Burn vaults are a special kind of vault. They are used to manage the burn rate of fees, and have their own distinct benefits.
Instead of immediately burning all fees, we opt for a slow burn, gradually growing over time.
The main purpose is for a permanent organic buy pressure to remain after layer emissions are over, more easily backing user funds. Although this isn't something new in itself, it certainly is the first time it becomes applied to layered farms.
Price holding would be expected to become much more manageable when combining this feature alongside the new layers high APRs.
Here's how it normally works:☝
Say we have $10,000 in fees to burn. Most other yield farms would just take a portion ($1,000 for example), to buy back their own token and send it to a burn address.
This ends up with $9,000 leftover in fees and a bump in the token price temporarily.
Eventually, there won't be any more fees to burn. The price of the token will gradually trickle down to zero, as there is now no price incentive to farm.
What do we do differently?
Instead of the above, our methodology is to take the burning fees and stake them in a vault, for example ETH-USDC. We then burn the earnings from the vault.
Going back to our $10,000 example above:
That $10,000 is staked in a vault, generating a humble but consistent $30 per day. The key here is consistency: it will continuously generate $30 per day.
As deposits increase, the burn vault grows, generating more rewards to burn!
This aids in preventing the price gradually reducing to nothing, hoepfully making it a sustainable alternative to common layered farms!