Yield maximization strategy for Yearn Lazy Ape

The strategy for maximizing yield by periodically reallocation funds between Vaults is deployed for YLA

Yearn Lazy Ape is an example of the Fund of Funds strategy. It is a Balancer pool composed of a set (a basket) of Yearn Vaults LP tokens. Yearn Vaults, in their turn, are based on Curve stablecoins pools. Users holding YLA are receiving all yield generated by Vaults from its composition.

Yearn Lazy Ape is known as the product that diversifies yield from several Yearn Vaults and saves users’ gas costs.

Now diversification is enchanced by yield maximization strategy.

Why does YLA need a yield maximization strategy?

The profitability of Vaults is based on market factors that are constantly changing — (1) amount of swap fees collected in the Curve AMM Pool (2) amount of CRV/other token rewards in this pool. Collected fees vary since trading volumes are always changing; token rewards fluctuate as CRV/other tokens price is quite volatile.

It means that any particular basket of Yearn Vaults cannot be considered as efficient capital allocation forever. Someday funds should be reallocated to the basket with another composition.

The static product doesn’t work in this case. For example, Vault can have 25% APY at the present moment and only 5% in two weeks as it happened with crvUSDP vault. The capital allocation into basket of Vaults should be based on sort of automated strategy to make it more efficient and profitable for an end-user.

Yield maximization strategy for YLA

The strategy updates the composition of the pool by re-allocating pool funds between Yearn Vaults with assigning new weights thereafter. The new share and weight of each Vault LP token in a pool correspond to the share of the pool’s TVL from a total TVL of all Yearn Vaults LP tokens, included in the pool. The total supply and capitalization of every Vault LP token directly correspond to TVL in it, so this approach can be considered as a sort of M.Cap weighting.

The basic scheme is presented below:

Additionally, we are actively researching other strategies which use not only TVL as an input trigger but also the growth of Yearn Vault LP share and derivative metrics (rate of share growth, rate of TVL growth or declining). We do it in collaboration with the Balancer Simulations research group (PowerPool is a partner of this group).

Technical implementation

You can read details of the Solidity implementation using the Github link. Basically, it comes down to calculating new weights for Vaults based on TVL and reallocating USDC between Vaults. The strategy was audited by Pessimistic.

Conclusion & future roadmap for YLA

Yearn Lazy Ape was the first structured investment product on the market offering gas-efficient exposure to a diversified basket of Yearn stablecoin vaults.

With deployment of yield maximization strategy it fully utilizes the Yearn Lazy Ape name.

Now it automatically reallocates funds between Vaults without any additional cost or effort for an end-user.

In future releases of the YLA yield maximization strategy, we will add a shortlist of prospective Vaults. Initially, they will have zero weights. As an example, the strategy can track their TVL and include top-5 in the YLA composition.

Another very significant milestone for YLA will be migration to Balancer v2. After this migration, YLA would be not only integrated into the v2 routing system but also get other significant improvements. We will share details of this migration with the community soon.

Supply liquidity to YLA: https://powerindex.io/#/mainnet/0x9ba60ba98413a60db4c651d4afe5c937bbd8044b/supply