Yield Growth

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YIELD = PRIZES

There was a focus of discussion on the recent council call that I think should be brought forward here to the forum and greater community. YIELD! With Aave as our foundation for safe, steady yield for PoolTogether we should look at how we can plug other yield from around the ecosystem in to the prize pool. This post hopes to open the discussion on where we should focus our resources to develop more yield integrations and partnerships.

DefiLlama offers this great resource of top protocols per chain, here is Optimism

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Two things to note

  • this does not include opportunities like rETH (~$15m in TVL on Optimism, $3b total)
  • TVL does not equal YIELD

Relevant to look at the number of chains listed under each protocol and the traction in the greater ecosystem. As we expand beyond Optimism these potential integrations become easily deployed across other L2s and Mainnet.

My personal view

In the later days of Pooltogether V3 there was OHM. A rebasing token with ponzi yields that plugged easily into PoolTogether and created more than a million dollars in prize in one week. With V5 ALL yield sources aggregate to one prize, and any yield source benefits the whole network. I think we should make it as open and accessible for anyone to plugin to the network as possible.

While plugging in to the PoolTogether prize pool now becomes permissionless, we need to think both about where we want to actively pursue integrations, and how we determine which integrations to officially support and promote.

I love the idea of rETH for PoolTogether and that is a connection that has already been made. I think the community should be prepared to allocate resources to see that through. It would be great to have it with the new V5 launch.

There are three types of general vaults that I think will be key to have

  • The best strategy for separating the yield of wrapped tokens like wstETH where the exchange rate usually lives on mainnet (we should avoid using an oracle)
  • A vault that works out of the box for rebasing tokens the biggest one being stETH (this mostly is for Ethereum)
  • A vault that has no yield but can have twab rewards and or boosters

Of the top 10 on Optimism I think we should be looking at

  • Synthetix
  • Beefy
  • Yearn

Unlocking something like Beefy or Yearn taps into many yield sources on many chains. Synthetix is the biggest player on Optimism and I have reached out to the ambassadors there but the question remains what is the opportunity exactly and how do we make it happen.

So the first discussion prompt for this thread - What do you want to see the community focus on for new yield sources and partnerships?

And the bonus question - How do we decide, and how does that decision process lead to our decision as a community to endorse integrations. As the network is permissionless we have to decide if vaults are officially endorsed on our official channels.

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Another place to look is at the Yields section of Defillama

Here is a list of yields on Optimism with 400K TVL or more and max APY of 100% for funsies
https://defillama.com/yields?chain=Optimism&minApy=1&maxApy=20&minTvl=400000&maxTvl=

Seems like Sonne is another one we would want to pursue and their vaults are 4626 including wstETH!

Here’s a list of all deployed 4626 Native Vaults with TVL information

Finally, here’s a site that tests to see how much the 4626 Vault deviates from the standard

I would still like us to stay with trusted yield sources. Aave, Sonne, Beefy, Yearn seem like low hanging fruit. I haven’t found any development of a Synthetix 4626, so seems like that one will be more difficult to deploy.

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I’ve created a list of vaults taking into account native/wrapped 4626 on https://tvl.erc4626.info/ and all other vaults listed on https://defillama.com/yields

Here’s a shortlist for OP, ARB, BASE, and ETH

@Alx and I have a doc going on an explanation of these recommendations as well as a proposed structure for how to determine new vaults going forward, and we’ll post that later today. Just wanted to put these vaults out there now for discussion.

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I think expanding to other yield sources is a no brainer. We don’t want to be in a situation where one yield source upends our entire protocol if there is an issue or a bug affecting it. I think we had a non-critical issue with AAVE at one point, we’ll want to avoid that. We were beholden to AAVE fixing the bug at that point. The more yield sources that we have, the less impact a similar event will have. If AAVE had gone down at that moment, so would have we. I know it wasn’t that critical or dramatic, but for argument’s sake…

Of course with expanding to other yield sources, we have to be cautious and mindful of who we are integrating with. We have to maintain the same, or close enough, confidence that we have with AAVE. I put Synthetix and Yearn in the same class as AAVE.

I do favor Yearn since we do have a relationship with them, somewhat from the past. It would be a rekindling of relations. Though, Synthetix seems like a good bet, too.

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So here’s how @Alx and I came up with our shortlist:

•We aimed for a Minimum TVL of $500k on L2s, $1m+ for mainnet vaults.

•For the most part we did not consider LP tokens with risk of impermanent loss (there are a few exceptions)

• We added notes about other things to consider: including audits, custody and upgradability

How can we determine which vaults are best to integrate with?

Key Questions to ask:

  • Is the yield source already 4626 compliant?
  • Has it been audited?
  • If wrapped 4626, has the wrapper been audited?
  • Is the vault TVL greater than 500k (250k is the minimum TVL for a well functioning prize vault)
  • Is the yield source a trusted protocol?
  • Is there custody risk? Is it possible to move user funds (or upgrade), and who is that entity that can upgrade?

Once the community determines which yield sources will be prize vaults, we need to do the following:

  1. Review the yield source to make sure the questions above have been answered (including is the audit from a reputable source) and there aren’t any unique contingencies that won’t allow for proper prize vault integration.

  2. If the yield source isn’t a ERC-4626 vault there are two options:

  • If a wrapper exists, the wrapper should be evaluated to see if it will work with Prize Vaults
  • If a wrapper does not exist, one should be created that will work specifically with Prize Vaults and that wrapper should be audited
  1. Once the prize vault is created, it too should be audited.

About Vault Costs:

• Creating a wrapper for a yield source which does not have a 4626 vault can be time consuming and thus more expensive than using a pre-existing wrapper and just auditing it. Also, for some yield sources we may be able to make one wrapper and get access to multiple vaults (for example with Yearn or Beefy . We might want to do this for some key vaults / yield sources we want access to, but we can’t do it for everything due to cost.

• Auditing an existing wrapper/prize vault could cost between $20k to $50k but could be cheaper if we do a bunch of auditing at once. (Generation Software is pursuing a quote from our trusted auditor, C4)

Finally, some additional things to consider:

How much in total should the protocol spend on auditing vaults?

Can we convince vault partners / chain partners to share in auditing costs?

How many total vaults should we seek to integrate and audit? (note that some wrapped yield sources will get us access to many vaults, though maybe not all our first choices)

What vaults/wrappers are inexpensive and desirable to move forward?

Beefy and Yield Daddy offer existing 4626 wrapped vaults, but we will still need a custom integration if a yield is boosted.

The yield daddy implementation was audited by Spearbit and that wrapper was audited against the 4626 spec by C4 in PTV5’s last audit. Yield daddy wraps Aave and Compound, giving us access to a number of assets.

Beefy was audited by Zellic. Another risk to consider with Beefy is that vaults are upgradeable by a multisig.

Yearn offers access to a number of high yield strategies, but would require a custom wrapper in order to integrate properly with the Prize Vault Factory.

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Hey! Pete here from Origin again. I’d like to recommend two of our yield aggregators once more, OUSD and OETH for consideration. Both tokens (protocols) accept multiple forms of collateral which are then allocated to other blue-chip protocols for yield generation. The protocol does the yield farming so you don’t have to! You can find my previous forum post on OUSD here.

OUSD yield has ranged from 3.39% to 11.5% APY over the last 3 months (OUSD yield history here), and OETH yield has ranged from 2.56% to 25.16% APY (OETH yield history here). You can see how we compare to the other aggregators on the Defillama Yield Rankings page.

Check, both OUSD and OETH have wrapped versions that are 4626 compliant. More info on this is in our docs here

Check, the OUSD/OETH codebase has been audited 10+ times, and OpenZeppelin is on retainer to review 100% of our smart contract changes. More info on this is in our docs here

Check, the wrapper has been audited. You’ll find the Solidified report here

Check, OUSD is at $13.3m, OETH is at $125m

Check, OUSD and OETH only use blue-chip protocols for yield: Aave, Compound, Morpho, Curve, Convex, Balancer, Aura, Lido, Rocketpool, and Frax

Check, there is no custody or counterparty risk. OUSD and OETH are governed by OGV stakeholders around the world. Everything from yield generation to fee collection and distribution is managed by a set of smart contracts on the Ethereum blockchain. These contracts are upgradeable with a timelock and are controlled by hundreds of governance token holders. While the initial contracts and yield-earning strategies were developed by the Origin team, anyone can shape the future of OUSD and OETH by creating or voting on proposals, submitting new strategies, or contributing code improvements.

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This is the type of energy we need!

Thanks, Pete!

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I’ve heard this highlighted on community calls and I’ve seen this comment brought up on Discord. Just wanted to clarify a few points about Beefy and Yearn.

Beefy Vaults

Beefy vaults are built to be immutable and the strategies are built to be immutable as well. However, a vault’s strategy can be updated and changed, which is done using Beefy’s developer multisig. This is highlighted in the Beefy docs. They do use a minimal proxy pattern implementation, but that’s not the same as having an upgradable proxy. As such, the Beefy multisig has no access to users’ funds.

Yearn uses a role-based permissions system to allow a strategist to update a vault’s underlying strategy. You’ll find that most every yield aggregator, or all of the ones I’m familiar with, have functionality to upgrade the underlying yield strategy since providing the best yield is the core product that an aggregator offers.

Just want to highlight that we need to be clear about these distinctions and have conversations with these other protocol teams before sharing information that isn’t 100% accurate about potential integration partners.

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