Yields are driven by economic activity, so it was no surprise to us when we witnessed the evaporation of on-chain yields with the bear awakening from its short-lived slumber. The collapse of multiple major players, amounting to losses approaching 12 figures, left a massive hole in — moreover, it destroyed trust in — the space. Jointly, these events led to a massive decrease in economic activity on-chain, as players begun to move their funds off-chain. But that is not all. There are other extraneous factors at play. Covid and subsequent lockdowns, lead to all manners of chaos and thus, inflation. In order to fight inflation, central banks often resort to contractionary monetary policies, whereby interest rates increase in order to reduce the velocity of money within an economy. These higher interest rates typically incentivize investors to flee to… government bonds!
Operating under the efficient markets hypothesis (oof), one may envisage yield as the market’s assessment of risk. When one thinks of risk, they may think of debt obligations issued by the U.S. Department of the Treasury — after all, they are considered to be risk-free because the “full faith and credit” of the U.S. government backs them. This year, the rate for short term Treasury Bills has been around ~4.5%, with Series I bonds averaging at ~8% for a full year!
Given that a highly liquid risk-free investment in the current period yields at minimum ~4.5%, is it truly shocking that smart money has temporarily left crypto after trust in the space has plummeted?
What can be done in order to adapt to changing market conditions and become a protocol that can succeed during both the bear and the bull?
THE NEW VISION
In the early days, we started out with three simple premises:
- Generate real yield on-chain through smarter strategies
- Bring crypto to the masses by abstracting it away and creating a bespoke experience
- Introduce DeFi-friendly insurance
The first phase of the project launch is now behind us. Releasing our first strategy, testing our models, and monitoring the security of our novel vault architecture gave us ample data for the next phases of the platform development. Thanks to our users, we have also received great feedback which has been incorporated in our product cycle.
Currently, Sandclock has a single strategy: Liquity’s stability pool with a trailing stop loss. As expected in a bear market, it only slightly overperformed B. Protocol’s instant liquidation backstop — after all, it is more often during the raging bull that we get to witness bounces from local minima, and these are precisely the movements that would benefit from a trailing stop loss, as per our backtesting. Be that as it may, the trailing stop loss afforded agents of the system the necessary time to short LUSD and marginally stabilize its peg, resulting in a better experience for Liquity’s high LTV borrowers.
Over the last few months we have been doing some soul searching — thinking of ways to become more resilient and adapt. Of course the aforementioned premises still hold, but we have surfaced additional insights: on top of bringing crypto to the masses, Sandclock should also bring real world yield opportunities to everyone, especially underbanked, and unbanked individuals in the crypto space, and expand to entrench itself as the most flexible, easy to use, one stop shop for all things wealth management.
This ranges from tokenized bonds, to higher risk products, and adapting the current interface to paint a more beautiful picture of what your portfolio looks like.
RWAs: SO WHAT?
These products are tokenized bonds. This is crypto — composable, transparent.
Imagine…
- if you could tap into leverage in order to increase your 3-Month Treasury Bill rate from 4.55% to, say, 13%;
- being able to hedge your portfolio with other Sandclock-issued uncorrelated assets;
- being able to gain access to highly liquid debt using your tokenized yield-bearing positions as collateral say, through a credit protocol.
These are all possibilities enabled by this play.
Sandclock is partnering up with legacy finance institutions in order to utilize their infrastructure to issue tokenized RWAs.
ITS NOT ALL ROSES
As with anything, these financial instruments do not come without significant drawbacks and it is important to understand them.
- Real World Assets are subject to regulation, and as such carry with them centralized points of failure.
- As with anything that involves legacy finance, the process is time intensive and we may pivot away if compliance costs exceed what Sandclock would stand to gain from the strategy.
Our crypto-native strategies are here to stay, but it would be foolish for a wealth management platform to not at least try to tap into traditional financial instruments in order to open up more possibilities and serve a wider swathe of people.
On-Chain
RWAs aside, we have also significantly overhauled our product development process in order to become faster and more efficient. As a result, we decided to refocus and trim off the “fat” — strategies with no moat — in exchange for strategies that can leverage complex backend heuristics.
Additionally, in an effort to ship more and cut down on development time, we broke up our development in multiple phases.
- The initial phase focuses on creating standard 4626-compliant vaults with our standard strategies—formal verification happens in tandem
- The second phase focuses on porting and augmenting our yield-aware vault architecture to StarkNet and having liquidity provision take place on L2
The strategies themselves favor synchronicity and are more aligned with the ethos of the space. They are currently being developed in a closed source repository which will be open-sourced soon.
Delegated, levered stETH strategy
Risk: Moderate+
Chain: Mainnet, Base
Currency: stETH, cbETH, ETH, USDC, DAI
Status: In progress (max priority)
Just as USD’s borrow is perpetually converging to its 3-month government Treasury bill rate, on-chain yields will inevitably converge to that, and ETH’s PoS yield. This strategy does just that, with a sprinkle of leverage and advanced heuristics. Additionally, this strategy will also be deployed to Coinbase’s Base once the relevant infrastructure pieces are operational on Base.
What makes it different from similar strategies from other protocols is that our backend is able to manage multiple collateralized debt positions simultaneously, and turn the strategy into an optimization problem. This approach reduces slippage, maximizes yield, and ultimately allows the strategy to scale to hundreds of millions of dollars, on as many chains as the necessary infrastructure is present.
Opyn Crab
Risk: Medium+
Chain: Mainnet
Currency: USDC
Status: In progress, backend 50%, halted
A simple strategy that deposits to Opyn’s Crab vault.
“Why wouldn’t I just deposit to Opyn myself? 😤”
On top of the obvious principal yield separation which will become more powerful once we’re on StarkNet, with account abstraction, Sandclock’s backend is IV-aware and attempts to time deposits and withdrawals in order to maximize your yield. A poorly timed deposit or withdrawal could really cut into your profit, whereas a properly timed one could boost your yield significantly.
StarkNet
We’ve talked about StarkNet in the past, and for good reason. StarkNet comes with account abstraction out of the box! Account abstraction will allow us to make Sandclock much more powerful and cheaper to use, as well as provide access to leverage for any strategy!
Unfortunately, StarkNet‘s programming language, Cairo, is experiencing rapid development with Cairo 1.0, so we’re waiting for development to stabilize which should be relatively soon (~April).
DCA
Currently, each strategy requires us to write special logic to DCA. It’s not possible to batch the operations with a single contract without incurring massive costs for our users. With account abstraction, this development time sink will reduced and gas costs will not only be feasible, but low.
UX
At present, EOAs allow for one action, one approval. Vile! With account abstraction, you will be able to batch all of your actions into a single transaction. Do many things, approve once!
Leverage(!)
This is our favorite one. Sandclock users will be able to access leverage for any strategy listed above, and gain new ways to hedge their portfolios.
Cheap
This one goes without saying. It’s a validity rollup. Cheap and safe.
Insurance
This one has been in the works for a long time. From crafting the world’s first DeFi native policy, running feasibility studies with existing on-chain data, to getting the correct applications to the right people… Traditional finance moves slowly, and just as you are waiting for this to be delivered, so are we. Rest assured, it’s moving forward.
SUMMARY
- Sandclock will offer multiple sustainable yield strategies on-chain with complex heuristics
- Sandclock is working to partner up with legacy finance institutions in order to utilize their infrastructure to issue tokenized bonds, on StarkNet
Together, these two types of products will make Sandclock a more attractive solution regardless of market conditions.
- Sandclock will integrate CoW Swap in order to entrench itself as a wealth management platform and overhaul its UI in pursuit of this goal, while providing the same superlative experience it always has
Sandclock remains committed to…
- creating a captive fund to bring insurance to DeFi
- bringing access to leverage to its strategies
- creating an immaculate experience for all its present and future users, with a focus on onboarding the masses
- integrating/developing on-chain strategies
- migrating to StarkNet for its native strategies, with an augmented, more powerful architecture powered by account abstraction
- chasing yield on other rollups like Base in order to reduce fees for everyone and increase profitability
