APY.Finance puts your farming on autopilot by presenting a single interface for depositing funds while spreading them across multiple DeFi platforms.
In 2020, decentralized finance (DeFi) gained more traction than the previous years. Unfortunately, the path to yield farming and liquidity mining is filled with sharp twists and turns.
Part of the twists is the rate at which yield farming strategies are becoming obsolete. Next, the gas fees involved when hopping from one plan to another has effectively alienated small scale farmers.
Additionally, an increase in the number of DeFi protocols has further complicated the road to yield farms and liquidity mining grounds. To provide a solution, platforms such as APY.Finance came to the rescue. Instead of being a DeFi protocol in and of itself, it handles the deployment of funds on platforms with the highest yields.
Although the platform employs complex background formulas, it presents a smooth and easy-to-use user interface. Here, we look at the intimate workings of APY.Finance’s network.
Table of Contents
Background
APY.Finance is led by Will Shahda, Chan-ho Suh, and Jonathan Viray. The three top members have a strong background in Solidity programming. This is a vital advantage considering that most DeFi platforms are hosted on the Ethereum blockchain, which uses Solidity as its primary programming language.
Apart from a strong team, reputable venture firms in the cryptocurrency scene back the project. For example, its key investors include Alameda Research (founder of FTX and ProjectSerum), Vendetta Capital, TRG Capital, CoinGecko, Cluster Capital, and Arrington XRP Capital.
What is APY.Finance?
Think of the protocol as an autopilot switch on your yield farming activities. Basically, it puts your farming on autopilot by presenting a single interface for depositing funds. In the background, the platform spreads the funds across multiple DeFi platforms.
However, the deployment of the funds is not a hit and miss game. Instead, Shahda and his team have developed complex strategies that power the fund distribution activities. The protocol is hosted on the Ethereum network and connects to a variety of DeFi systems such as Curve and UniSwap.
Features That Set APY.Finance Apart
Pooled Liquidity
All funds deposited on the platform are put in a pool, and APY tokens (more on this later) issued to liquidity providers represent their stake in the said pool. Pooled liquidity enables users to save on gas fees that are incurred when depositing assets into multiple pools.
Furthermore, this approach also leads to high TVL (total value locked). Therefore, it enables the network to distribute huge amounts of funds in one transaction, thus saving on transaction charges.
But that’s not all. Pooled liquidity allows APY.Finance users to withdraw their stake at any time. Regardless of where their funds are routed, they only need to redeem their stash with the platform’s native token.
Automatic Routing
APY.Finance handles routing in the background. As such, a user only needs to deposit funds and wait for rewards.
In the background, the protocol fires a variety of strategies depending on the existing DeFi landscape. Note that the network only deals with current liquidity mining strategies.
However, the protocol is not all about rewards; it also considers the risks associated with implementing each farming strategy. To diversify risks together with routed funds, APY.Finance employs yield farming strategies with a high annual percentage yield (APY) spread across multiple DeFi networks.
Examples of risks hedged by this approach include, but are not limited to, smart contract vulnerability and/or failure. The protocol presumes that every user can withstand the same level of risk. However, to accommodate users with high-risk appetites, the platform has launched multiple risk pools, which was inspired by Curve.fi.
100% Community-owned
For a complete decentralized platform, APY.Finance is 100% community-owned. However, during its early stages, its team will make crucial decisions before gradually transferring the powers to its distributed community.
APY Token (APY.Finance’s Native Currency)
The protocol uses its native token, APY, to distribute liquidity mining incentives and power community-based governance. APY has a total supply of 100 million coins. The tokens are allocated to community initiatives (12.3 percent), team/advisors (20.0 percent), mining rewards (31.2 percent), among others.
When used for governance-related functionalities, APY holders can:
- Change APY.Finance parameters – Here, token holders can vote to update parameters defining, for example, how much of the generated profits go to token holders. Also, APY holders can decide on the level of risk associated with every yield farming strategy.
- Update strategies – APY holders have the power to tweak parameters connected to an existing plan. Interestingly, enacting the changes does not require the intervention of a solidity engineer. Examples of strategy-centric parameters that can be community-changed include the number of steps involved in activating a farming strategy.
- Front new yield farming strategies – Apart from voting on already created strategies and parameters, APY holders can propose new strategies.
In addition, the APY token is required to interact with the protocol’s liquidity mining program. This program provides a way for liquidity providers to earn rewards in the form of APY coins. To discourage those that are short-sightedly bent on rewards rather than APY.Finance’s long term viability, dividends from the liquidity program are vested for six months.
Note that the protocol employs off-chain vesting calculation to avoid the exorbitant fees encountered when conducting the calculations on-chain.
Vital Components of APY.Finance
APY Liquidity Pool
This corner of the protocol consists of smart contracts focused on deposits and withdrawals. Although each contract handles a single virtual currency, the contracts are intertwined to present one liquidity pool.
However, the contract or deposited currency notwithstanding, users are presented with APT tokens as proof of their share in the APY.Finance ecosystem. Note that individual contracts tap into Chainlink oracles to determine the value of deposited funds.
APY Strategy Portfolio Contracts
These strategy contracts handle real yield farming tasks. A complete strategy contains information such as the type of assets, the sequence to be used, a rough estimate of expected rewards, and the risks involved.
Details about the type of asset include the asset required to start farming yields, assets held by the contract during yield farming, and the final asset generated by the strategy. On the other hand, the sequence defines things like when to feed a strategy, the time the assets are locked in a strategy, and when to exit a strategy.
Yield estimates are used to pick the best strategy by estimating the yield levels after factoring in the number of assets deployed and the difficulty of attracting rewards. Moreover, the risk score informs portfolio allocations.
APY Manager
The APY Manager automatically monitors the movement of funds across the APY.Finance ecosystem. It handles tasks such as deploying idle liquidity, enabling withdrawals by balancing the un-deployed liquidity with amounts in withdrawal requests, and confirming conditions are met before activating a loop in a strategy, among other rebalance activities.
Another function of the APY manager is portfolio optimization. The protocol optimizes portfolios by computing portfolio allocations off-chain and letting the manager handle verifications.
Verification works by considering the difference between the previous and the new allocation’s risk-adjusted yields. Additionally, it anticipates rebalancing costs.
Conclusion
By providing automatic portfolio rebalancing, APY.Finance optimizes risk-adjusted yields. With the DeFi craze gaining momentum each day, the protocol eases the interaction between yield farmers and the many DeFi systems.
With the protocol concentrating on the leading and recent yield farming-enabled networks, its users will rest assured that the farming strategies are up-to-date. Furthermore, its implementation of pooled liquidity, automatic routing, and gradual 100 percent community involvement makes the platform ideal for small-scale liquidity miners.
