Managing DeFi positions manually is a full-time job. You have to monitor your liquidity ranges, compound your rewards, adjust to market conditions, and rebalance across protocols. Most people do not have the time, tools, or discipline to do this consistently.
DeFi vaults and structured products solve this problem. They automate yield strategies so your capital works while you do something else. On Solana, several protocols have built sophisticated vault products that range from simple auto-compounding to complex options-based structured products.
This guide covers the major vault and structured product platforms on Solana, how they work, their risk profiles, and how to choose the right one for your goals.
What Are DeFi Vaults?
A DeFi vault is a smart contract that accepts deposits and executes a predefined yield strategy automatically. You deposit assets, the vault does the work, and you earn yield. Think of it as a managed fund, but on-chain, transparent, and permissionless.
Vaults come in several flavors:
- Auto-compounding vaults that reinvest earned rewards back into the position, maximizing compound returns.
- Liquidity management vaults that automatically adjust concentrated liquidity positions as prices move.
- Lending optimization vaults that move funds between lending protocols to capture the best rates.
- Options-based structured products that sell options or use derivatives to generate yield from volatility.
Each type carries different risks and return profiles. Understanding these differences is essential before depositing.
Kamino Finance is Solana's largest DeFi protocol by TVL, and its Earn vaults are among the most popular automated yield products in the ecosystem.
How Kamino Vaults Work
Kamino vaults automate concentrated liquidity provision on Solana DEXs. When you deposit into a Kamino vault, the protocol:
- Deploys your capital into a concentrated liquidity position on the underlying DEX pool (Orca, Raydium, or Meteora).
- Sets an optimal price range based on the vault's strategy parameters.
- Automatically rebalances the position when the price moves outside the range.
- Compounds earned trading fees back into the position.
- Issues you a kToken (receipt token) representing your share of the vault.
The kTokens are composable — you can use them as collateral on Kamino Lend or other protocols, earning yield on top of yield.
Kamino Vault Categories
Kamino organizes vaults by risk profile:
Stable-Stable Vaults (e.g., USDC-USDT): Low risk, low return. These earn from trading fees on stablecoin swaps. Typical APY: 5-15%. Minimal impermanent loss risk since both assets track the same value.
SOL-Stable Vaults (e.g., SOL-USDC): Medium risk, medium return. You earn trading fees but face impermanent loss if SOL price moves significantly. Typical APY: 15-40% depending on market conditions. Higher volatility means more trading volume, which means more fees — but also more IL.
LST-SOL Vaults (e.g., JitoSOL-SOL): Lower risk than SOL-stable pairs because both assets are correlated (both are effectively SOL). You earn trading fees plus the difference in staking yield. Typical APY: 8-20%. These are popular for SOL-denominated yield.
Volatile Pair Vaults (e.g., JUP-SOL): Higher risk, higher potential return. Both assets are volatile and their correlation is lower. Impermanent loss can be significant during large price moves. Typical APY: 20-80%+ but highly variable.
Kamino Risk Considerations
- Impermanent loss. The primary risk for any liquidity vault. If one asset in the pair moves significantly relative to the other, you can end up with less total value than if you had simply held both assets. Kamino's auto-rebalancing helps but does not eliminate IL.
- Smart contract risk. Your funds are in Kamino's contracts plus the underlying DEX's contracts. Multiple layers of smart contract risk.
- Rebalancing costs. Every rebalance incurs transaction fees and potentially realizes some IL. In extremely volatile markets, frequent rebalancing can eat into returns.
- Vault capacity. Some vaults have deposit caps. When a vault is full, new deposits may earn lower marginal returns.
Drift Protocol is primarily known as a perpetual futures DEX, but its vault system offers unique yield opportunities that leverage Drift's trading infrastructure.
Drift Vault Mechanics
Drift vaults work differently from Kamino vaults. Instead of providing liquidity, Drift vaults typically:
- Delegate funds to vault managers who trade on Drift's perpetual markets. The manager executes strategies (delta-neutral, basis trading, momentum) using depositor funds.
- Earn from funding rates on perpetual positions. When perp funding is positive, shorts earn from longs, and vice versa. Vaults can capture this consistently.
- Market make on Drift's order book. Some vaults provide liquidity to Drift's DLOB (decentralized limit order book), earning the spread.
Types of Drift Vaults
Delta-Neutral Vaults: These hold a spot position and an equal short perp position, earning funding rate yield while being market-neutral. When perpetual funding is positive (which it often is during bull markets), these vaults earn consistent yield without directional exposure. Historical APYs range from 10-30% during positive funding periods.
Basis Trading Vaults: Similar to delta-neutral but specifically targeting the basis (price difference between spot and perp). The vault buys spot, sells perp, and earns the convergence plus funding. Works best when perps trade at a premium to spot.
Active Trading Vaults: Managed by experienced traders who use depositor funds to trade perps. These are higher risk — your returns depend on the manager's skill. Check the manager's track record, maximum drawdown, and fee structure before depositing.
Drift Vault Risks
- Manager risk. For actively managed vaults, a bad trade can lose depositor capital. Look for vaults with drawdown limits and transparent track records.
- Funding rate reversal. Delta-neutral vaults lose money when funding flips negative. Extended periods of negative funding (common in bear markets) can result in sustained losses.
- Liquidation risk. Leveraged vault strategies can get liquidated in extreme moves. Check the vault's maximum leverage and historical margin usage.
- Withdrawal delays. Some vaults have epoch-based withdrawals — you cannot exit instantly. Understand the withdrawal mechanics before depositing.
Cega Structured Products
Cega brings traditional finance structured products to Solana DeFi. Their products are fundamentally different from liquidity vaults — they use options and derivatives to generate yield.
How Cega Products Work
Cega's core offering is exotic options vaults. The most common structure:
- You deposit USDC (or another asset) into a vault.
- The vault sells exotic options (typically barrier options or accumulators) to market makers.
- The premium from selling these options is your yield.
- At the end of the vault's epoch (usually weekly), if the underlying asset stayed within the option's barrier, you get your principal back plus the premium. If the barrier was breached, you may lose some principal.
This is similar to selling covered calls or cash-secured puts in traditional finance, but with more complex payoff structures.
Cega Product Types
Fixed Coupon Notes: You deposit stablecoins and earn a fixed yield (the option premium). Your principal is at risk only if the underlying asset (e.g., SOL) drops below a specific barrier level during the epoch. The further the barrier is from the current price, the lower the yield but the higher the principal protection.
Leverage Vaults: Enhanced yield through leveraged option positions. Higher returns but proportionally higher risk to principal.
Cega Risk Profile
- Principal risk. Unlike lending or liquidity provision where you always receive some of your principal back, Cega products can lose a significant portion of principal if barriers are breached.
- Counterparty risk. Cega's options are sold to institutional market makers. If a market maker defaults, your premium payment is at risk.
- Epoch lock-ups. Your capital is locked for the duration of each epoch. You cannot exit mid-epoch if market conditions change.
- Complexity. These products are harder to understand than simple lending or LP. If you do not understand the payoff structure, do not deposit.
DUAL Finance offers decentralized options products, primarily Staking Options (SO) and Dual Investment Products (DIPs).
Staking Options
Staking Options let projects distribute tokens to their community through options rather than simple airdrops. As a user, you might receive the option to buy a project's token at a specific price by a specific date. If the token is above that price at expiry, the option is valuable. If not, it expires worthless (but you paid nothing for it).
Dual Investment Products
DIPs function like covered calls and cash-secured puts:
- Covered Call DIP: You deposit a token (e.g., SOL) and earn premium in USDC. If SOL stays below the strike price at expiry, you keep your SOL plus the premium. If SOL exceeds the strike, your SOL is sold at the strike price — you still profit, but you miss upside above the strike.
- Cash-Secured Put DIP: You deposit USDC and earn premium. If SOL stays above the strike, you keep your USDC plus premium. If SOL drops below the strike, your USDC is used to buy SOL at the strike — you are buying the dip, effectively.
These are well-understood strategies from traditional options markets, implemented on-chain with transparent settlement.
Vault vs. Manual LP: When to Use Each
The choice between using a vault and managing your own positions depends on several factors.
Use Vaults When:
- You do not have time to actively manage positions. Vaults rebalance and compound for you. If you check your portfolio once a week, vaults are better than stale manual LP positions.
- You want exposure to complex strategies without building them yourself. Options vaults, delta-neutral strategies, and multi-protocol yield optimization are hard to execute manually.
- Your position size does not justify the time cost. Manually managing a $500 LP position is not worth the hours. Let a vault handle it.
- You want composability. kTokens and vault receipt tokens can be used as collateral elsewhere, creating yield on yield.
Manage Manually When:
- You have a specific edge. If you understand a particular pool's dynamics better than any vault algorithm, manual management can outperform.
- You want full control over ranges and timing. Vaults use algorithmic range-setting. If you have strong conviction about price direction, you can set tighter ranges manually for higher fee capture.
- You are trading around positions. If you actively adjust your DeFi positions based on market conditions, manual management gives you more flexibility.
- Vault fees eat too much of your yield. Vaults charge management and performance fees (typically 5-20% of earned yield). On low-yield strategies, these fees can consume a meaningful share of returns.
Building a Vault Portfolio
A diversified vault portfolio might look like this:
Conservative (Capital Preservation)
| Allocation | Strategy | Expected APY |
|---|
| 40% | Kamino stable-stable vault (USDC-USDT) | 5-12% |
| 30% | Kamino LST-SOL vault (JitoSOL-SOL) | 8-15% |
| 20% | Drift delta-neutral vault | 10-20% |
| 10% | DUAL covered call DIP (SOL) | 8-25% |
Moderate (Growth)
| Allocation | Strategy | Expected APY |
|---|
| 30% | Kamino SOL-USDC vault | 15-35% |
| 25% | Drift active trading vault (low leverage) | 15-40% |
| 25% | Kamino volatile pair vault | 20-50% |
| 20% | Cega fixed coupon note | 15-30% |
Aggressive (Maximum Yield)
| Allocation | Strategy | Expected APY |
|---|
| 35% | Kamino volatile pair vaults | 25-80% |
| 30% | Drift leveraged vault | 20-60% |
| 20% | Cega leverage vault | 20-50% |
| 15% | DUAL aggressive DIPs | 15-40% |
Monitor your vault portfolio using Step Finance, which aggregates positions across Solana DeFi protocols into a single dashboard.
Risk Management for Vault Users
No matter how automated the strategy, risk management is your responsibility.
- Diversify across vault types. Do not put everything in one protocol or one strategy type. If Kamino's smart contract has an issue, your Drift vaults are unaffected.
- Understand the worst case. For every vault, know the maximum possible loss. For liquidity vaults, it is impermanent loss. For options vaults, it can be significant principal loss.
- Monitor vault performance. Automated does not mean set-and-forget. Check your vaults weekly. If a vault is consistently underperforming its benchmark or experiencing unusual drawdowns, exit.
- Watch TVL changes. A rapid decline in a vault's TVL can indicate other depositors know something you do not. Investigate before the crowd exits.
- Keep a cash reserve. Do not vault 100% of your capital. Keep 10-20% liquid for opportunities and emergencies.
Conclusion
Solana's vault ecosystem offers automated yield strategies for every risk appetite — from conservative stablecoin vaults on Kamino to complex options products on Cega and DUAL Finance. Drift vaults add unique perpetual-based strategies to the mix.
The key is matching vault strategies to your actual risk tolerance and time horizon. High-APY numbers look attractive on dashboards, but they always come with proportional risk. Start with simpler, lower-risk vaults, understand how they perform through different market conditions, and scale up as your experience grows.
Compare yield opportunities across all Solana DeFi protocols in our tool directory.
