Introducing APY.Finance

Published in

APY.Finance

7 min readAug 9, 2020

Today we announce APY.Finance, the Wealthfront for DeFi.

We automate yield farming to get users the best, risk-adjusted returns in DeFi. APY.Finance smart contracts continuously route your funds to the latest-and-greatest yield farming strategies. We are currently on Kovan testnet with a demo of Uniswap routing smart contracts. We plan to release an alpha launch at the end of Aug/Sept with liquidity mining rewards and an IDO to follow.

If you’d like to register for our alpha launch and stay up-to-date, please sign up for our newsletter.

The Vision

We believe permissionless yield for decentralized assets is here to stay. But as an industry, we still have a long way to go. Even crypto natives today struggle with the plethora of yield farming strategies available to them. From $SNX farming to $DAI³ farming to $BAL farming, the cutting-edge strategy is constantly in flux. Just to follow everything is a full-time job. And with every new strategy comes time-consuming research and high gas fees.

But what if the latest-and-greatest yield farming strategies were simply one click away?
What if there was a platform that could route and re-route your funds to these strategies under-the-hood?
And what if this platform routed funds together so that gas fees would cost $1 per user, not $100?

APY.Finance aims to democratize yield farming by making it accessible to the average user and not just the DeFi experts.

Why?

Originally, yield farming consisted of finding the best yield for your liquidity on base platforms like Compound, Synthetix and Uniswap. We tackled this problem in April 2020 with Uniswap yield farming. While trading on Uniswap is certainly easy, chasing the best return on your liquidity is a hard and dynamic problem. As more users piled into the best returning pools, they would also dilute your yield. As a result, farmers would hop from pool to pool seeking the best yield with the least impermanent loss. Recognizing this problem at the HackMoney hackathon, we devised a set of smart contracts that could intelligently route your funds between Uniswap pools. You can play with it on Kovan testnet and read more about our Uniswap fee calculation here. Our technology won 2nd place at HackMoney 2020 hackathon.

Then, Compound and Balancer released their governance tokens. Yield farming quickly grew in complexity and popularity.

$COMP and $BAL tokens would influence your effective APY on top of base liquidity provision. Users on Compound discovered they could continuously supply and borrow $BAT until their position was leveraged 4x (the sum of the geometric series, given a 75% collateral factor). With this strategy, farmers earned 200%+ APY with no liquidation risk beyond the accruing interest on their borrow balance. Given that Compound contracts have stood the test of time since 2017, many considered this to be a low-risk, high-reward strategy. On the Balancer platform, by tracking the pool whitelist and weighted ratio formula, farmers discovered they could earn 150% APY by double-dipping their $BAL rewards via the USD++ pool.

Then, just as soon as users would spend $100 in gas fees getting into the right strategy, the incentives would change entirely. Governance changes like Compound’s Proposal 11 or Balancer’s wrapFactor and capFactor updates required users to chase the next strategy. Old strategies like BAT farming died, while new strategies were born.

We believe yield farming is here to stay, but in its current form, it is out of reach and cost-prohibitive for the average user. While the Cambrian explosion of yield farming is undeniably exciting, we envision the next step in permissionless yield to revolve around accessibility and ease-of-use. 1inch is the perfect example of a platform that has achieved this for DEXs.

Now, we aim to deliver user-first, yield farming for everyone.

What is APY.Finance?

Think 1inch for yield farming or Wealthfront for DeFi. A robo-advisor that executes complex yield farming strategies for you.

Pooled Liquidity
Deposit funds to APY.Finance and add to the liquidity pool. APT tokens represent your share of the pool, similar to how BPT tokens represent your share in a Balancer pool. Instead of multiple transactions and $100 gas fees just to implement your strategy, it’s now just one deposit to get started.

As the total value locked (TVL) in the pool grows, APY.Finance can achieve economies of scale by collectively routing funds together in a single transaction. We expect massive gas savings in excess of 99% as the system’s TVL increases. This innovation alone could revolutionize the accessibility of yield farming.

When you wish to withdraw from the strategy, it’s also just one click away. On the UI, we make it simple to know your effective APY, what smart contract risks you are exposed to, and possible impermanent loss implications.

When you want your liquidity back, simply redeem your APT tokens anytime to withdraw your yield farming profits from the liquidity pool.

Smart Routing
After the initial deposit, APY.Finance will then automatically route your funds to the most current yield farming strategies. Under-the-hood, various strategies will be implemented, depending on the existing DeFi incentive landscape.

The APY.Finance smart routing system does not merely optimize for the highest APY, it also adjusts for risk. Capital is spread across multiple strategies, depending on each strategy’s risk score. If a strategy has high yield but also high perceived risk, some capital will be allocated to capture the upside but only a limited amount to reduce the downside.

Spreading capital across multiple strategies has other benefits for risk reduction. By selecting high APY strategies that use separate protocols, the system can diversify smart contract risk and limit the impact of any individual smart contract failure or vulnerability. Currently, due to lack of research and difficulty in managing yield farming strategies, most farmers are simply sticking to a single strategy, thus exposing themselves to critical levels of smart contract risk.

Our alpha launch will roll out Compound recursive strategies first (lending and borrowing the same asset to farm $COMP). We believe this is one of the best risk-reward strategies available now. As TVL grows, APY.Finance will expand into other strategies on various platforms including Balancer, Curve.fi, YFI, SNX. Then, as DeFi incentives change, so do the platform strategies. Ultimately, however, we plan to decentralize and delegate these strategy models to the community via the $APY token (more on that below).

We also recognize that not all users will have the same risk perception on smart contracts or risk tolerances. For example, some users will not want to deposit into a liquidity pool that contains USDT as its underlying. Other users are willing to take on more smart contract risk for higher yield. As such, once TVL is sufficiently large, we plan to implement a couple of risk pools that will have different exposures, similar to the pools on Curve.fi.

Community-Owned
Security is our primary concern so strategies will be rolled out carefully and slowly. At first, the platform will be run by DeFi experts that codify yield farming strategies and monitor for time-sensitive incidents. Concurrently, we will run a liquidity mining rewards program to get the $APY token into the hands of real users.

Once stable, APY.Finance will then work towards being 100% community-owned through a process of progressive decentralization via the $APY token. $APY governance token holders will first be able to propose and vote on easily verifiable changes to the DeFi landscape (i.e. Balancer increasing the constant capFactor). These simple changes can be pushed and rewarded by the community.

Subsequently, $APY holders can propose and vote on platform parameters, such as strategy risk score changes or even yield allocation. As the DeFi landscape changes, the community updates these risk scores to reflect these changes. Finally, once the platform has reached a sufficient size and decentralized into a DAO, the community will be able to govern the implementation of new strategies and the deprecation of old ones.

Roadmap

We plan to roll out an alpha launch with Compound strategies end of Aug/Sept. Then once stable, we plan to expand into $BAL farming. Stay tuned for the future Medium posts on how these strategies will work.
Our vision is one of community ownership. A significant portion of the token supply will go to the community via the public rewards and community initiatives pool. Shortly after launch, we will release liquidity mining rewards to get the $APY governance tokens in the hands of the community.
Finally, to further decentralize, we will host a small IDO.

Summary

Yield farming began with simple base-layer APY rewards, then quickly exploded in complexity with the release of governance token incentives.
Modern yield farming is high barrier-to-entry, time-consuming and inefficient with gas fees.
APY.Finance is a platform that makes layered, high-yield farming easy. Just one deposit to implement the latest-and-greatest strategy and get the best, risk-adjusted APY available.
$APY, APY.Finance’s governance token, incentivizes the community to update strategy models and risk scores as the DeFi landscape changes.
Alpha launch is planned to be for the end of August/September 2020.
Liquidity mining rewards will be available to users of the APY.Finance platform.

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