DeFi Alpha Call #39

This week, we discussed an innovative concept from Radiant Capital in the form of an omnichain money market that allows users to deposit collateral on one chain and borrow on another.

We also explored Sommelier Finance, which is an automated yield optimization protocol that connects professional managers with retail liquidity providers.

The link to the recording and summary can be found below.

00:00 Welcome

02:32 Bitcoin NFTs

06:36 Starter Tutorial – Radiant Capital

20:36 Degen Tutorial – Sommelier

30:49 Traditional finance strategies

38:39 Markets in a nutshell

40:16 What’s next?

Bitcoin NFTs

The process of buying and selling Bitcoin NFTs is very complicated for the time being. Trading Bitcoin NFTs requires running a full node.

Although there is potential for profit with Bitcoin-based NFTs, the current user experience is poor, and it is unclear whether the current hype will be sustained. NFT collectors may not be interested in Bitcoin due to the poor user experience.

There are reports of some people making a killing with Bitcoin Punks, with their value apparently rising by over 100x in just two days. However, there is no established marketplace for trading Bitcoin Punks, and prices are tracked manually through a spreadsheet with trades being conducted over-the-counter (OTC).

Tutorials

Starter Tutorial – Radiant Capital

Earn RDNT Tokens By Lending and Borrowing Stablecoins with Radiant Capital on Arbitrum

Benefits

1. Access to liquidity across multiple blockchains without the need to bridge or transfer assets

1. Vesting rewards for lending and borrowing, discouraging quick selling, and promoting long-term holding

1. The ability to loop deposits and boost yield

1. Withdrawal of excess collateral to multiple chains in the future

1. The omnichain liquidity transport protocol LayerZero facilitates traversing different chains quickly and taking advantage of time-sensitive opportunities

Radiant is an intriguing platform that enables an omnichain money market. Essentially, you can pledge collateral or supply ETH on Ethereum and borrow DAI and USDT on another blockchain. This allows you to access liquidity wherever you need it, without having to bridge assets between chains.

The tokenomics are similar to other protocols with vesting rewards for lending and borrowing, but rewards can be claimed immediately with a 50% penalty.

I like this approach of vested tokens. You make it hard for people to dump. It’s an extra incentive for the ones that are supporting the product, staying there, and holding your tokens.

Diego

It’s important to be aware of gas fees when deciding when to claim and sell on Ethereum. It’s best to wait until you have a decent amount accrued before claiming; otherwise, you might lose all your rewards to transaction fees.

The UX is straightforward, and users will be able to withdraw excess collateral to multiple chains in the future. This is facilitated by LayerZero, the omnichain liquidity transport protocol, which makes it easier to traverse different chains and take advantage of opportunities. The protocol sort of acts as a cross-chain piggy bank for the adventurous DeFi degen.

Check out our step-by-step tutorial here.

Degen Tutorial – Sommelier

Earn Up To 19% APR With Sommelier Finance’s ‘Real Yield’ Cellar

Sommelier is a fantastic idea in terms of how they’ve executed it, and I love the name. The concept is unique as they have created a hybrid execution model that uses their own Cosmos chain for the bulk of operations while user assets are deployed across the Ethereum DeFi ecosystem.

Benefits

1. Dynamic vault that uses market inputs to rebalance positions where needed.

1. Constantly monitoring yields, volumes, volatility, and demand to optimize returns.

1. Calculations and processes are done off-mainnet, reducing transaction costs.

Sommelier is a platform that connects professional portfolio managers with liquidity providers looking to optimize their yields.

For example, if you want to earn yield by supplying stablecoins on Aave, you can use Sommelier’s Real Yield Cellar to optimize the process.

These strategies work as dynamic vaults that use market inputs to analyze and monitor yields on stablecoins, volumes, volatility, and demand to determine if it’s beneficial to swap positions. This process is done at scale for the entire group, which helps socialize gas fees and makes it more cost-effective. Additionally, the use of the Cosmos SDK enables calculations and processes to be done off-Ethereum, further reducing costs for users.

Check out the step-by-step tutorial here.

Bringing very sophisticated financial tools to the masses.

In traditional finance, hedge funds, quant funds, and large money managers commonly use certain mathematical strategies to maximize their returns.

However, as an individual investor, it may not be feasible to use these strategies unless you are trading significant amounts of money. This is because the gas fees on Ethereum can make frequent rebalancing too expensive to be practical for smaller investors. However, with Sommelier, all you need to do is purchase the token that represents the strategy you wish to invest in.

It is interesting to see how traditional finance approaches are being applied to DeFi to make them accessible to the average user. The decentralized nature of these products means that assets are not custodied by portfolio management companies that could potentially mismanage or steal user assets.

Instead, the management of assets is governed by SOMM validators, which adds an extra layer of security. Sommelier has implementing a hybrid model, with a Cosmos chain acting as a ‘co-processor’ to Ethereum.

Just a matter of buying and sitting on those tokens and the strategy does all the work for you.

It’s great to see that even despite the bear market and all the doom and gloom that we heard throughout 2022 and even recently, with all the regulatory action against stablecoins and staking, DeFi protocols are still innovating, still chugging along, building new products.

Market Update

• We reached the $1700 target on ETH that we had on our radar for weeks.

• We are now waiting for the inflation numbers to be released this week. This has made the market a bit jittery, not just in the crypto space but also stock markets.

• Many Fed officials have said that they will likely continue with 25 basis point hikes until inflation is under control.

The benchmark US interest rate is approaching 5%, which is a level we haven’t seen in almost 20 years. Our world has become accustomed to using cheap debt to fuel our economy, but it’s not a sustainable model if interest rates rise and asset prices stay high.

US Federal Funds Rate

Wait and See

I think we’ll bottom out somewhere in the low $1400s. That’s the area that I’m looking to buy again for hopefully another assault at $1700 and beyond.

yyctrader

In January, the markets climbed straight up, and it was due for a pullback which is currently underway. This is not necessarily a bad thing, as two-way trading is healthy for the market.

A gradual increase in price is better than a sudden surge as it allows buyers and sellers to participate fully at each level. While it may not be the most exciting movement, such rallies are generally more sustainable.