A Brief History of Yield Optimisers in DeFi.
The fields of DeFi are vast, and over the last 2 years, everybody wanted to become a farmer to harvest their share of the available yield. Yield farming became so popular that even non-crypto native participants were aware of it and trying their hand at it. Those “number too big” APY’s were just too damn tempting.
While the fields do seem ripe for harvesting, the game appears much easier than it actually is. Harvesting reliable, sustainable, and consistent yield is something that only a few people have managed to achieve. There are a ton of risks that most people are unaware of, and when it comes to withdrawing, most people may have realised that they exited the farm with less capital than they entered.
Seeing the demand from market participants to harvest this yield but the lack of expertise to execute the various complex strategies gave rise to a new type of application, yield aggregators or yield optimizers.
Yield optimizers act as the platform above the decentralised exchanges and lending markets. They allow users to directly approach them and deposit their tokens on the platform. The Yield optimizer will then use the deposited tokens in one of the many automated DeFi yield strategies which are designed to scan the DeFi landscape for the best yield opportunities and then automatically execute the strategies on behalf of the user. This way, the user can earn yield without needing to deal with the intricacies and complexities of yield farming.
Yearn Finance was the pioneer of this sector. Launching around DeFi summer, Yearn had various vaults that executed some of the best and most consistent strategies which instantly made it one of the most used platforms in the space.
However, DeFi has rapidly changed since the DeFi summer of 2020. The rapid pace of innovation has brought around new applications, new tokenomics designs, and new alternative layer 1 blockchains. With all of this new stuff came the opportunity for new yield farming strategies. This meant that the doors were open for new yield aggregators to come in and challenge Yearn Finance.
Each yield optimizer had its own set of strategies that they specialised in and it was often specific to the chain that they were on, although there were some cross-chain yield optimizers.
One such Optimizer that was born on the Fantom Blockchain was RoboVault.
What is RoboVault?
RoboVault allows users to single-side stake their assets in one of the various vaults which then executes automated pseudo-delta-neutral strategies to give users above-market yield on a consistent basis. RoboVault executes its strategies on various lending platforms and AMMs where the rewards are continually harvested and the positions are frequently rebalanced to minimize the impact of impermanent loss.
RoboVault divided up its strategies into vaults. Each vault has specific tokens that they accept and different strategies for those tokens. They currently offer four pseudo-delta-neutral vaults on Avalanche for USDC, USDT, AVAX and ETH with more vaults to be launched soon. In particular, their stablecoin vaults have performed extremely well recently with USDT exceeding an APY of 11% over the past month & USDC exceeding an APY of 7% over the past month.
The vaults are externally managed by a party called ‘keepers’. The responsibility of the keepers is first to keep harvesting rewards that are generated and secondly, they are important for ensuring the strategies maintain a pseudo-delta-neutral position and minimise the impact of IL. The keepers constantly monitor the debt ratios & collateral ratios based which will trigger the rebalancing of positions if they go outside certain thresholds. By continuously rebalancing the positions, the keepers minimize the losses faced through impermanent loss and minimize the chance of liquidation by keeping the collateral ratio within a specific band. More info on their strategy mechanics is here.
RoboVault launched in July 2021. They are still alive and doing fairly well. However, getting to this point was no easy task. They faced a lot of trials and tribulations along the way. Therefore, in order to understand RoboVault in its current state, we need to take a look at its past and how it got here.
A recent Track Record Article published by RoboVault showcases their results & long-time frame success of running Pseudo Delta Neutral DeFi Yield Strategies, read more about it.
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On with the article…
RoboVault launched on the Fantom Blockchain with 4 initial vaults. The crux of the initial strategies was to use both lending protocols and AMMs. Users could deposit assets such as USDC or ETH into a vault on RoboVault. The vault would then allocate half of the tokens on SCREAM to create a lending position. The vault would then borrow a secondary token against that lending position. The secondary token and the other half of the deposited funds would be used to create an LP position on either Spookyswap or Spiritswap. This LP position would be closely managed to minimize impermanent loss and rewards would continuously be harvested.
The overall performance of these vaults was good. They averaged between 20%-30% APY on a weekly basis and only occasionally did the position face some minor drawdowns from impermanent loss. All in all, this general strategy on Fantom was proving to be very fruitful.
This initial phase however was more of an experimental phase to see if their strategies and general design of the protocol were functioning. Although there were minor hiccups along the way, you could call this initial phase a success.
The team then started working on V2.
The main overarching change was to change the architecture of the protocol to one that is similar to Yearn V2.
For those who aren’t familiar with Yearn and how their Yvaults work, here is a quick overview. A Yvault can execute multiple strategies simultaneously and accepts several tokens. The token that a user deposits in the vault is the token that the user will receive as the yielded reward. After creating a position in a Yvault, a user will receive a Yvault token which represents their position in the vault.
The main benefit of shifting to this structure is that it gives them more flexibility. They get more flexibility in terms of trying out new experimental vaults and other experimental features while maintaining the overall structural security so users’ funds aren’t at risk while experimenting.
While this was overall beneficial for the protocol in terms of general operations, there was a lot more that was added and improved upon by the team to make RoboVault more competitive.
Let’s start with the upgrades made to existing features. The Rebalancing mechanism faced minor issues wherein withdrawals from the vault would occasionally cause the rebalancing function to fail. This has now been fixed and no interruptions should be experienced after withdrawals are made.
An update in the rebalancing mechanism has also been met with an update in the harvesting function. Essentially, every time the rewards were harvested previously, the transactions weren’t executed in a very gas-efficient manner which affected profitability. This updated version has fixed this to make it more efficient which will allow the protocol to harvest more frequently.
An update has also been made to the fee mechanics. Previously, the protocol had a set performance fee that they would take from the vault regardless of whether it was profitable or not. They have now made the change such that the 20% performance fee will only be taken when the vault is profitable. If not then the protocol takes no fees. This acts as a better way to align incentives between users and the protocol.
Now let’s move on to the additions that were made.
First, there is the addition of deposit limits. This means there will be limits on how much can be deposited depending on the size of a user holding in the vault and the TVL of the vault. This allows the team to release more experimental vaults and also vaults that participate in lower liquidity protocols where the returns can be very high for early entrants.
Another feature is the addition of “events” to the contracts. Adding events basically means that when something meaningful happens within a smart contract, that smart contract will want to communicate with other Dapps and smart contracts to convey that meaningful event. The developers of the smart contract can decide when these events will be emitted. The main use of events within RoboVault is to show more advanced analytics.
Oracles have also been implemented in the protocol. The reason for implementing oracles is that it will give them more accurate price data of the assets within their vaults which then allows them to increase their collateral ratio. This means more capital can be allocated which opens up the chance for more profit to be earned for the user and the protocol.
After the switch to V2, the results were great. In the first week of being live, the vaults were averaging anywhere between 20% to 60% APY which was coupled with a TVL jump from $4M to $20M. To follow this up, the team announced partnerships with LiquidDriver and SCREAM.
Everything was going well until @FP_Crypto and @storming0x along with the yearn finance team found a potential exploit in the RoboVault code. They immediately reached out to the RoboVault team and explained how the exploit could take place.
It essentially involved the use of flash loans to borrow a large amount of money which could then be used to manipulate the value of the LP held in the vault. After that, the exploiter could deposit funds in the vault, drive the price back up and exit the vault with a decent profit. Repeating this exploit could lead the vault to be drained.
Fortunately, this exploit was spotted before any malicious actor could find it and the team immediately got to work. They started by removing all the funds in the vaults and moving them to the vaults reserves, all deposits into the vaults were also paused. Now that the user’s funds were safe and no exploit could be executed, the team then got to work to figure out where the exploit stems from and started the process of building a more robust process to ensure future deployments of their Pseudo-Delta Neutral Strategies would be bug-free…
After resolving the issues, the team decided to make some changes and add new vaults to the protocol. This takes us to the current phase that RoboVault finds itself in.
There are a lot more improvements made from the previous phase to now. So let’s start with the vaults. The RoboVault team now utilises Yearn’s V2 vault architecture which provides a tried & tested architecture along with a significant number of security features. These vaults also enable multiple strategies to be utilised per vault, which, as the name suggests, means that there can be multiple executable strategies that are within the same vault rather than each vault having its own individual strategy. These vaults are also upgradeable which means that any new strategy, or change to an existing strategy, can be immediately implemented in the vault.
These new vaults have 0 withdrawal fees as well as flash loan protection mechanisms to guard against external attackers… Additionally, they have improved their own impermanent loss protection mechanics. Their initial vaults occasionally faced minor drawdowns from impermanent loss in extremely volatile conditions, with the current iteration of strategies implementing internal insurance mechanics where a small portion of the strategy, profits are allocated to a reserve. In the event that impermanent loss is faced then those funds are used to pay back the losses. If there is excess, it is redistributed to stakers in the vault.
The keepers are another element that has undergone significant improvement since their initial launch… Building throughout various market faces the team has faced a number of technical challenges. For example, in the December flash crash when FTM, an important asset for RoboVault at the time, dropped 40% within a few hours, the keepers were unable to keep up with the volatility and the vaults were exposed to high impermanent loss. Given how often volatility spikes occur within crypto, the keepers need to be designed to withstand such pressures.
Therefore, RoboVault now has a new and improved keeper with significantly improved logic to handle large changes in gas prices due to network congestion. They have also switched from having one keeper per vault to having multiple keepers per vault. Utilising their own custom keeper in addition to utilising Gelato & ChainLink Keepers… Having 3 removes the single point of failure dilemma. In case one of the keepers fails, the strategies can still reliably maintain their delta-neutral positions…
Other improvements to the keepers are to do with gas prices and broadcasting. With gas prices, they have essentially created a formula such that all the transactions made by the keepers have a sufficient max gas price so that it has a chance of getting approved faster but it also doesn’t make it too expensive to execute multiple transactions. In terms of broadcasting, they use something called multicasting which ensures that the transactions are broadcasted to more mempools giving it a higher chance of getting approved faster.
Additionally following the discovery of the potential exploit in late 2021 the team has worked to develop an extremely robust security process to ensure their delta-neutral strategies are secure. This includes an extremely detailed test suite and specific protections against price manipulation & sandwich attacks. More info on their security approach can be found here: https://medium.com/@RoboVault/security-at-robovault-78b2d4cc95f1
After the bear market started to become more of a reality, RoboVault faced a number of issues. The Fantom chain suffered from quite high volatility in gas prices, asset prices, and liquidity in addition to some exploits on protocols such as SCREAM. As a result, RoboVault did not feel confident in operating their automated Delta Neutral Strategies on Fantom… Naturally, they started looking elsewhere and decided to experiment with Avalanche, Optimism, Arbitrum, and Polygon.
So far they have only launched two vaults on Avalanche to get the protocol functioning again but have said that they plan to be multichain. Avalanche seems to just be the starting point for now.
The switch to Avalanche came with some changes to the protocol as well. The keepers have now been upgraded to ChainLink keepers which have proven to be the safest and most reliable keeper services in the market. Combining ChainLink Keepers with Gelato & RoboVault custom keepers.
Additionally, the team has continually added additional measures to their strategies to mitigate any risks of vulnerabilities. The first measure is protection against sandwich attacks. This is done by comparing the price of swapped assets using oracles vs the price of the assets that were actually swapped. They have also added real-time monitoring and alerts to track things like oracle prices, rebalancing, and general incidents. This can be very helpful in detecting potential issues early on and intervening to secure user assets…
Finally, additional security comes from the rigorous analysis put into choosing the third-party protocols. Deploying strategies on safer protocols reduces the risks faced by the user. Moreover, they have undergone audits on their strategies while also having reviews from a number of strategists familiar with the Yearn V2 architecture.
Note: If you want to see the overall track record of RoboVault compared to other pseudo-delta-neutral vaults on the market you can view this report here:
Spoiler: They are out in front with low variability in APY…
RoboVault Roadmap –
To improve yields on their existing pseudo-Delta Neutral strategies the RoboVault team are in the process of developing and testing a number of new strategies. These include the development of pseudo-Delta Neutral Strategies that leverage other AMM types such as UNIV3 & GMX in addition to new mechanics to improve their Delta Neutral strategies. Some more details on how these new strategies will work can be found in their article announcing the launch on Avalanche.
Now that you’re familiar with the entire protocol, let’s get to tokenomics.
RoboVault has not yet released a token, however, have previously announced the possibility of launching a token following further research into the legal structure in addition to making some additional technical improvements.
The $ROBOT token will be the governance token for the RoboVault protocol with the main focus of governance being voting on where the performance fee funds from the treasury are allocated.
Things such as insurance funds, future developments, audits, boosting vault returns, buyback/burn of tokens and voting to add/remove strategies are all examples of things that the DAO can vote on.
Previous discussions on the tokenomics have hinted at the following distribution although the team has noted in their discord that these will likely be tweaked prior to launch.
- 15% – Airdrop to early vault users
- 5% – early contributors
- 10% – community fund
- 2% – Initial LP
- 43% – vault rewards
- 25% – Team (locked)
Available information on the team suggests that there are 6 members. All of them are experienced in their field, but more importantly, experienced in the highly stressful and complex environment of DeFi yields.
Starting with one of the co-founders, SafetyBot. Their prior experience involves having spent a lot of time working in quantitative finance, machine learning, and data science. Therefore, it only makes sense that they bring their expertise to build new algorithms and strategies at RoboVault.
The other co-founder is SmoothBot. His prior experience revolved around working with low-level embedded systems and running high-frequency trading strategies. Some of the strategies he worked on reached volumes of $180M per month. He is bringing his expertise to RoboVault by ensuring that the strategies they execute are robust and secure allowing them to maintain consistent returns through all market conditions.
The Marketing lead is ComeWithMe. He previously worked with B2C marketing and e-commerce companies which proves to be perfect for his current role at RoboVault. He primarily focuses on the users and tries to spend time understanding their pain points and then subsequently helps come up with ways to solve those pain points.
Moving on to the Front-end developer, PepperBot. She has 8 years of experience as a software developer working with front-end and back-end development. She now works full-time with RoboVault focusing on UI/UX and front-end development.
The full-stack developer is KoffeeBot. He has 7 years of experience in software development where he primarily focused on building back-end infrastructure. At RoboVault he takes on a similar role by primarily looking at DevOps and the development of keepers and loggers for the various vaults.
Lastly, we have the strategist, HeroBorg. He is considered a coding wiz. In his spare time, he participates in coding competitions but when he’s working, he is developing the high-performing pseudo-delta-neutral strategies that are used in the vaults.
I would just like to add here that the RoboVault team are among the most helpful people that I have come across in DeFi. I reached out with a question in the discord and within 2 minutes I got a response from team members who were all very welcoming and happy to help. The co-founder helped me out with my questions in DMs and I got everything I needed within just a few minutes.
This is the type of behaviour that makes me very bullish on teams. Being welcoming to newcomers and strangers with prompt responses is always a good sign of a team that cares. I was very impressed. Shoutout to the team.
Their Twitter has 8.4k followers and discord has 4.35k members. Their Twitter is primarily used for updating people about the vaults and strategies and other promotional content, while discord seems to be a place for more direct interaction between the team and community. The discord is fairly active and as I mentioned before the team is very prompt, helpful, and welcoming.
While I haven’t interacted directly with many community members, I would assume that there is great synergy between the team and community judging by my interaction with the team members. Once we do see a reversal in the broader crypto market, RoboVault would likely continue to build out a larger and stronger community if they keep up the good vibes.
RoboVault and its strategies are very impressive as a whole, but what’s even more impressive is its resilience. They faced hardships on multiple occasions and could have easily thrown in the towel and ended it. But the constant dedication to fixing mistakes and improving is great to see.
Given that longevity for crypto projects is very low, most teams would have stopped at the first hurdle. The courage to keep pushing is commendable.
With that being said, the sector they are in is very tough. There is very minimal room for differentiation amongst yield aggregators which means getting ahead of the competition becomes that much harder. RoboVault’s track record of operating Delta Neutral strategies while providing extremely competitive yields to users without any token emissions & their pipeline of new strategies show some promise in helping them compete with the likes of Yearn.
RoboVault Links – https://linktr.ee/RoboVault
This article was written by the fantastic LeftsideEmiri… we are very lucky to have such a brilliant mind, writing pieces such as this at blocmates. He also has his own substack which I encourage you all to go read. His latest post was incredible.