How Apollos Works

Apollos lets users allocate to vaults that target linearized yield by combining base-asset exposure with delegated USDC credit.

At a glance

• Deposit a supported asset (WETH, WBTC, or LINK) and receive afToken shares.
• Apollos Vault borrows delegated USDC from Aave using credit delegation.
• User asset + borrowed USDC are deployed into Uniswap v4 market pools.
• Rebalancing logic keeps the position close to its target risk profile as price moves.
• A protection layer (LVR hook + workflow controls) is used to reduce toxic flow.

In simple terms: your deposit goes into Apollos Vault, the vault borrows extra USDC from Aave (through delegated credit), then both are used in Uniswap v4 to run the strategy.

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⁉️The Problem: Impermanent Loss

In a standard constant-product AMM (x * y = k), liquidity providers are continuously rebalanced between asset and stablecoin.
That creates underperformance versus simply holding when price trends strongly in either direction.

Detailed example

• Start position: 1 ETH ($2,000) + $2,000 stablecoins.
• ETH price doubles from $2,000 to $4,000.
• A classic AMM LP ends around 0.707 ETH + ~$2,828.
• New LP value is about $5,656 (depending on rounding/fee assumptions).
• Just holding would be exactly $6,000.
• Result: about 5.7% IL versus hold before fees.

Some protocols try to offset this with token emissions. That can help short term, but it is usually a subsidy layer, not a structural IL fix.

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💡The Solution: Apollos 2x Delta-Neutral Vault

Apollos targets a linearized profile by pairing user collateral with borrowed USDC and managing leverage at vault level.

1. Deposit base asset User deposits into an Apollos vault and receives afToken shares.

2. Borrow delegated USDC Apollos Vault draws USDC from Aave through a credit delegation line assigned to the vault.

3. Deploy dual-leg liquidity Collateral leg + borrowed USDC leg are deployed into Uniswap v4 pools via the vault strategy path.

4. Maintain target profile When price moves, the vault rebalances debt/collateral alignment toward its configured leverage target.

The goal is to reduce IL drag and keep a more stable risk-adjusted growth curve than passive LPing.

Why this is designed to kill IL drag

In a normal AMM, LP value tends to scale with sqrt(p) as price moves (p = price ratio).
With Apollos' 2x vault structure (collateral leg + delegated USDC debt leg), the net position is engineered to scale closer to p around its target regime, not pure sqrt(p).

That is the key intuition: reducing sqrt(p) drag is how Apollos targets IL at the root strategy level, instead of relying only on token incentives.

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⬛Comparing Outcomes Across Price Moves

The table below is a simplified illustration (ignores trading fees, borrow cost, and execution friction) to isolate IL behavior:

Practical outcome: users keep fee exposure while reducing directional IL drag versus conventional LP-only positioning.

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📊What Happens When Price Changes?

Apollos continuously tracks leverage, debt ratio, and health factor (HF = collateral value / debt value in simplified terms).
When deviation grows, the vault can rebalance toward its target profile.

📈Asset price goes up (debt too low)

1. Debt ratio drops below target
   Collateral value rises, while USDC debt is relatively smaller.
2. Rebalance signal appears
   Strategy checks show under-leveraged state versus target 2x profile.
3. Vault re-levers
   Vault borrows additional delegated USDC from Aave and redeploys into Uniswap v4 strategy legs.
4. Back toward target
   Debt/Collateral ratio moves back to the intended range, while HF remains healthy.

📉Asset price goes down (debt too high)

1. Debt ratio climbs above target
   Collateral value falls, but outstanding debt stays.
2. Risk control trigger
   Health factor buffer shrinks and the position needs de-leveraging.
3. Vault de-levers
   Vault reduces exposure, withdraws part of strategy liquidity, and repays a portion of Aave debt.
4. Back toward target
   Position returns to safer leverage and HF buffer improves.

Where Chainlink workflow fits

• Chainlink workflow observes off-chain risk conditions and supports risk-state updates for protocol protection.
• The same risk-awareness layer helps keep vault operations aligned with target safety ranges (including HF buffer discipline).
• In high-volatility windows, protection logic can tighten execution conditions while vault rebalancing keeps leverage in range.

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🛡️Protection Layer: Why Apollos Is Different

• Restricted direct pool access: intended flow is through Apollos vaults, not unrestricted direct LP routing.
• LVR-aware hook controls: dynamic fee logic helps defend against toxic/JIT flow.
• Workflow-driven operations: off-chain signals can trigger risk responses for on-chain execution parameters.

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⬜Using Apollos: User Flow

1. Select an Earn vault (afWETH, afWBTC, or afLINK).
2. Deposit asset from wallet (or bridge from supported source flow).
3. Receive afToken shares representing vault position.
4. Vault auto-manages debt + collateral composition and rebalancing.
5. Withdraw by redeeming afToken; underlying position is unwound by vault logic.