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Matrix Shares / LPs

Understanding Shares vs. Underlying LP in Matrix Finance Autocompounding Vaults

When you invest in a Matrix Finance autocompounding vault, it's important to understand the difference between the 'shares' of the vault and the 'underlying LP' (Liquidity Pool tokens). This distinction is crucial for comprehending how your investment grows over time.
What are Vault Shares?
  1. 1.
    Representation of Investment: Shares in a Matrix Finance vault represent your portion of the investment in the vault. When you deposit assets into the vault, you receive shares in return. These shares indicate your share of the vault's total assets.
  2. 2.
    Value Relative to the Vault’s Performance: The number of shares you hold remains constant unless you make additional deposits or withdrawals. However, the value of each share increases as the vault earns yield. This is because the total value of the vault's assets grows, while the number of shares stays the same.
What is the Underlying LP?
  1. 1.
    Yield-Generating Assets: The underlying LP refers to the Liquidity Pool tokens that your vault investment is converted into. These LP tokens are what the vault uses to generate yield through various strategies.
  2. 2.
    Growth through Yield: Unlike shares, the quantity of underlying LP tokens in the vault increases as yield is earned. This is because the yield is often reinvested to acquire more LP tokens, compounding the earnings.
Key Differences:
  • Shares Remain Constant: Your share count doesn't change with the vault's performance. It’s a marker of your investment's proportion in the vault.
  • Underlying LP Growth: The quantity of LP tokens grows as the vault earns and reinvests yield. This is where you see the autocompounding effect.
  • Perception of Growth: Investors sometimes expect to see an increase in their share count as the vault earns yield. However, in Matrix Finance vaults, growth is reflected in the increased value of each share, not in the number of shares.
In summary, while the shares in a Matrix Finance autocompounding vault represent your stake in the vault and remain constant in number, the growth of your investment is reflected in the increased value of these shares and the growing number of underlying LP tokens due to yield generation and compounding. Understanding this distinction helps clarify how your investment in the vault appreciates over time.