A Rundown of Sommelier
Sommelier is revolutionizing DeFi with intelligent, non-custodial vaults that dynamically adapt to changing market conditions
Overview
- What is Sommelier?
- What are Sommelier Vaults?
- The Benefits of Sommelier
- The Sommelier Community
- The Purpose of SOMM Token
What is Sommelier?
Sommelier was launched with the goal of making DeFi more accessible, profitable, and efficient by simplifying user adoption and supercharging the current strategies DeFi protocols utilize.
Most strategic yield products in DeFi today are not adaptable to changing market conditions. For instance, a static approach that allocates user funds to pools that generate rewards and then reinvests those rewards is only good so long as those pools remain good sources of yield. However, these products tend to stop bearing fruit over time. Leading users tend to abandon them once they become outdated and go seek out the next promising option. To tackle this issue, Sommelier introduced a system that enables off-chain calculations based on live data feeds to inform position adjustments according to market changes.
Sommelier’s unique cross-chain architecture enables users to benefit from these active strategies without sacrificing decentralization. Depositors in Sommelier vaults benefit from the fusion of traditional finance — utilizing advanced machine learning and data modeling techniques — with DeFi, which offers self-custody of assets and complete transparency into every rebalancing action made by the vaults.
What are Sommelier Vaults?
Vaults are the smart contracts representing DeFi strategies on Sommelier. What sets them apart from existing vault models is their dynamic live-data processing. In simpler terms, vault positions can be updated based on real-time market data, in contrast to static trading strategies that lack the ability to take in live market data.
In order for a strategist to have their dynamic vault approved, they must first come up with a strategy and then apply for approval from the Sommelier governance. As an additional incentive, strategists can also choose to incorporate management and performance fees for their vault to benefit from its growth and strategic success. This keeps strategists incentivized to continue optimizing and even upgrading vaults long into the future.
The Benefits of Sommelier
- Truly dynamic vaults that leverage real-time market data and state-of-the-art machine learning techniques to optimize asset positions
- Depositors retain custody over their assets at all times, never giving them away to a counterparty
- Vaults are transparent, with every rebalance immediately visible on-chain
- They have implemented a new model that enables off-chain data and computations to inform vault rebalances
- Their decentralized governance model and co-processor appchain architecture ensure the safety of assets in vaults
- Sommelier uses a bridge that sends rebalance instructions to vaults but never assets, making the system as safe as possible for users
- The security of the Sommelier blockchain is directly incentivized by the growth and success of vaults
The Sommelier Community
Strategy Provider: Sommelier has a strong set of Strategy Provider teams that bring a wealth of financial, data science, and DeFi expertise to create and run the strategies that make Sommelier vaults so powerful. Through governance, the Sommelier DAO decides whether to accept new vault proposals from Strategy Providers. Accepted vaults then become the responsibility of the Sommelier appchain and its validators. Strategy Providers run strategy computations off-chain and submit rebalance instructions to the validators, who must come to consensus that instructions are valid and within the parameters established for a vault before passing them to the vault for execution. Strategy Providers are compensated for their essential role in the ecosystem through a fee structure that requires governance approval and is incentive-aligned with the TVL growth and the performance of their vaults.
Vault Liquidity Provider: Similar to how liquidity providers participate in other protocols, LPs have the option to deposit their funds into any of the vaults available on the Sommelier platform. LPs accrue profits from their chosen vaults, available upon withdrawal from the vaults, while minor fees will be subtracted to compensate strategy providers and Sommelier stakers. The specific details of the rewards and fees are clearly defined in vault descriptions.
Stakers: A major benefit of holding SOMM is the ability to stake, which helps to secure the network in return for a reward. Sommelier is able to provide real yield to stakers that are based on the growth and performance of vaults. This is in contrast to the vast majority of proof-of-stake chains whose staking rewards are based on token inflation.
Validators: For achieving consensus and processing transactions on the Sommelier chain, validators play a vital role by operating nodes on the Cosmos SDK-based network. Sommelier’s unique appchain acts as a co-processor to vaults based on chains like Ethereum, and validators provide an essential check on strategy providers, ensuring the decentralization of the system for depositors.
The Purpose of SOMM Token
SOMM, the native token of Sommelier, serves as the main incentive for each participant within the ecosystem to effectively carry out their roles. Additionally, SOMM plays a crucial role in the Governance model of Sommelier, serving as its backbone and enabling users to have a voice in determining which vaults are admitted to Sommelier as well as the future of the protocol.
Fixed Supply
While many of these functions are fairly typical for native tokens of proof-of-stake Layer 1’s, SOMM distinguishes itself thanks to its fixed token supply and non-inflationary staking rewards.
The SOMM token supply has been set at 500 million tokens to ensure that each participant’s ownership stake in the network remains constant over time. Providing this level of certainty makes it easier for prospective network participants, such as contributors, strategists, partners, and community members, to confidently commit to the Sommelier ecosystem, thereby amplifying its network effects.
Staking Rewards
Sommelier vaults generate fees of which a portion is directed to SOMM stakers for securing the network. Therefore, the rate of staking rewards is directly correlated to vault success. As vault fees are collected they are auctioned off for SOMM which is then distributed to SOMM stakers as rewards.
As successful vaults generate more fees, more strategists are attracted to build on the platform, creating additional vaults that, in turn, attract more users. The increase in users generates even more fees for SOMM stakers, further increasing the demand for SOMM, and making it more valuable for all participants in the Sommelier ecosystem. These network effects are compounded by the fact that the DAO effectively captures the value created by the protocol and its members.
