Sector Finance: The Path Forward
Sector Finance’s mission is to sustainably scale the decentralized finance ecosystem by providing the liquidity infrastructure required to onboard the next generation of DeFi participants.
The protocol is the first to combine risk transparency with real-yield generating and delta-neutral investment strategies. Our initial launch marks the beginning of Sector’s evolution through three phases:
- Phase 1: Foundation
- Phase 2: Scaling
- Phase 3: Infrastructure
As Sector Finance moves from one phase to another, we intend to address the systemic liquidity issues in the financial markets. While evolving and achieving new milestones, Sector Finance will remain grounded in its founding principles, which prioritize risk transparency and real value accrual to the platform and its community.
Phase 1: Foundation
Objective
The objective of the Foundation phase is to develop more vaults to include new delta-neutral and market-making investment strategies that generate real yield across different networks and protocols.
Sector Finance amassed $3.0 million TVL in a few weeks after launch, indicating the need for risk transparency and high-quality strategies that generate real yield. We see a clear path to achieving the $50 million TVL target.
Execution
The first priority is to enhance our market-making strategies by allowing them to borrow additional capital from integrated low-risk lending vaults. The additional capital will be utilized to increase the collateral in the AAVE/Compound position. This approach will improve capital efficiency and reduce liquidation risks. In the subsequent phase, Sector Finance aims to eliminate reliance on the external lending protocols all together and rely solely on integrated Sector lending pools.
This will enable the deployment of strategies such as delta-neutral LP on more chains like Arbitrum and Optimism, as well as the development of more customized and exotic delta-neutral and market-making strategies.
Galileo Risk Engine
As Sector Finance integrates with more protocols and networks, the Galileo Risk Engine will provide full transparency on all forms of associated crypto risk. At the end of this phase, there will be a diversity of strategy types, with aggregator vaults bundling the strategies by risk level.
The Foundation phase lays the groundwork to onboard the next set of Sector Finance participants and the next phase of delta-neutral and market-making strategies.
Phase 2: Scaling
Objective
The objective of the Scaling phase is to onboard larger-scale users, protocols/DAOs with protocol-owned liquidity, and develop private vaults alongside public vaults for larger-scale liquidity providers.
As Sector Finance onboards more users and participant types, its vault offerings and integrated protocols expand to encompass the broader risk spectrum of DeFi users and institutions.
In addition to providing real yield through diversified vault strategies, Sector Finance will begin its evolution into a liquidity optimizer as it onboards larger-scale capital.
Execution
The first priority is to develop Sector Finance’s lending pool into its Liquidity Routing Engine. Sector Finance’s low-risk strategies and aggregator vaults can provide internal liquidity infrastructure, and funds allocated to these pools can be used as the sister lending pool to scale and develop new delta-neutral and market-making strategies to generate real yield paid in USDC/ETH. We aim to have the liquidity infrastructure be designed to integrate with other protocols, allowing for increased interoperability and collaboration in the DeFi space.
The next priority is to develop private vaults alongside public vaults for larger-scale liquidity providers. These are permissioned vaults only accessible by the DAO or liquidity provider. Sector Finance can generate customized strategies based on the risk parameters for the deposited liquidity.
For protocol-owned liquidity, Sector Finance can optimize the pool by hedging away traditional LP risks like impermanent loss and multi-sided asset exposure.
Galileo Risk Engine
Our risk analytics platform will continue to be refined and developed to account for the newer risk types of the private vaults and optimized liquidity infrastructure. As the strategies and user types expand, so does the reach of the Galileo Engine.
Phase 3: Infrastructure
Objective
Solidify Sector as part of DeFi’s core liquidity infrastructure as the platform evolves into a permissionless market-maker that enables sophisticated algorithmic strategies.
Our vision is for an institution, DAO, or large-scale liquidity provider to come onto Sector and be able to deposit liquidity in an instantaneously generated and customized structured vault that optimizes liquidity based on their exact risk parameters.
Providing liquidity on a larger scale isn’t capital efficient. Market makers cannot express their own strategies that decide the conditions of a trade. There is also a risk of exposure to both sides of the LP and impermanent loss. True permissionless market making hedges away all risk types.
Execution
To achieve our objective, we will apply the principles and strategies behind liquidity optimizing and the delta-neutral strategies of our vaults on a larger scale. Any liquidity provider can utilize Sector to have their liquidity managed in an automated, capital-efficient, non-custodial, and transparent manner according to the crypto risks they’re willing to take.
Flexible vaults can be developed that have a smart contract to enable complex market making strategies to be employed for pairs with more distinct volatility profiles. Furthermore, we have the option to focus on market making strategies that can optimize for deep liquidity, trading fee APRs, or mimic traditional AMM invariants, such as constant product, stableswap, or Curve V2.
An institution or large-scale capital provider will have the ability to deposit liquidity in a customized structured vault that optimizes liquidity based on their exact risk parameters.
Galileo Risk Engine:
At this stage, the Galileo Risk Engine will have established itself as a core component of risk analysis in DeFi. We will have developed and refined our risk analytics platform to expand the reach to include different crypto strategy, protocol, and asset risks.
Additionally, we aim to have the Galileo Risk Engine integrated with the smart contracts of our market-making, liquidity optimizing, and delta-neutral investment vaults, enabling real-time risk management and mitigation.
The Path Forward
This is our vision: a path forward that never strays from our core principles of risk transparency and real value accrual. By continuing to innovate and expand our capabilities, we will solidify Sector’s position as part of DeFi’s core liquidity infrastructure.
