Spool V2 — Your Gateway to Institutional-Grade DeFi
Introducing Spool V2, the next evolution in our DeFi infrastructure designed for institutions and professionals. Building on our V1 proof of concept, V2 offers exponential enhancements in efficiency, composability, utility, and security.
V2 transforms Spool into a powerful open DeFi toolbox, enabling institutions to safely engage with DeFi and create innovative financial products and yield solutions.
Spool aims to become the backbone of the financial services industry for DeFi.
In this announcement, we’ll cover:
- The core rationale behind Spool V2
- Groundbreaking new features of Spool V2
- Cutting-edge FinTech use cases for Spool V2
Why did we build Spool V2?
Since Spool’s initial launch, we’ve received valuable feedback from both crypto-native and traditional financial institutions. We’ve discussed not only the hurdles they face but also the products they want to build.
While they found our concept compelling, V1’s inflexibility held them back.
Getting praise for the idea was a great feeling, but kind words are worthless if they do not lead to adoption and liquidity.
Spool V2 was built with institutional feedback. We listened. We learned. We improved.
V2 provides users with unparalleled flexibility to create highly customised financial products backed by the best DeFi has to offer.
On our path to constantly innovate, we have developed an entirely new architecture underpinning the Spool platform. This new architecture provides a level of composability that we believe is unmatched in DeFi.
Core to this composability are “guards”. Guards are optional and customizable flags that manage entry into and exit from certain Smart Vaults, enabling features like KYC (and much more) to be programmatically employed in DeFi.
Spool allows any user to remain fully compliant by building for their regulatory environments and investor client base. This is a game-changer for the TradFi sector, where compliance ranks as the key blocker for many institutions to fully engage with DeFi.
With new regulations such as the EU’s “Markets in Crypto Assets Regulations” (MiCAR) expected to take effect in 2024, regulatory clarity is arriving for DeFi. While feared by many blockchain natives, regulations provide a framework for institutions to securely start leveraging the opportunities DeFi provides — leading to a massive potential influx of liquidity.
The feedback we received on Spool V1 taught us a great deal about how institutions anticipate their process of adoption, which provided a blueprint of how V2 needed to operate.
The result? An institutional-grade infrastructure solution allowing users to build the DeFi backend for the exact products they want — instantly and without any upfront investment required.
V2 Features
Spool V2 is a complete rewrite of V1 from the ground up, implementing the feedback of multiple auditors, whitehats, and an MEV team and built with security and safety at its core. It has been audited by leading blockchain audit companies, including Trail of Bits and Chain Security, with an ongoing $1.5 million bug bounty through Immunefi.
Here are some of the key new features:
Gated Vault Access
Gating access to vaults is a core function of V2 and adds a host of potential use cases and benefits to Vault Creators.
Gating comes in two forms, entry gates, and exit gates — requirements an investor must fulfil to add funds to a Vault or remove them back to their own wallet.
NB, this does not mean Spool is acting as a Custodian, the Smart Vaults are still only routing funds to the underlying strategies.
Any data point that can be captured on-chain in a smart contract can be used to create a guard. New guards can be implemented into the UI and will become available to creators as they are voted on by the Spool DAO and following feedback from the community..
The following is a non-exhaustive selection of Gating examples:
NFTs
Investors will be required to hold a specific NFT in order to gain access to the Smart Vault. This can be a custom NFT created for this purpose, or it might be an existing NFT series.
This enables leading NFT creators to add real utility to their NFTs and create exclusive Vaults, even adding their own fungible tokens to augment yield as a bonus for investors, but only allowing their NFT holders access.
When NFT projects talk about “utility”, the ability to invest in bespoke and subsidised investment products, could be a huge benefit for holders.
Whitelisted Wallets
Vault Creators can import a curated list of approved wallet addresses with authorised access to their Vaults. As the regulatory landscape evolves, this feature provides institutional product creators with granular control over who engages with their Vaults, ensuring compliance with necessary procedures.
By utilising whitelisted wallets, institutions can conduct requisite checks on investors prior to granting access to their products. Moreover, this feature enables them to track the destination of withdrawn funds, which is crucial for adhering to KYC and AML regulations.
Fungible Token Holders
Only holders of a minimum number of specific fungible assets are able to invest in a Vault. This can be a single fungible token, in a similar manner to the NFT gate, or it can be a minimum amount of a specific cryptocurrency. This allows for the creation of, for example, Vaults that only key holders in a community or larger investors would be able to access.
Wallet Age
A common problem for any crypto or DeFi protocol with bonuses such as airdrops are people creating a large number of new wallets to try and “game” the system. By setting a wallet age requirement, a Vault Creator can offset this issue and provide access only to longer-term holders of a specific token.
Timelocks
Timelocks are a function in Smart Vaults that restrict withdrawals until a specified duration has elapsed since the deposit. This concept is similar to those found in conventional financial instruments. After investors allocate their funds to underlying strategies through Smart Vaults, they must wait for a minimum period before withdrawing, or face early withdrawal penalties. By establishing fixed investment durations, Vault Creators can better manage their Vaults and incentives.
Benefits of “Gating”
Gating functions not only provide more control to Smart Vault Creators on who invests but also how they invest.
This is a powerful yet simple-to-use tool that caters specifically to the needs of institutions when looking to create DeFi investment solutions.
Institutions can create KYC and AML-compliant Smart Vaults and only allow access to specific investors. More than that, they create the flexibility that is essential for ever-changing DeFi regulatory rules. As new regulations such as MiCAR come into play, institutions will be able to create DeFi investment products that fit within those frameworks.
Complex Strategies
Spool V1 provides an impressive selection of top-tier strategies, and with the recent collaboration and launch on Arbitrum, the potential for an extensive range of Smart Vaults is already substantial.
Spool V2 takes this potential to new heights, enabling exponential growth in Smart Vault possibilities and expanding utility for users.
The features below allow for more complex strategies, including those that build from each other into more complex investment approaches, offering almost unlimited potential for institutions to build bespoke end-user products for their investors.
Volatile Assets
For many investors, using stablecoins is ideal. Stablecoins offer a lower-risk approach than other volatile assets and, in times of financial uncertainty, stability can be key.
However, more volatile yield-bearing assets offer increased flexibility to an investment strategy and, potentially, much higher returns.
Strategies using ETH, CRV, GMX and many others will give Vault Creators increased flexibility in how they build products for their investors.
The Spool approach of managing risk through diversification, automation, and risk models creates great potential for investments in these more volatile assets. As a result, investors will gain access to a wider range of investment opportunities based on their personal risk appetite.
LSDs
Increasing available asset types open up new strategies and, in V2, those strategies can also now be more complex.
In particular, strategies utilising Liquid Staking Derivatives (LSDs), or even multiple assets will become available.
The use of LSDs is particularly relevant given the Shanghai upgrade to Ethereum. LSDs are assets issued in return for staking your cryptocurrency, most notably with Ethereum since “The Merge”, and are proving very popular in DeFi.
As the number of DeFi strategies using LSDs increases, they will become available within Smart Vaults, creating unlimited potential for mixed asset and derivative portfolios, handled through a single interface.
Advanced Automation
One of the major challenges for DeFi investors is the manual handling and management of assets within DeFi yield farms, and even obtaining the assets to use and invest in them.
Spool V2 has a fully automated, yet still decentralised approach.
Once your assets are within a Smart Vault portfolio, as with V1, V2 automatically rebalances them between the various strategies, based on the configuration of the Vault. This requires no manual intervention, is fully automated, and keeps your assets fully non-custodial with Spool.
In addition, Spool V2 offers the new feature of automated collateral conversion. As a result, you can invest in any Smart vault, with any underlying asset, with your currently available assets. The Smart Vault will automatically convert your assets to the correct type before investing, giving you a new level of ease and flexibility in your, and your clients, investment strategies.
Automated, non-custodial, but seamless and simple for the investor.
Vault Tokenisation
With V2, when you deposit into a Smart Vault, you will now be issued a Deposit NFT. This acts as your receipt for the deposit and, much as LSDs do for staking, creates new potential financial models and products.
In addition to enabling more complex handling of Vault access when combined with the gating mechanisms, these NFTs can also be configured to be tradeable, opening up new models for trading these assets.
Using V2’s Deposit NFTs, a user could deposit into a Smart Vault and then sell their deposit NFT to another investor at a premium or discount depending on the Vault terms. For the Vault Creator, this presents new opportunities and interest in their brand and services, for the investor it creates a derivative product which can be traded or utilised in multiple ways.
Furthermore, ownership stakes in deposits can also be traded. Each deposit NFT can be divided into fungible tokens, allowing for the sale of smaller portions.
As a creation mechanism for new yield-bearing assets, this allows even more flexibility and potential with Spool V2.
Your DeFi Toolbox
Spool V2 is your DeFi toolbox. The all-new features put Vault Creators in control, giving them the tools to create the financial products and services they want.
Spool offers a level of composability that enables the creation of DeFi products in a way that fits a vast range of specific requirements, including regulatory and compliance needs, and particular client needs.
Financial experts and traditional institutions now have an unprecedented degree of flexibility over how they engage with DeFi, paving the way for a significant influx of capital into the DeFi sector.
Spool V2 Use Cases
Our Business Development team is currently engaging with potential institutional users to explore the following possibilities:
- MiFID II and MiCAR compliant products: Financial institutions catering to EU clients can now develop legally compliant Smart Vaults for various use cases, such as short-term flexible yield or issuing long-term “DeFi bonds” in the form of NFTs.
- Unprecedented asset-mixed portfolios: “DeFi dividend ETFs” can be created to encompass multiple yield-bearing assets, all managed through a single Smart Vault. For instance, risk-adjusted, yield-optimised portfolios containing LSDs, stablecoins, and yield-bearing DeFi tokens can be packaged as investable products.
- Customised earnings and savings products: Institutions can swiftly and affordably create tailored products that meet the specific requirements of clients while ensuring legal compliance. Spool will serve as the infrastructure backbone for DeFi adaptations of traditional fintech concepts, such as “round-up-your-purchase-and-invest-in-staked-ETH” schemes.
These examples share a common attribute: they leverage Spool’s versatile infrastructure to develop the exact product envisioned. Institutions can focus on delivering top-tier services akin to banks, apps, brokers, or other financial service providers, while Spool handles the rest.
Opening the financial floodgates
2022 was a year full of challenges for the blockchain industry. DeFi was proclaimed dead by many, but the key issues were caused by centralised players. Meanwhile, blue-chip DeFi protocols stood tall, barely affected by the mayhem surrounding them.
While tempered, we continued to see institutional interest in DeFi despite the events that unfolded. We expect that this movement will accelerate once regulations become clear and the necessary infrastructure is in place.
Spool V2 provides that infrastructure.
Spool enables the codeless creation of financial services and products backed by the best financial primitives web3 has to offer. This comes at a crucial time when the traditional finance sector, controlling trillions of dollars in assets, is preparing to take advantage of the capabilities that DeFi has to offer.
Success is being the right solution in the right place at the right time. Spool V2 will be here very soon. We can’t wait to show it to you.
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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.
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