PowerPool/PowerAgent Roadmap Checkpoint: 2 years
Thoughts, reflections, conclusions, and future plans
Some reflections on what we learned during the first 2 years of building PowerPool/PowerAgent.
Recently, we created a condensed version of what we have accomplished in the last two years at PowerPool: https://powerpool.finance/story/
We analyzed the PowerPool journey and summarized what we have learned so far. The results of our observations were the rationale for our near-term protocol strategy focusing on the deployment of v2 of the PowerAgent automation network on different chains and building automated products on top of it.
How it all started
PowerPool was launched as a meta-governance protocol. After the community-driven update, PowerPool was focused on solving one challenge in particular: enabling efficient decentralized diversified DeFi indices/token baskets available to all.
Early PowerPool innovations included:
- pooled meta-governance (Aug 2020)
- staking tokens from an AMM in a third-party contract for yield (Dec 2020, released early 2021)
- decentralized autonomous automation network solution & infrastructure (early 2021)
Our reflections on index markets after active participation in them for 1.5 years
We believe it is still too early for most Defi investors to favor diversified baskets/indices. To date, all existing Defi baskets/indices hold a very small percentage of their underlying assets’ circulating supply. Even at the peak of the last bull market, TVL in multi-token indices/baskets was less than 1% of total Defi tokens.
No tier-1 CEXs listed diversified multi-token basket/index tokens. There are relatively rare examples of tier-2/tier-3 CEX listings, but they all have poor liquidity. As a result, investors buying basket-tokens on DEXes or minting them themselves turned out to be the best way to acquire basket/index tokens; unfortunately this method eliminates a lot of newcomer investors which emphasizes the idea that it is too early. Major CEXes aren’t interested in offering such products to their users.
PowerPool results on indices market
PowerPool’s capital acquisition results for ‘index’ basket products were as follows: $PIPT reached $16m TVL, other indices ($ASSY, $YETI) approximately $10m, and the automated stablecoin yield $YLA (Yearn Lazy Ape) product reached $15m without any significant marketing. Pioneering ‘index’ basket for Binane Smart Chain — BSCDEFI had $1.7m TVL.
Despite a large number of technical and ideological innovations, it’s still not a very significant TVL for the Defi market.
But what’s a really significant outcome of our continuous work over almost 2 years is the automation of on-chain strategies, including developing approaches to do it in a robust and decentralized way.
During the first year of operation, YLA generated a 17% stablecoin yield due to capital optimization. After 1.5 years of succesful operation without any issues, $YLA faced user experience issues due to stablecoin risks. Since USDN was one of the main $YLA constituents, its de-peg resulted in the withdrawal of a significant share of liquidity (for reference, $USDN now is priced as 0.995). The $UST death additionally increased mistrust in stablecoin yield products that did not use major stables, accelerating capital-flight. The $UST case demonstrated that in the case of stablecoin yield, the risk associated needs to be taken into account and that stablecoin products need to be very carefully risk-assessed.
The PowerPool treasury–protocol fees, collected in various Defi tokens–was greater than $1m at its peak, but now–after dumping the majority of these tokens at least at 70–80%–it is around $150k.
Why hasn’t such an easy-to-understand and historically proven concept like an ‘index basket’ been adopted by Defi users yet?
Why haven’t DeFi investors gravitated towards diversified, pooled vehicles? There are many contributing factors:
- the persistent high correlation of price movements across all digital assets moderates the value of diversification (so far)
- persistent high volatility leads to a lack of market-neutral/delta neutral ‘buy and hold’ yielded-bearing baskets
- the lack of automated intrinsic yield harvesting and extrinsic yield/hedging options means that ‘passive’ diversified baskets cannot beat the staked ETH benchmark, or offer moderated volatility.
- relatively high inflation in some protocols (especially on non-Ethereum EVMs) favors continuous re-balancing rather than ‘buy and hold’
- the competitive dynamics of EVM+L2 vs. non-EVM ALT L1s protocols across many platforms make it difficult to define thematic baskets as more attractive than ‘picking winners’ i.e. single assets that could be pumped x50 during a bull cycle.
Addressing some of the reasons presented above involves recognizing that the most attractive digital assets can be staked for intrinsic yield and have options for extrinsic yield (lending) as well as hedging options to reduce volatility.
Indices/baskets must be able to do this automatically for most tokens in the basket, and the basket token itself needs to be listed and hedgeable. PowerPool has been developing:
(1) the technological capability to do this from Balancer
(2) the particular staking strategies for every asset
(3) a lot of on-chain automation
PowerPool automation as an attempt to build more efficient Defi products
However, automation of on-chain processes is a general trend in web3. A closer look at modern web3 (DeFi, NFT, Metaverse, DAO, etc.) demonstrates that all of it comes down to ‘a lot of on-chain automation’. It includes almost every service or solution built on top of other protocols such as Uni v3 position management, Vaults, strategies, even Bal v2 asset managers, collateral management, options, limit orders, etc.
PowerPool developed some of the earliest automated DeFi solutions (such as $YLA with auto capital reallocation between yVaults based on on-chain metrics). Based on this example, we believe that the creation of an efficient autonomous decentralized on-chain automation network is still an unsolved problem that is fundamental to the future of DeFi and a large opportunity for node operators (transaction executors) as well as asset managers. Using automation, asset managers can create private or public strategies with guaranteed execution even in extreme conditions (expensive gas during crash of the market, etc).
Based on all the information presented above, automation should be the focus for PowerPool taking into account our accumulated experience in Defi automation, how we’ve built complex products on top of it, as well as the existing codebase.
Our next steps
Accordingly, our near-term focus is primarily on the development and adoption of our PowerAgent on-chain automation network, deploying it to different chains, and then creating automated products on top of it.
We have now developed PowerAgent v2 which will be more decentralized, gas efficient, and feature task differentiation by importance, entry barriers for transaction executors (Agents) — skin in the game staking requirements, and payment schemes. The previous version — PowerAgent v1 has been operating on mainnet without any significant issues since late 2020 supporting only PowerPool products.