AMA Highlights – APY Finance
By Daniel Dal Bello, Director.
October 14, 2020 – 7 min read.
On Monday 12 October, we welcomed Will Shahda from APY.Finance into the Hillrise Capital Telegram chat for an AMA. Will is the current CEO.
APY Finance is a DeFi yield automation platform backed by Alameda Research, Arrington XRP Capital, and TRG Capital. The team aim to democratize yield farming by making it accessible to the average user and not just the DeFi experts. Smart routing makes transaction processing much more cost effective, keeping risk management front of mind depending on the chosen strategy.
They have launched their liquidity mining platform with a full alpha planned later this year. We looked forward to this AMA and exploring another new entrant to the emerging DeFi world.
In this post, we have compiled key questions and answers from our AMA event.
Daniel Dal Bello
Hi Will and thanks for joining us. I’m personally quite fascinated by the recent rise of new DeFi products and platforms, so I’m looking forward to getting into some depth today. Could you please introduce yourself and talk to us about your background and motivations for leading the charge at APY Finance?
Hi Daniel! Thanks for having me. I would love to. I’m Will Shahda, the founder of APY.Finance.
I got involved in DeFi back in 2018 because of my interest in stablecoins. While Tether may have been the most popular stablecoin, I found myself drawn to the mechanics behind systems like MakerDAO and Havven (now Synthetix).
In 2019 it became clear to me that DeFi would be the next big thing in crypto. Everyone in the space was product-focused and the projects were delivering real value to users. It was a return to crypto’s roots, the promise of programmable money. To hone my expertise in DeFi, I started attending as many Ethereum hackathons as possible. I put teams together and executed on projects under tight deadlines in the heat of competition. Frequently, we found ourselves winning.
The most recent hackathon I participated in was HackMoney. It was here that the idea for a yield farming robo-advisor, now known as APY.Finance, was born.
Hi, thank you for joining us tonight! When researching I noticed that there isn’t a public whitepaper available at this stage. What’s the status there? Do you have plans to publish a whitepaper in the future?
We have not had the need to [do] a public facing whitepaper so all our documents have been internal and highly technical. We are in the process of writing one for public consumption right now and it should be released shortly.
Daniel Dal Bello
The “next-generation” yield farming that you are introducing hits on some of the core problems within the world of DeFi as it exists on Ethereum. From what I understand you are going to allow users to deposit their liquidity into your dashboard where the funds will be pooled together with other users and parked in the most attractive protocols for yield. The core benefits being gas fee savings passed onto users.
The end there is that onboarding is simple and cheap. It sounds very similar to CryptoLocally’s ‘Vault’ initiative actually.
My question is more to the strategy, algorithms, decision-making for the “yield farming” itself. How does this all work? We don’t have much information to go from on your website.
A big focus is on the way the platform manages the portfolio of yield farming strategies. It is essentially a network flow problem with variable edge weights that correspond to yield and how much it dilutes as liquidity increases, in a graph of financial primitives. When a new portfolio allocation is found that achieves a higher risk adjusted yield, and the yield opportunity outweighs the transaction costs weighed by a rebalance threshold, the platform can automatically accept that new allocation and perform the rebalance.
The rebalances are automated by reserving a small portion of yield to incentivize third parties to make the rebalance function call.
“When a new portfolio allocation is found that achieves a higher risk adjusted yield, and the yield opportunity outweighs the transaction costs weighed by a rebalance threshold, the platform can automatically accept that new allocation and perform the rebalance.”
This keeps the system decentralized and not dependent on a central party running keeper bots.
Daniel Dal Bello
You’ve talked a little to this point already but to go deeper and regarding the backend of the smart routing and specific investment strategies, are all of the strategies static in the sense that they are written, monitored, and updated by the APY team manually?
Noting your plan to decentralize and delegate strategy models to the community via the APY token, how will holders decide on the strategies? It sounds nice in theory but in practice, I’m not sure.
In early stages the team will develop the strategies. But long-term, the community will be able handle much of this through governance. I’ll explain in more detail.
Our governance roadmap is broken down into 3 stages:
1. Governance of system-wide parameters.
2. Governance of existing strategies.
3. Proposals for entirely new strategies.
Stage 2 and 3 are what’s relevant here. Many existing DeFi platforms allow people to suggest changes through governance, but those changes must still be implemented by the team. We are developing a generic strategy executor framework that will enable users to assemble strategies using a drag-and-drop style UI similar to FURUCOMBO and submit these as proposals.
The strategy executor contract assembles these strategies into sequences of ‘calldata’ that can use adapters to pass dynamic data between calls. There are certain constraints around this of course, such as address whitelists to limit the possibility of abusive strategy proposals.
Overall, this will dramatically lower the bar to participate in the governance of strategies. Allowing users with specialized DeFi knowledge to contribute without also needing the skills to engineer secure smart contracts.
There is mention of risk ratings for different strategies within your platform. How do you rate these, and to what extent does the platform guarantee that the risk rating is accurate and reliable for the end-user?
Early on we take a personal stance on the risk scores. Rating each strategy using a risk assessment framework that looks at smart contract risk, financial risk, and centralization risk. We want to be wary of malicious platforms as well. Anonymous developers and opaque team incentives have become strongly associated with the infamous ‘rug-pull’.
Moving forward, as we decentralize more we need the platform to depend on us less. This means allowing governance to make proposals to change risk scores. We want to make sure we provide the right incentives to align the community with accurate risk assessments. This does mean we will have to continue to revisit incentives often like many other DeFi protocols to make sure we keep optimizing for the health of the platform.
Daniel Dal Bello
I’d like to ask you about the overall trend of emerging DeFi projects that are several months old – an umbrella APY sits under – proposing gradual progression to fully decentralized governance. In my opinion, this is another concept that could be up for debate.
Generally we have have new ideas, big ambitions, and founding teams wanting to gradually move away from running the project in any capacity.
You have a 20% token allocation to your team and advisory, what’s your position on the general concept of moving to fully decentralized governance?
It is difficult to have a platform launch fully decentralized. With every change requiring a governance proposal and decision, an early platform cannot be as nimble or respond as quickly. As a platform’s contracts are proven out in the long term, solid traction is gained, and an engaged community grows, it becomes more viable to securely have increasing levels of decentralization.
We don’t think it is necessary for a team to completely exit from a project, but it is necessary the platform isn’t dependent on them. Just because a platform is no longer dependent on a team doesn’t mean the team cannot still receive grants from a community run DAO to fund development.
“We don’t think it is necessary for a team to completely exit from a project, but it is necessary the platform isn’t dependent on them.”