Sierra's Reserve Management Strategy now includes OpenTrade's SOL Basis Vault, a delta-neutral strategy that generates yield from Solana staking rewards and perpetual futures funding rates. This new vault expands the yield sources backing SIERRA beyond traditional real-world assets and DeFi protocols.

What is the SOL Basis Vault?

The SOL Basis Vault is an institutional-grade product developed by OpenTrade in partnership with Figment, one of the world's largest independent staking providers. The strategy generates yield through two mechanisms: staking SOL tokens to earn network rewards, and shorting an equal amount of SOL via perpetual futures to capture funding rates while eliminating price exposure.

The vault operates by receiving inflows of USDC, buying and staking SOL while simultaneously shorting SOL perpetual futures contracts on OKX, keeping the vault's value stable in USD terms. Typically, SOL staking generates approximately 7% APY through validator rewards. The basis vault adds a second stream of yield by collecting the positive funding rate paid by long positions to short positions every eight hours. 

Institutional Infrastructure

OpenTrade, backed by a16z Crypto and Circle, provides the institutional-grade infrastructure for managing perpetual futures positions, handling deposit and withdrawal workflows, and tracking vault performance. All SOL tokens are held in segregated custody accounts, separate from exchange and operational funds, with security interests granted to investors.

OKX serves as the primary execution venue for SOL perpetual futures trading. As a top-tier centralized exchange, OKX offers deep liquidity on SOL perpetual futures contracts with competitive fee structures and three daily funding rate settlements. The exchange's proof-of-reserves system and insurance fund provide additional transparency and risk mitigation for institutional trading strategies.

Both OpenTrade and Sierra use Fireblocks for custody and the secure transfer of funds in and out of the SOL Basis Vault. Industry best practices of address whitelisting and transaction policy enforcement are implemented to mitigate custodial risk.

Risk Management

The SOL Basis Vault has been designed to mitigate risk throughout the entire lifecycle and operational workflow. 

By simultaneously shorting perpetual futures against acquired SOL tokens, the delta-neutral strategy addresses market risk. As funding rates in perpetual futures markets can fluctuate and turn negative during periods of market pessimism, the vault also monitors funding rate changes and allocates accordingly. During periods of sustained negative funding rates, the vault unwinds its positions and allocates to U.S. Treasury bills to minimize cash drag. Additionally, Sierra’s reserve management strategy can also reduce or eliminate its allocation to the SOL Basis Vault in response to prolonged negative funding rates.

The vault manages liquidity risk by holding a portion of its collateral in OKSOL, a liquid staking token backed by staked SOL and available to use as trading collateral. For immediate redemption, the OKSOL can be sold and the perpetual futures position unwound to avoid Solana’s three-day unstaking process. To manage liquidity risk, Sierra caps its reserve allocations to the SOL Basis Vault, limiting overall exposure.

“We’re really excited to incorporate a new source of yield into Sierra’s reserve management strategy. By adding exposure to basis yield, the SOL Basis Vault complements Sierra’s existing allocations to DeFi lending and RWAs. We look forward to increasing exposure to this vault as market exuberance returns and funding rates become elevated again. ” Mitchell Nicholson, Core Contributor at Sierra.