OptyFi Strategies To Access Superior DeFi Returns

DeFi: Unprecedented Financial Opportunities If You Can Overcome Barriers to Entry

DeFi disrupts traditional financial systems that have been around for decades or even centuries. This disruption creates once in a generation financial opportunities.

However, these opportunities are not easy to access at all. This is because of the tremendous barriers that DeFi (in its current form) presents to users:

To access DeFi opportunities, DeFi degens spend hundreds of hours doing the following:

• Learning the latest blockchain technologies
• Researching decentralized protocols
• Finding the best opportunities
• Managing and monitoring investments
• Evaluating and mitigating risks
• Working with gas fees and hidden costs such as slippage
• And MOST IMPORTANTLY avoiding getting fatally rekd

OptyFi Strategies to the Rescue

In this article, we learned about OptyFi Vaults.

Vaults hold user assets and allow users to share costs such as network transaction fees. Vaults are also the primary entity that users deal with. But on their own, Vaults don’t generate profits. That’s where OptyFi Strategies come in.

Because DeFi is constantly changing and continually expanding, OptyFi takes a unique approach to DeFi strategies. Instead of defining strategies explicitly, the OptyFi architecture infers strategies from DeFi’s universe of tokens and liquidity pools. The rest of this article covers how OptyFi strategies work in practice.

A Dynamic Definition of DeFi Strategies

OptyFi takes the approach that the structure of DeFi tokens and liquidity pools determines the universe of possible strategies possible.

For example, if a token is deposited into Pool A which returns LP token A, and if LP token A can be deposited into Pool B then you have a 2 step strategy.

This approach can be extended to multiple-step strategies. Adding the possibility of borrowing and swapping increases the size of the possible strategy universe significantly.

Strategy Composition

Strategies are generated dynamically based on the structure of DeFi liquidity pools. The building blocks for strategies are strategy steps and strategy sequences. The universe of possible strategy sequences together form a strategy graph.

This page describes how OptyFi strategies are composed.

Definitions

• LP Token: Represents ownership in a liquidity pool.
• Vault Token: Represents ownership in an OptyFi vault. It should be noted that vaults are a type of liquidity pool, therefore vault tokens are also LP Tokens.
• Input Token (aka Underlying Token): The asset deposited into or held by a pool or vault.
• Output Token (aka LP Token): The token received when depositing into a pool. Output tokens are interchangeably referred to as LP Tokens.
• Reward Token: The token distributed by a Protocol to reward its users and/or community. Examples include OPTY, COMP and CRV.

Strategy Step

A strategy step is the fundamental building block of a strategy. A strategy step may consist of a deposit step or a borrow step.

Deposit Step

Depositing an underlying token into a pool and receiving an LP token in return is considered a deposit strategy step.

Borrow Step

Depositing an underlying token into a pool as collateral and then borrowing an underlying token from a different pool is considered a borrow strategy step.

Strategy Sequence

A strategy sequence is comprised of multiple strategy steps.

If a token is deposited into a pool and the LP token you receive in return can be deposited into a second pool, then you can “string together” two strategy steps to form a two-step strategy sequence.

This process can be generalized into n-steps based on the condition

outputToken(step[n-1]) = inputToken(step[n]).

In today’s DeFi reality, strategy sequences are usually limited to a maximum of two deposit steps or two deposit steps with a borrow step.

Examples of Strategies

OptyFi has developed a generalized syntax for describing DeFi strategies. The following table illustrates this syntax with some basic strategies.

Optimal Strategy Execution & Risk Enforcement

OptyFi’s AI Engine continuously scans DeFi pools to score the universe of possible strategies using advanced AI Algorithms. The AI Engine then recommends optimal strategies to each Vault.

However, the Vault’s on-chain configuration enforces which strategies the Vault is permitted or not permitted to run. Thus risk management is enforced on-cain. If the off-chain AI Engine were to recommend a non-permissible strategy, the on-chain Vault would not be able to execute it.

In the next article, we will see how the structure of OptyFi Strategies enables a “Strategy Graph” and how OptyFi’s AI Engine continually scans this Graph to switch user assets to the most optimal strategies, simply and automatically.