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Real Yield USD is Coming to Maximize Stablecoin Yield

The Stablecoin Allocation Problem

Stablecoin yields are hotly pursued in DeFi given the relatively low-risk profile of lending and LPing these tokens. But figuring out which stablecoin to allocate to which DeFi protocol for how long is a challenging full-time job. For this reason, Sommelier is pleased to have Seven Seas bring a uniquely powerful stablecoin strategy to the Sommelier community and broader DeFi market.

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The table above shows back tested Yield Opportunities of various stablecoin pools if an incremental $1M, $10M or $50M were contributed to the pool.

Introduction to Real Yield USD

Real Yield USD is the final evolution of real stablecoin yields in DeFi (as shown in the table above). By “real yield” we mean yield that results from trading or lending activity (fees) rather than incentives. The primary sources of real yield exist on lending platforms like Aave and Compound, and decentralized exchanges like Uniswap. Because of this, Real Yield USD simultaneously allocates USDC, USDT and DAI stablecoins to Aave and Compound lending pools and Uniswap V3 LP pools to maximize yield.

Historically, most users could only do one of these activities at a time. They could only lend on Aave, or only lend on Compound or only LP on Uniswap V3. Some newer protocols have slightly more capabilities and can offer strategies that optimize between Aave and Compound. However, the ability to actively manage Uniswap V3 positions and also lend on Aave and Compound is what differentiates Real Yield USD. No other strategy in the market can offer users this ability.

To determine the optimal allocation, the strategy runs a numerical optimization procedure that accounts for swap fees and market impact due to position size, and makes use of various simple time-series forecasting methods to estimate (future) base yields.

Real Yield USD’s Advantage

While lending strategies are relatively straightforward given they’re a binary choice between lending or not lending, providing liquidity on Uniswap V3 is complex since it allows for targeted liquidity at different price points. The Seven Seas team is uniquely positioned to handle this complexity having spent the past year studying the nuances of providing liquidity within different tick ranges (corresponding to the trading prices of assets). This makes them among a small group of the foremost experts on LPing on Uniswap V3. Their understanding of how the choice of tick range determines both fee revenue and impermanent loss — the two critical components of deriving yield from LPing on the decentralized exchange — is rolled into the algorithmic computation their strategy performs to determine how to optimize yield.

Sommelier is also particularly excited about Real Yield USD because it’s the first strategy on Sommelier to make use of the newly unveiled Cellars V2 architecture. It leverages audited adapters with Aave, Compound, and Uniswap V3 and is the first strategy on Sommelier that simultaneously manages positions on more than one DeFi protocol.

Real Yield USD Highlights

  • Assets: USDC, USDT, DAI

  • Protocols Used: Aave, Compound, Uniswap V3

  • Types of Positions: Lending, DEX LPing

  • Differentiator: Optimization across multiple protocols including Uniswap V3 optimized tick ranges. Strategy accounts for swap fee revenue and impermanent loss variations at different tick ranges when determining whether to and at which prices to provide liquidity on Uniswap V3.

  • Other Notes: Additionally, Uniswap V3 liquidity positions are inherently more illiquid than lending positions. Because of this, withdrawing those assets from the strategy may not be possible at all times. However, the strategy provider, Seven Seas, will ensure that some percentage of funds are always kept in liquid positions to be withdrawn.

About Sommelier

Sommelier is an asset management protocol, built on the Cosmos SDK, that enables actively managed DeFi vaults on Ethereum. Vaults can do portfolio management, trade long-short, borrow-lend, or even farm. Additionally, Sommelier’s architecture allows independent strategists to leverage the power of off-chain computation by bringing algorithmically managed strategies on-chain. In doing so, Sommelier vaults can dynamically adapt to market conditions which provides enhanced earnings opportunities and risk mitigation to vault users whether they be individuals, institutions, protocols or DAOs . All vaults are enabled by audited smart contracts and controlled by protocol governance.

Sommelier was cofounded in 2020 by a prolific team of Ethereum and Cosmos developers including Zaki Manian and Kristi Poldsam. The protocol is currently in mainnet and actively seeks new contributors and community members.

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