked rises toward 1.00.
  • Days 61–100. Further gains close the gap, and staked returns to 1.00. The admin fee applies again from parity, the point where staked equals ideal_staked.
  • Day 100. You unstake with $100,000 of original value plus $5,000 of YB emissions (100 days × $50), $105,000 in total.

The following timeline shows the staked value against the watermark through the drawdown and the recovery:

Timeline of the worked example over 100 days: staked value falls from 1.00 to 0.98 cbBTC, below the flat ideal_staked watermark, by day 30. Later gains close the gap. While the staked value is below the watermark, LT charges no admin fee, gains split pro rata, and the staked share is capped at the gap.Timeline of the worked example over 100 days: staked value falls from 1.00 to 0.98 cbBTC, below the flat ideal_staked watermark, by day 30. Later gains close the gap. While the staked value is below the watermark, LT charges no admin fee, gains split pro rata, and the staked share is capped at the gap.

The worked example as a timeline. While the staked value sits below the watermark (shaded), LT charges no admin fee, and gains split pro rata. At parity, the admin fee applies again.

The two variables​

LT tracks the staked side with two values, both stored in LT.liquidity():

VariableWhat it isWhen it changesIn the example
stakedThe value that the staked side holdsOn every value checkpoint1.00, then 0.98, then back to 1.00
ideal_stakedThe watermarkOnly when yb-LP moves into or out of the staker address1.00 throughout

Three states​

The relation between the two values sets how LT splits each gain:

StateConditionWhat happens
At paritystaked == ideal_stakedFees split between unstaked holders and admin by the admin-fee formula.
Below the watermarkstaked < ideal_stakedNo admin fee. Gains split pro rata. LT caps the staked share at the gap.
Above the watermarkNot possibleLT caps the staked share of each gain at the gap.

How the gap opens and closes​

LEVAMM, the market's leveraged automated market maker, holds the position. When rebalancing costs or a LEVAMM revaluation reduce the vault's total value, LT splits the loss pro rata between staked and unstaked holders. In this case, LT takes no admin fee. staked falls, and ideal_staked stays where it was.

Fees and favorable rebalances then add value. On each gain, LT charges no admin fee on the part needed to close the staked gap. LT also raises staked by its pro rata share, capped at the gap. After parity, the normal admin-fee split applies. Recovery ends only when later gains outrun later costs for long enough. A larger gap takes more gain to close.

Both admin-fee rules, for losses and for gains, need the gauge to hold at least 0.01 yb-LP (MIN_STAKED_FOR_FEES). Below that amount, admin takes its share of gains and of losses.

What a staked LP sees​

During and after a drawdown, the dashboard and your balances show these effects:

  • During a drawdown, the dashboard can show Fundamental Value growth for unstaked holders while your staked shares redeem for less than your deposit.
  • The amount of yb-LP behind each gauge share changes over time. It falls when LT burns yb-LP from the gauge as value grows.
  • If you stake more or unstake part of your position during a drawdown, ideal_staked scales by the same token ratio as staked. Your percentage gap stays the same.
  • At recovery, your staked shares again redeem for your deposit or more, before TRD. TRD is a separate gap with its own recovery time. For how to read it before you exit, read Fundamental Value, Redemption Value, and TRD.

Exit during a drawdown​

If you unstake on day 30 of the example instead, your shares redeem for 0.98 cbBTC ($98,000). With $1,500 of YB (30 days × $50), you leave with $99,500. You realize the $2,000 loss on share value, and 30 days of emissions cover only $1,500 of it.