Gro Protocol v2 is now live. However, this evolution is not simply a progression from v1 ➜ v2. No, this is G² (G Squared), a new architecture using the ERC-4626 standard to increase the security and composability of the Gro Protocol. Read on to find out what ERC-4626 is, why G² is unlocking exponential possibilities, and how this has opened the door to compelling new uses for the Gro Protocol and its products.
TL;DR
The recent G² launch has fine-tuned the composition of the core protocol and allows anyone to create a tranche for ERC-4626 tokens using Gro Protocol’s novel risk-tranching mechanism. This means the potential for improved functionality, more integrations, and new products built using G²’s tranching mechanisms.
Firstly, what is ERC-4626?
ERC-4626 is a tokenised vault standard that established a standard API for yield-bearing tokens to represent them as shares of an ERC-20 token (technically, EIP-20), and was approved by the Ethereum community in 2022. You can read about the technical details of ERC-4626 in the original proposal linked here.
Or, consider the analogy below:
Imagine yield-bearing tokens as containers of liquid, and places where the tokens can be used as cup holders. Prior to ERC-4626, these containers came in a variety of sizes and shapes that often did not fit into cup holders (lacking interoperability), required different methods to open and use the liquids inside (inconsistent functionality), and didn’t stand up on surfaces easily (less secure). ERC-4626 is like an upgrade that creates a standard bottle design for all liquid containers (yield-bearing tokens), allowing them to fit into cup holders everywhere (better composability), be opened up easily using the same methods (standardised functions), and remain standing under variable conditions (more secure).
Now that your liquid containers fit conveniently in cup holders and the liquids inside can be accessed more intuitively, you can transport and even combine liquidity from them together in a larger container (such as complex vault strategies) that is still proportioned with standard cup holder and opening dimensions (remaining composable). In plain DeFi language, this equates to better composability (meaning, easier to operate with other protocols), faster integrations, and improved security for products that adopt this standard.
All these improvements have helped to unify the disparate yield-bearing token designs that existed previously while also being, believe it or not, simpler! That is the beauty of ERC-4626.
What is G²?
G² is an improved protocol architecture that incorporates the ERC-4626 standard and streamlines the modules that help the Gro Protocol to function, such as managing strategies, asset pricing, and tranching. These improvements have upgraded the protocol’s security and the potential for exponential expansion, hence the name G². Gro DAO takes security seriously, and G² went through three independent smart contract audits (from Fixed Point Solutions (Kurt Barry), Trail of Bits and yAcademy) in addition to the three audits conducted on the original Gro Protocol. Furthermore, G² will receive further coverage by the Gro DAO’s $1,000,000 bug bounty on ImmuneFi, which anyone is encouraged to contribute to.
Please see the Medium announcement for details about these improvements and the summarised list of benefits described below.
Immediate benefits of the G² upgrade for builders and users:
- Increased security with fewer dependencies.
- Removal of the 0.5% withdrawal fee from PWRD and Vault for more flexibility in withdrawals.
- The lower risk (PWRD) tranche has its yield from the underlying Curve strategies set at a fixed APY that is controlled by the DAO.
- Simpler to integrate new strategies and asset types as a result of the modularised G² structure, and the ease of onboarding other ERC-4626 vaults with standardised functions like deposit, withdraw, mint, redeem, and more.
- Smart contract wallets can now interact with the Gro Protocol due to the removal of the smart contract block.
- Builders can tranche any tokenised vault they want by pairing the G² infrastructure with an ERC-4626 vault. If interested, please visit the Github repository to learn about the G² codebase and suggest changes!
What could G² mean for existing Gromies or Gro-curious users?
Let’s cut to the chase. You may be thinking to yourself, “It’s nice that G² is more secure and that PWRD has a fixed yield controlled by the Gro DAO, but is this actually attractive for me when we zoom out to the wider DeFi market?”
Yes, it is. Let us zoom out...
PWRD’s fixed DAO-controlled yield, combined with the ERC-4626 upgrade, provides a foundation for composability that paves the road to a myriad of ways that you can use (and build on) Gro DAO’s tranching infrastructure in DeFi, beyond the Gro Protocol itself.
Summary of potential use cases:
- Creation of new risk-tranching yield products or structured products, now that anyone can create a tranche on top of any basket of ERC-4626 tokens.
- Risk-tranching-as-a-service deployments for existing ERC-4626 vault projects looking to upgrade (e.g. lending markets, liquidity pools, yield strategies, privacy layers, regular staking, liquid staking, insurance coverage, etc.).
- More flexibility for yield aggregation products, such as an expansion in strategies and an increase in types of vault assets that users can deposit and withdraw from.
- Wider range of wallet integrations, including smart contract wallets. ERC-4337 smart wallet accounts are a hot topic these days and new smart account products will be able to interact with Gro Protocol as that sector evolves.
…and more.
Keep in mind that these are possible use cases. Now that G² and the ERC-4626 upgrade have been completed (with further key components being modularised), there is potential to develop anything that builders and DAO members, within the Gro DAO or externally, deem important. If you’re interested to learn what is being built right now, please continue to the next section.
What is being worked on currently?
- The Panda Product Pod is developing a deposit relayer to allow Gro Protocol’s products to be used from cheaper chains/L2s, as well as cross-chain yield strategies that may expand beyond the Curve strategies used today.
- The FiRSt (Financial, Risk, and Strategy) Pod is collaborating with the Panda Pod to review risk frameworks for existing strategies and conduct research on new strategies. The FiRSt Pod is also refining frameworks for operation risk, governance risk, and treasury management.
- The Groda Product Pod is continuing to develop their OnRamp Comparator tool that is planned to launch publicly this year, as well as ongoing safety checks and the deployment of G² on an additional chain.
- Furthermore, the Groda Pod has been researching a variety of new product concepts and narrowed down the two most promising as: A Smart Contract (Account Abstraction) Wallet SDK based on ERC-4337 and a decentralised stablecoin backed by staked ETH as collateral with algorithmic market operations. A recent DAO vote has confirmed the Groda Pod’s continued operations, which will result in major developments from the DAO in the coming months.
- The People Pod has been preparing for an upcoming proposal which, if passed, will further decentralise the Gro DAO by way of three main steps: greater correlation between GRO token vesting and DAO governance, establishing an emergency multi-sig, and implementing on-chain voting via Governor Bravo.
Looking ahead
With the G² upgrade that incorporates ERC-4626, the Gro DAO has materialised its risk-tranching infrastructure into bricks with studs and feet. ERC-4626 is a standard already used by builders of major protocols, and Gro DAO has just entered the party. Now it’s time to mingle and make connections.
Got any ideas? Want the Gro DAO to explore the potential use cases mentioned above? Let the community know in the Discord or share in the community forum. Otherwise, follow Gro DAO on Twitter for updates as G² ushers in a new dawn.
This article is for informational purposes only. It is not legal, tax, financial, or other advice. All of the products mentioned are speculative and involve risks. Refrain from taking action solely based on the information in this article. Please do your own research, make your own financial decisions, and/or seek independent financial advice from a licensed person. None of the information included in this article is an endorsement of the strategies mentioned.
All software developed by Gro DAO are tools that can be used to access and/or operate various DeFi protocols. Accordingly, users of Gro DAO products continue to be in control of their assets and decide how to manage them with the help of these tools.