# Looping Strategy

<https://docs.dittonetwork.io/overview/protocol-overview>

## **Overview**

Ditto Automation Labs is designing the first iteration of its automated vault system, standardized on **ERC-7540** (asynchronous deposits and withdrawals), extending ERC-4626. This design ensures that deposits and withdrawals can be processed asynchronously, enabling smooth management of liquidity in complex looped strategies.

The vault will be controlled by a **VaultOperator**, set to the multisig safe of the **Ditto Vaults Curator**. This multisig issues a **session via the Ditto Validator module**, granting the right to trigger automations (activations, deactivations, rebalances) on the vault in a controlled, permissioned manner.

The product’s positioning remains the same: a **hands-free yield automation platform** with execution guarantees powered by Ditto’s decentralized operator network.

### **Core Development Items**

[PoC Spec](https://www.notion.so/PoC-Spec-280d3e1d9514802da9caff5a05282cbc?pvs=21)

1. **Position Valuation**
   * A **smart contract** to deliver the current value of the vault’s position on a lending borrowing protocol.
   * Alternatively, an automation that periodically refetches and updates values.
   * Especially relevant for **cross-chain liquidity allocations**, ensuring share accounting remains correct across deposits and withdrawals.
2. **Strategy Selector Script**
   * A **JavaScript service** that fetches APYs from supported protocols.
   * Compares the profitability of different pool configurations.
   * Decides whether to rebalance, deactivate, or activate assets.
   * **Loop logic**: calculates the target loop number dynamically, subject to a minimum improvement threshold (e.g., skip looping if boost <0.2%).
3. **Router Smart Contract**
   * Handles **position winding and unwinding**.
   * Uses lending pools, uni pools, slippage parameters, and target loop numbers.
   * More efficient than flashloans (0.05% cost of flashloan).
   * Can also **unwind** without flashloans, making exit safer and cheaper.
4. **Withdrawal Processor**
   * Monitors the size of the withdrawal queue and unwinds the required amount marking them available to claim according to current position value and share-to-asset rate.

### **Oracle & Valuation**

To ensure accurate vault accounting:

* Ditto proposes using an **on-chain lens oracle** to track **total position value** at any moment.
* This enables:
  * Fair deposit share issuance.
  * Precise share burns on withdrawals.
  * Transparent, tamper-proof vault valuation for all participants.

### **Guards & Security**

Ditto introduces a dual-guard system to protect vaults and ensure execution integrity:

* **Off-chain guard**
  * Consensus of top-tier operators validating automated actions.
  * Provides an extra layer of human and institutional oversight.
* **On-chain guard**
  * Smart session permissions restrict what automations can execute.
  * Whitelisting of protocols ensures assets are only deployed into approved strategies.

Together, these guarantee **security, accountability, and resilience**.

### **User Journeys**

#### 1. **Asset Managers / Curators**

* Use Ditto Execution Engine and ERC-4626 vaults as **building blocks** to design yield strategies.
* Can **set up new vaults** or upgrade existing ones by configuring:
  * Number of loops / target LTV.
  * Strategy parameters (assets and protocols whitelisted).
* Management is simplified through **modular automation shortcuts** for deposits, withdrawals, rebalances, and emergency exits.

#### 2. **End Users**

* Deposit into vaults.
* Monitor balance, APY, liquidation thresholds, and vault activity through the dashboard.
* Withdraw via the queue mechanism, with full transparency on status and timing.

### **Future Availability**

Currently, Ditto offers **custom private vaults** built in collaboration with selected partners during the **alpha phase**.

After alpha:

* The **Ditto Validator Module** and **Ditto Automation Vault framework** will be opened to **curators and asset managers**.
* This will allow the wider community to **deploy their own strategies** on top of Ditto’s infrastructure.
* Curators will leverage the same automation stack (activator, deactivator, rebalance, compounding, guards) with **plug-and-play tools**.

## Math

#### Theory

$$
\begin{aligned}&\textbf{Parameters:} \\\[4pt]\&P\_0 \quad \text{(initial principal)} \ \&r\_s \quad \text{(supply APY)} \ \&r\_b \quad \text{(borrow APY)} \ &\ell \quad \text{(loan-to-value ratio)} \ \&n \quad \text{(number of loops)} \\\[12pt]
&\textbf{Loop Dynamics:} \\\[4pt]\&S\_k = P\_0 \cdot \ell^{,k-1}, \quad (k=1,2,\dots) \ \&B\_k = P\_0 \cdot \ell^{,k} \ &\Pi^{\text{sup}}\_k = r\_s \cdot S\_k \ \&C^{\text{bor}}*k = r\_b \cdot B\_k \ &\Pi\_k = \Pi^{\text{sup}}*k - C^{\text{bor}}*k = S\_k ,(r\_s - \ell r\_b) \\\[12pt]
&\textbf{Cumulative Profit:} \\\[4pt]&\Pi*{1:n} = P\_0 ,(r\_s - \ell r\_b),\frac{1-\ell^n}{1-\ell} \\\[12pt]
&\textbf{Final APY:} \\\[4pt]&\mathrm{APY}*n = \frac{\Pi*{1:n}}{P\_0}= (r\_s - \ell r\_b),\frac{1-\ell^n}{1-\ell} \\\[12pt]
&\textbf{“Finish (no borrow)” Variant:} \\\[4pt]&\Pi^{\text{finish}}*{1:n}= \frac{P\_0}{1-\ell}\Big\[r\_s,(1-\ell^{,n+1}) - r\_b\ell,(1-\ell^n)\Big] \\\[6pt]&\mathrm{APY}^{\text{finish}}*n= \frac{\Pi^{\text{finish}}*{1:n}}{P\_0}= \frac{r\_s(1-\ell^{,n+1}) - r\_b\ell(1-\ell^n)}{1-\ell} \\\[12pt]
&\textbf{Theoretical Maximum:} \\\[4pt]&\lim*{n\to\infty} \mathrm{APY}*n= \lim*{n\to\infty} \mathrm{APY}^{\text{finish}}\_n= \frac{r\_s - \ell r\_b}{1-\ell}\end{aligned}
$$

### Looping vs Flashloan:

* Take deposit + flashloan = max looped supply
* Borrow max loop borrow amount when boost < threshhold
* Repay flashloan and lose 0.05% on Aave v3 so direct looping is recommended.

### Total supply

$$
\textbf{Total Supply (as $n \to \infty$):} \\\[6pt]
S\_{\text{total},\infty}
\= \lim\_{n \to \infty} P\_0 ,\frac{1-\ell^{,n}}{1-\ell}
\= \frac{P\_0}{1-\ell}
$$

### Total borrow

$$
\textbf{Total Borrow (as $n \to \infty$):} \\\[6pt]
B\_{\text{total},\infty}
\= \lim\_{n \to \infty} P\_0 ,\frac{\ell,(1-\ell^{,n})}{1-\ell}
\= \frac{P\_0 ,\ell}{1-\ell}
$$

## **Core Features**

**1. Automated Liquidity Activation**

* Deposits from users enter a liquidity queue.
* Once the queue surpasses a defined threshold ($10,000), the Ditto Execution Engine automatically:
  * Activates the queued liquidity.
  * Allocates it into the respective strategy loops.
  * Updates the vault state with new locked amounts.

**2. Withdrawal Queue**

* Users can initiate withdrawals through the vault portal.
* Withdrawals are placed in a queue system.
* Once the withdrawal threshold is reached, the Ditto Execution Engine executes asset deactivation, releasing the necessary liquidity.
* Users see:
  * Their individual withdrawal request status.
  * The total withdrawal queue.
  * Estimated execution timeline.

**3. Ditto Execution Engine Automations**

The Ditto Execution Engine powers all operational aspects of the vaults:

* Asset Activation: moving deposits into strategies once thresholds are hit.
* Autocompounding: reinvesting strategy rewards to maximize APY.
* Emergency Unlooping: exit strategy operation in case of critical events.
* Asset Deactivation: processing withdrawal queues by freeing liquidity.

**4. Transparent Manager Dashboard**

The portal provides full visibility into vault activity, risk exposure, and user balances:

* Current APY per vault.
* Amount of funds locked in strategies.
* Liquidation thresholds and their current status.
* Latest rebalances and strategy operations.
* Auto-compounds and activations history.
* Latest withdrawals processed.
* Real-time withdrawal status and queue insights.

## **User journey**

1. Deposit:
   * User selects a vault.
   * Deposit is added to liquidity queue.
   * User claims his shares.
2. Activation:
   * When the queue threshold is reached, assets are looped into the chosen strategy.
3. Growth:
   * Rewards are autocompounded by the Ditto Execution Engine.
   * Users track APY, activations, and portfolio performance through the portal.
4. Withdrawal:
   * User requests withdrawal via the portal.
   * Request enters the withdrawal queue.
   * Once the threshold is reached, assets are deactivated and released.
   * User monitors live withdrawal progress until assets are received.

## **Value Proposition**

* Automated yield optimization without user intervention.
* Flexible risk exposure through configurable vault strategies (risk parameter - `target` **`LTV`**).
* Transparency-first design: all operations, queues, and thresholds are visible to users.
* Secure withdrawal mechanism with clear expectations.
* Failsafe management via emergency unlooping powered by the Ditto Execution Engine.


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