Bull market coming? The value captured by yield aggregators is becoming more and more obvious, and is expected to become a unicorn sector in DeFi

The bull market is coming? Is this prosperous era what you want?

The price of Bitcoin has soared from US$3,800 to US$19,000, approaching its historical high. The bull market still has that familiar flavor, but the way people in the circle hoard coins has quietly undergone tremendous changes.

Entering the second half of 2020, DeFi has achieved unprecedented development, and the total value locked (TVL) has continued to soar, and has now exceeded US$12 billion . At the same time, DeFi TVL is also rolling forward at a trend of constantly breaking previous highs. DeFi has become a unicorn in the field of cryptocurrency.

The bull market is coming. How to keep and increase the value of digital currencies is something that every digital currency holder needs to think about in advance . Six years have passed since the Mt.Gox incident, and investors have not yet received compensation. The withdrawal storm on the trading platform two days ago is still a lingering fear...

In the relatively unregulated blockchain industry, centralized applications frequently run into problems. Just as in “Forrest Gump”: Life is like a box of chocolates, you never know what you’re going to get. Which centralized giant will be the next to fall?

The amount of funds locked in DeFi has been increasing, while the Bitcoin balance on centralized cryptocurrency trading platforms has dropped to a new low of about 2.3 million since August 2018.

People in the industry were surprised to find that DeFi aggregators are simply a magical tool for hoarding coins in the bull market. Decentralization + asset appreciation perfectly solves the long-standing problem of hoarding coins. In the bull market of 2013, coins were hoarded in CEX, in 2017, coins were hoarded in Wallet, and in 2020, the correct way to hoard coins is of course DeFi aggregators + Vault + Farm +…

01
What is an aggregator?

Simply put, an aggregator is a service integration platform that can provide integrated services such as data aggregation, transaction aggregation, revenue aggregation, financial aggregation, etc.

To give a simple example, the 21st century is actually dominated by “aggregators”:

If you want to buy consumer goods, you might choose to shop on an aggregation platform like JD.com;

If you need to go to the airport to catch a flight, you might choose to take a taxi from an aggregation platform like Gaode or Didi.

If you want to watch the most popular video programs, you will almost certainly use a video aggregation service provider such as Tencent Video.

The above are all things that have happened in the Internet world. These aggregation platforms have become industry giants in the field, but this is all in the centralized world. In the blockchain world, decentralized aggregation platforms are gradually growing.

There are many types of DeFi aggregators: yield aggregators, such as YFI/Golff, etc., transaction aggregators: 1inch, etc., lending aggregators: Aave/Compound, etc.

Yield aggregators are the hub of DeFi products. Next, I will evaluate the mainstream DeFi yield aggregators on the market. I have selected three products: YFI (Uncle), Golff (Golf), and YFII (YFI fork coin Uncle) . See the picture directly.

For users, how to participate in different DeFi protocols at different times to maximize returns has become a problem. For profit-seeking users, the best practice is to invest stablecoins in the lending protocol with the highest interest rate. The most primitive approach is to manually check which protocol has the highest annualized return every day and evaluate which protocol to move the money to. We do this manually and in lending protocols such as Compound, Aave, Fulcrum, and dydx.

The core function of the yield aggregator is Vault , which is a fund provider on one hand and a strategy developer on the other. It connects the two-way market, where the strategy builder allocates the user's capital and the capital provider chooses the strategy they want to use. These strategies enable automated yield farming for users. With the launch of Vault, potential farmers now only need to deposit funds into Vault, and their capital will be automatically allocated to the best strategy.

Vaults not only reduce the risk faced by users trying to understand the different possibilities of yield farming, but also alleviate their concerns about gas fees by sharing with other fund providers in the pool.

Over time, we can automate the process by programming or deploying certain protocols to select optimization strategies, which is actually what the Golf Finance (GOF) protocol does.

The model is roughly as follows : Taking Dai as an example, users deposit DAI into Golff Finance, which will return a certificate GV2-DAI. The deposited DAI will be transferred between different protocols to pursue the highest annualized return. If the DAI interest rate in Aave is higher than Compound, the Golff protocol can decide to transfer all or part of the DAI to Aave, thereby helping users obtain the maximum return on Dai.

The protocol will also check for better interest rates when users deposit or withdraw funds from the pool, so that the fund pool can be rebalanced when necessary. Aggregators help users automatically select safe and highest-yield DeFi products for investment across the entire network, and dynamically adjust funds and strategies. Another clever thing about aggregators is that this economic model allows other projects on the market to provide it with blood transfusions.

02
Automatic quantitative protocol in the DeFi field, yield aggregator YFI&GOF

From the perspective of investors' most fundamental needs, the future development trend of yield aggregators is also in four directions: further lowering the user operation threshold, further reducing user gas fees and handling fees, further increasing user returns, and further improving investment security.

Let’s compare two very popular products on the market in these four aspects. YFI, the originator of the yield aggregator, and Golff, the second-generation aggregator, are representative:

1. Lower the user operation threshold : DeFi has a high threshold for operation and is currently basically confined to the circle. According to current operations, it is basically difficult to break out of the circle, especially since Western products account for the vast majority of DeFi applications, and the operating habits of users in Asian countries are quite different. I have seen a well-known Western product before, and its interface is just a few computer codes, and the language version is English, which is very unfriendly to Asian users.

YFI is relatively friendly compared to similar Western products. Since its launch, Golff has taken into account the operating habits of Asian users and provided "fool-style" one-click operation.

2. Reduce user fees : DeFi fees are basically concentrated in the following aspects:

a. Aggregator management fee; b. Basic protocol gas fee; c. Harvest gas fee; d. Aggregator withdrawal fee.

Both YFI and Golff are based on the native Ethereum underlying layer. The transaction smoothness and transaction costs depend largely on the Ethereum chain performance and gas. YFI currently has a 5% management fee + 0.5% withdrawal fee, and Golff currently has 0 management fee + 0 withdrawal fee;

Regarding the high gas fees, which range from a few dollars to more than ten dollars, the high gas fees generated by the frequent calls to contracts by the yield aggregator machine gun pool can be imagined. YFI has not made any optimizations at present, but Golff has made considerable innovations. The Golff aggregator uses priority optimization adjustments and resource usage time optimization adjustments in contract calls.

Golff aggregator Vault 2.0 will not immediately transfer small amounts of funds to a third-party target pool after transferring them to the Vault pool, but will temporarily store them in the Vault contract until they reach a certain threshold . During the transfer process, the participation fee for small users is effectively reduced by 60%.

3. Improve user benefits : The comparison between DeFi aggregators and CeFi aggregators is very transparent. For aggregators such as YFI and Golff, in addition to strategy optimization and adjustment, users' income comes from income on third-party platforms. In principle, platforms where YFI can obtain income can also be obtained by aggregators such as Golff. In theory, under the same platform fees and strategies, users on all income-generating aggregators can obtain the same income .

There is another difference, the aggregator ecological model. YFI released all the tokens at the beginning. YFI users can only obtain income through Vault + other products. This creates a big problem. The income of YFI users depends entirely on the income products on the market.

Golff provides users with excess returns through Golff Farm+Vault+other products, so under the same conditions, Golff users have more effective TVL Farm returns than YFI users , especially when the secondary market performs well, this part of the return even far exceeds the return of Vault+other products. Farming with effective TVL can guide and increase the amount of funds that users participate in the Vault machine gun pool, allowing the platform to obtain more returns from outside the ecosystem and give them back to users.

4. Improve security: The security of the aggregator is an issue that cannot be ignored, such as the stability of the token pool price and the security of the contract. Currently, before new DeFi aggregator projects are launched, they will include third-party smart contract code audit company audits/internal sandbox testing/community volunteer team code audits/third-party mining pool audits and other security precautions.

With the increase of third-party interactions in DeFi products, such as Harvest/Pickle having problems due to citing Curve's third-party oracle quotes, and Conpoumd having problems due to Uniswap's third-party quotes, it is becoming increasingly important for products like Golff to add insurance business to their product functions.

In terms of Golff income distribution, 90% is allocated to investors, 1% is for insurance, 1% is for harvest, 4% is used to repurchase GOF in the secondary market for destruction, and 4% is for the fund pool. So among these, 1% is used as compensation when contract security issues occur, which means that once a problem occurs in the contract, the risk reserve fund will be used to compensate the user.

03
YFI and Golff's other products

Insurance is a very important track, because DeFi is currently in the early stages of rapid development. Providing insurance services to individuals and institutions is undoubtedly a safety lock for the rapidly developing DeFi ecosystem. Golff's insurance does not require KYC, and the insured business scope includes on-chain contracts and on-chain assets , that is, it can insure the risks of contract safety accidents and the credit risks of assets.

The insurer only needs to deposit assets of stable value into the "insurance pool" to become an insurer. The insured only needs to deposit risky assets into the "insured pool" to buy insurance. Once an asset security incident occurs, the insured can apply for a claim to the claims committee. Once the claim application is approved, the corresponding assets in the underwriting pool will be paid to the insured pool.

Currently, YFI has added an aggregated Vault for the insurance pool. On the basis of insurance, Golff's insurance pool has added aggregated farms and Vaults for the underwriting pool and the insured pool. This allows the underwriter to obtain additional income on the basis of basic premium income, and also allows the insured to obtain certain income on the basis of risk transfer.

At the same time, when users generate income through the aggregator, it will be released in a linear form, and it will be fully released within 24 hours . When users deposit assets again, the linear release income will be reset. The purpose of this is to prevent large funds from diluting the income of other owners of the Vault pool by quickly entering and withdrawing, and to ensure the fairness of user income.

04
YFI and Golff Ecosystem Economy

At present, Golff's machine gun pool converts user income into GOF for settlement on DEX. Currently, there are only 4.5 million GOF in circulation, with a market value of approximately US$2.93 million. The overall locked-up value TVL is approximately US$15 million, while the YFI Token's liquid market value is US$706 million. According to defipulse data, the current YFI locked-up value is US$427 million.

So from this perspective, the development of the Golff ecosystem has enormous potential, and the aggregator as the flagship product is also expected to produce a siphon effect.

And from the perspective of TVL, the value of Golff is greatly underestimated. The market value of YFI is 165% of TVL, while the market value of Golff is only 19.53% of TVL.

Golff's yield aggregator has lowered the threshold for small capital users by improving the usability, security and yield of the aggregator. Golff will also make the use of yield aggregators more common. As the total value of locked positions in the aggregator sector continues to increase, it is also expected to become a unicorn sector in the DeFi field.

05
The future of DeFi

Human beings have gone through the Stone Age, the Copper Age, the Bronze Age, the Iron Age, the Steam Age, the Electrical Age, the Atomic Age, the Information Age, and now have entered the Digital Age. Will Bitcoin become the digital gold of the future? Will DeFi become the entrance to production factors and achieve cross-border integration? This is a question we need to think about and a golden opportunity we need to seize.