Spool is the infrastructure for institutional DeFi. It enables institutional investors to create bespoke DeFi yield solutions, called “Smart Vaults”, for themselves and their clients to use. These Vaults are tailored to the institution and their exact requirements, can be set up based on their specific regulations, and enable non-custodial risk-managed investments in multiple yield sources, managed by fully-automated and audited smart contracts.
The DeFi ecosystem has rapidly grown since the creation of Ethereum in 2015, creating incredible financial opportunities for all investors from individuals to large-scale traditional financial institutions. However, the growth of adoption, particularly at an institutional level, has been held back by the complexity and high overheads of identifying suitable yield-bearing strategies and managing those investments over time. Institutional investors are also looking for the frameworks they have become accustomed to in the traditional financial world that allow them to quickly and easily ascertain the risk level of specific investment strategies.
Spool is bridging the gap between the institutional market and DeFi by creating a “best-in-class” DeFi yield product infrastructure and providing it to financial institutions through white-label “Smart Vault” solutions, integrating yield-bearing assets from a wide network of partners.
This is supported by the ability for institutions to create their own risk models for strategies that they can then utilise and advise their Smart Vault investors on.
In Q1 2022, Spool launched the initial Smart Vaults with the ability for investors to add their stablecoins and generate competitive yield through key strategies utilising the Spool Labs Risk Model. Later in the year, the ability for users to create their own custom Smart Vaults was launched, enabling users to create their own custom combination of investment strategies. Combined with this, on-chain DAO governance was implemented to allow collective voting on where Spool emissions should be allocated to Smart Vaults, boosting their APY.
Spool Vaults employ trustless, non-custodial smart contracts. That is, they do not hold assets at any time. Instead, they automatically allocate and reallocate those assets among the chosen strategies, based on the specifications of the Smart Vault creator.
Smart Vault creators and users can deposit or withdraw at any time and can even track Smart Vault performance and APYs, including from incentivised rewards, through the platform, as well as integrating custom widgets displaying relevant data for clients into their own platforms.
Why is Spool needed?
There is a need for a new layer in the blockchain ecosystem that provides both crypto-native and traditional financial institutional investors easy, yet reliable, access to DeFi yield protocols.
Traditional financial markets are, as yet, a largely untapped market for DeFi to utilise. For example, in 2020 the Global Bonds Market was worth approximately $129 trillion, and the Global Stock Market was approximately $122 trillion. In comparison, at its height in 2021 DeFi had a market cap of just almost $200 billion, and sits now at just $53.98 billion (source: DeFi Llama).
Even if only increasing to bringing in 1–2% of the traditional financial markets, the untapped potential for growth in DeFi is considerable.
Yet, Defi investment is a highly complex process with a detailed understanding required both during the initial selection of individual yield strategies and while those strategies are in play. This creates a costly overhead for institutional investors who will need to spend extensive time and funds both setting up and monitoring those strategies.
Spool’s model combines the stability and ease of traditional centralised platform infrastructure with DeFi’s decentralised and non-custodial yield protocols. This creates a solution that is easily understandable, transparent about risk, and low-touch to maintain while still being flexible and powerful enough to see the benefits of DeFi yield strategies.
It also creates a low/no-code solution as institutional investors no longer need to hire and maintain teams of specialist smart-contract developers to build and maintain their own infrastructure.
Through its on-chain governance protocol, Spool is setting an industry-standard in decentralised platform management and development. Meanwhile, through specialist legal advisors, Spool is establishing models of legal compliance for centralised financial companies looking to move into the space.
In short, Spool takes the strengths of centralised systems but applies them to decentralised goals and technology.
Spool is built on trustless, non-custodial smart contracts audited by leading tier-1 cybersecurity auditors and managed by a DAO. Investors in Spool Smart Vaults can deposit into or make withdrawals from Vaults at any time, track their performance within the Spool App, and vault creators can add additional ERC-20 token incentives to draw in new investors.
At the same time, Spool is separate from standard DeFi protocols due to a focus on providing customisable infrastructure that any organisation can use as they see fit within their existing compliance models. As well as products such as white-label Smart Vaults, Spool empowers institutional investors to create and manage their own risk matrices.
The Spool Token ($SPOOL)
$SPOOL is a publicly tradeable token that forms the primary incentive token for increasing APY through Smart Vaults, the tool for generating governance rights across the platform, and a yield-bearing solution based on fees earned within the platform. This was initially issued during a Liquidity Bootstrapping Pool (LBP) Fair Launch held in Q4 2021.
Holders of $SPOOL can stake it to earn voSPOOL, the governance voting token, over time. This voSPOOL accumulates while $SPOOL is staked, but is lost if staking is ended, and is not tradeable. As a result, governance rights are a reward issued automatically to stakers who have long-term commitment and vision for the project.
Holders of the voSPOOL governance token determine the strategic direction of the Spool protocol via on-chain governance voting. One key function of this governance process is the “$SPOOL Emissions Voting”. This allows voSPOOL holders to allocate an amount of $SPOOL tokens to any Smart Vaults active and holding at least 0.002% of the total SPOOL TVR. These emissions then act as an additional APY to be rewarded to investors in those specific Smart Vaults.
Regulatory Compliance
Spool maintains a clear regulatory separation of the governance body, Spool DAO, and the Swiss-based Spool Labs company, which exists to allow the DAO to interact with institutions external to the DeFi ecosystem.
The overall architecture of this relationship and the nature of the two parts have been created after careful and detailed consultation with a leading specialist Swiss legal firm to ensure compliance where needed while maintaining independence for the DAO.
In turn, the Spool Smart Vaults infrastructure is designed to fit into a creators existing compliant set-up based on their jurisdiction. Through a white-label solution, Vaults can be fully configured depending on the creator’s established compliance model, from choosing only specific yield strategies to fit that compliance model to the release, with Spool V2, of gated access to a Vault so only KYC’d investors can access it.
In addition, Spool is actively working with legal and governing bodies to establish standardised frameworks for creating Smart Vaults to assist institutions in maintaining legal compliance for their personal jurisdiction.
Spool Next Steps
Spool has been extensively audited and tested during its pre-release and beta periods in 2021 through to early 2022, with ongoing audits of strategy integrations occurring as new strategies are added. Following a number of key partnerships including Aave, Yearn Finance, and Idle Finance, Spool launched their Smart Vault infrastructure platform to the public to invest in Smart Vaults in Q1 2022, with the public release of Smart Vault creation following in Q4. Spool DAO governance voting was also implemented to control the Spool Emissions that are allocated to boost APY every 28 days.
Combined with existing and new client partnerships, with brands such as Unstoppable Domains, Spool appeals to retail investors looking for short-term “safe haven” stablecoin yield during bear markets, through to larger institutional investors looking for longer-term “low touch” risk-managed yield farming solutions.
During Q1 of 2023, Spool expect to launch their V2 solution to enhance and implement additional institutional-grade features, as well as release a new website and supporting marketing materials targeting institutional investors both inside and external to the DeFi ecosystem.
Find out more.
To find out more about Spool and find out how you can take advantage of risk-managed DeFi, contact one of our team at marketing@spool.fi who will be happy to arrange a demonstration and discuss your bespoke needs.
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Spool is a permissionless DeFi platform that connects Capital Aggregators with DeFi Yield Generators. Funds are dynamically and efficiently allocated to ensure optimized yields, for custom strategies, managed by DAO-curated Risk Models.
Spool was established as a DAO, with a selection of founding contributors representing a diverse cross-section of the blockchain community.
Stay tuned as we shine a spotlight on more Spool Team members over the coming weeks.
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