It’s been a while since we provided an update on core protocol work. Enzyme v4 has been out for two years and helped us secure $131.3M in vault deposits from 2022 to 2023 with more than $11.3M deposited so far in 2024.
In that time span, Enzyme v4 has taken the protocol from bear market lows of $35M to an all time high TVL of $253M earlier this year.
As these deposits have grown, we’ve spoken to hundreds of potential builders and managers; some have materialised into users while others haven’t. We’ve been gathering lots of data points and feedback along the way, which has helped shape our vision and direction for what v5 should enable. This new direction is even more crucial as the DeFi market continues to evolve over the next 2–3 years.
Musings and Learnings From the Past Year
- Multi-chain functionality is evolving rapidly and it’s a key feature to staying relevant.
- AI has made huge strides in recent months and figuring out how agents can support vault owners and managers is going to become an increasingly important part of our work.
- We’ve been missing out on opportunities because of Enzyme’s finite and limited asset universe. In many ways, the design behind the finite universe was intentional because it helps automate on-chain reporting for the vault owner. However, it has also limited the protocol’s growth potential.
- Integrations are not happening fast enough, especially as the market is accelerating and becoming more competitive. Quickly integrating with new protocols and projects is becoming a key requirement for builders and managers.
- Our default has always been to assume that vault owners are not trusted. This means layering in protections for depositors which creates added friction and cost for vault owners that are trusted (eg migration, reconfiguration time-lock, etc).
- Modularity is the way forward. Some third party vendor logic (eg. Chainlink price feeds or gas related) was built into the core logic of the protocol, which makes it difficult to isolate, select an alternative or deploy improvements without a major protocol upgrade (which forces users to adopt the same hard coded option).
- The Enzyme Technical Council previously maintained an asset universe which supplied prices to the protocol via Chainlink and our derivatives price feeds. The universe was largely maintained with the assumption of on-chain reporting. However, this limited vault owners from using third parties to price assets and make their own assumptions. This is common in TradFi and we need to be able to replicate this.
- The protocol was not suited to handle certain types of builder use cases such as closed ended funds, which invest primarily in illiquid assets. In this case, it makes more sense to have features like a lock up period, non- continuous reporting and a vault share price rather than trying to price all the underlying.
- Claiming protocol fees is clunky and the burning function seems to destroy more value than it creates (check this with Eric Hess).
- Single asset denomination has been restrictive for some users.
- Automation is one of the most heavily requested features (including indexes, portfolio rebalancing and sophisticated DeFi strategies).
- Currently, Enzyme is not easy to use in DAO governance structures but has a number of underlying features which they could benefit from.
Moving Forward
All of the above has given us plenty of food for thought and has resulted in us moving forward with a v5 vision that will be focused on accelerating growth for builders and managers. This includes:
- Cross chain deposits: The ability to accept deposits from other L2s and send vault shares back (as well as the reverse).
- Modular architecture: Implement a much more modular architecture which allows builders to get a lot more creative.
- Infinite asset universe: An unlimited asset universe which vault owners can define themselves.
- Speed to market: Invest more heavily in a unified front end for DeFi with faster sprint cycles that can enable the rollout of integrations much quicker.
- Adapted assumptions: Vault owners are trusted but managers are not necessarily trusted (optional).
- Support for illiquid assets: Build the infrastructure and option to handle far less liquid assets and therefore support other kinds of fund vehicles such as venture funds, secondaries and tokenised structures.
- Simplify the protocol fee: A simpler and more efficient implementation of protocol fee (entry/ exit instead of AUT/TVL/Deposits based ).
- Extend vault deposits: Introduce support so that vaults can accept multiple assets as deposits.
- Builder tools: Build out typescript and python libraries for builders, in particular those that want to focus on the automation of strategies or actions.
- Embrace artificial intelligence: Find effective ways to leverage AI agents while integrating AI into Enzyme to enhance the overall user experience (currently being explored via various partners and grants).
- Strengthen connectivity to governance contracts: An ability to operate with different governance contracts through multiple interfaces including Aragon, Open Zeppelin and more.
The Big Picture
Here is a broader overview of the protocol roadmap, which includes several distinct areas of focus. Please note a more in-depth roadmap will be supplied as soon as we have agreed on a firm direction of travel.
Closing Thoughts
We’re excited to share our vision for v5 and some of the benefits it will enable.
As we reflect on the past few years, it has become apparent that Enzyme’s product-market fit is being driven by use cases above and beyond the original “hedge fund” use case we began building for in 2017.
With this in mind, we believe it’s important to accelerate both builder and manager use cases that are proving popular with the protocol in an effort to strengthen product-market fit.
Why limit ourselves?
A more modular protocol with key new products, features and benefits will enable us to experiment, solve real use-cases and build momentum more easily. We are very excited about what the future holds and look forward to updating you with a specific timeline for the roadmap.
