Episode 10
Sommelier: Active investing fully on-chain

Our guest today is Josh, BD lead at Sommelier, and Sunand from Seven Seas Capital. Sommelier is a protocol that is bringing actively managed strategies to DeFi by making all operations fully on-chain. Investors can deposit into Sommelier vaults and have their capital managed with a specific asset exposure and in predefined protocols.

In this conversation we explore, how Sommelier works, what makes it unique, and the reasons behind their unique cross-chain design.


Hey, everyone. I'm your host today, David. I lead research at Exponential, and I'm also a fellow DeFi degen. Exponential DeFi is a platform where we want to bring more rationality into the space and make it more accessible to all types of investors. In Degen Responsibly, we invite protocol builders to talk about their innovations, what makes their protocols unique, as well as how they manage and mitigate risk. Today, we have Sommelier finance as our featured guest. We have Josh with sommelier and Sun with 7Cs. Hey, guys, how are you? How are you doing? Doing well. Excited to be here. Awesome. Well, you know, before jumping in, we typically like to first ask our guests how you guys got started in crypto or DeFi and at what point along your Web3 journey did you decide to jump all in? Yeah, I can kick us off. So, hey, everyone. It's Josh Kessler from sommelier. I lead growth here. So I got into crypto in the 2017 hype cycle, got crushed like a lot of other folks who bought at the top, but stuck around and just got deeper and deeper in the ecosystem, consuming podcasts, watching videos, trying out new protocols. The pandemic happened and I realized, hey, I spend all my time like learning about crypto and just being consumed with this space. So why don't I jump in full time and started to get more involved with specific projects, the Polkadot ambassador program, and then eventually landed with a project in the Polkadot ecosystem and then saw what was going on at sommelier and thought like, hey, this is really cool. I like app chains. I like cross chain stuff. I like making DeFi more accessible to the average person. And so that's that's what brought me to sommelier. Josh, I'll one up you there. I got in end of 2021 at the Pico top. So, you know, things have never been the same. But since then, you know, I've I came in with basically zero crypto experience. I'd like, you know, dabbled a bit. A friend was in the space and I basically got me to join. Since then, you know, like many other people who first joined just from like the raw allure of it, I've come to appreciate that there is real tech here. There are people who do care about, you know, the future of humanity and things like that. And I've been around ever since. But there is, you know, this other aspect of like novelty seeking, which crypto is just really fun. And it's hard to, you know, to think of anything that brings the same excitement that crypto has. Nice. Nice. Yeah. Had a pretty similar experience to you guys joining during the top of the 2017 bubble and been stuck around this space since then. Cool. So let's let's jump back to sommelier. You know, there's a lot of I think a lot of moving parts to the protocol is blockchain. There's a bridge off trading off chain trading component. Could you could you just maybe explain to us like we're five what is Sommelier and how does it work? Maybe yes. Yeah. Yeah. So Sommelier is a layer one blockchain in the Cosmos ecosystem, and it's dedicated to this decentralized asset management use case. So what it's doing is it's a way for vault creators or strategists to create these really dynamic and intelligent vaults. And so what do I mean by like dynamic and intelligent? Well, the vaults can predict, react, optimize and evolved. So it may be able to predict where future base yields are going to go. It may be able to act as a LP on Uniswap V3 and like optimize tick ranges and just track the market a little more effectively. And then it can ask the DeFi landscape changes that can integrate new protocols and pursue new opportunities. And so the way that that is possible is by leveraging this off chain computation component. So there is a strategist or a vault creator that is running maybe their machine learning model off chain or looking at other indicators, maybe the S&P 500 or whatever it may be. But they're coming to a rebalance decision for their vault off chain. That decision is then passed to the Sommelier validator set because again, Sommelier is a layer one blockchain in the Cosmos ecosystem. That validator set receives that message, reaches consensus on the message. So it's like two thirds consensus and then passes the message, not assets, just the rebalance message across a bridge where it then hits the vault contract where the assets are held. So it could be stable coins, it could be Ether, it could be whatever. And then that contract interacts with the respective DeFi protocols in accordance with the strategy. So it could be doing a swap on Uniswap, it could be rebalancing lending positions between Aave and Compound, it could be taking some leverage on a different protocol. So whatever sort of the strategy is designed to do, it's executing those rebalance messages. So a little bit different than some of the other vaults out there, primarily because of this validator set that can bring off chain computation on chain in a decentralized way. So other solutions may use like a multi-sig to sort of do the same thing, but we use a decentralized validator set. Sun, is there anything you wanted to add to that? No, I think you covered it pretty well. Okay, yeah, it's super interesting. This idea of this validator set being how you secure these vaults, maybe just diving into that a little deeper, why Cosmos AppChain and how exactly does that help with the security? Is it just mainly the benefit of not having multi-sig control these vaults? Are there any other benefits from the strategy point of view? Yeah, I can touch on a few. And then I think Sun as a strategist may be able to provide a different perspective. So I think one just simple reason is we are co-founded by Zucky Munian, who is like a prolific builder within the Cosmos ecosystem. He helped shipped the Cosmos testnet. So he's just a Cosmos OG. So I think he has a lot of comfort with the Cosmos SDK. And then I think we as a team feel like AppChains give you as a project or just like a technologist, a unique set of capabilities when it comes to executing on a specific use case. And so it's like comfort with the Cosmos SDK and then a belief that there are instances where a dedicated chain specializing in a use case can unlock new possibilities for the entire space. So not only users, but also builders. And there are certain instances where that's like appropriate and the preferred design approach as opposed to just being just an app on some smart contract platform. So there's just like that thesis or belief that AppChains are better suited for things. And I think the early building team didn't want a single central point of failure in the entire architecture. So it's like, okay, how do I decentralize every component, but still have the end result be these really intelligent vaults that unlock new possibilities for the average user that finally make DeFi a little easier, a little more accessible, a little more profitable. So the there's like safeguards throughout the system, as far as like the validator said, providing safeguard assets being held on the native chain, and not wrapped like you may expect, because there's a bridge involved. So that there's just a lot of different unique points that are only possible with an AppChain. But maybe Sun can touch on a few, how those safeguards manifest for him as a strategist, and what that allows him to do, and what it doesn't allow him to do. Sure. So we definitely get this question a lot, which is like, okay, so this idea of getting rid of multi-sigs, having checks and balances to enable more dynamic strategies, that's straightforward. But a question we do get a lot is why do this on Cosmos? Why not do it, for example, directly on Ethereum? And there are a couple answers. So one is this flexibility to do multi-chain. I'm sure we'll talk more about it, but that's one thing on the Somalia roadmap, which is expanding some of our vault offerings beyond just Ethereum to other EVMs. So that's one reason, right? We have this ability to be chain agnostic and leverage a lot of the infrastructure we've built, and just point it at new chains. A second more subtle reason, which we're coming to appreciate more and more recently, is that validators are able to run this custom software, which essentially acts as the interface between strategists and a vault. And we call this Steward. So the flow here is that you have this off-chain strategist that's making decisions, or that's coming up with rebalanced suggestions. They submit those recommendations to the validator set through this API called Steward, and then the validators execute that on the destination chain at the smart contract. So Steward is this interface between strategists and validators, and therefore between strategists and the smart contract. And there is a ton of security measures and safeguards that can go into Steward, which you wouldn't be able to do unless you have this system where validators are running their custom software, right? So to get into what an example of that would be, there are... So you have this smart contract on the end chain, right? It has a bunch of functionality. It can swap assets. It can move assets from protocol A to protocol B. Which of that functionality do you want to expose? goes to the strategist, right? And steward is essentially this like filter that determines that. But even beyond just picking which functions strategist can call, steward can actually inspect the content of those function calls and make decisions based on that. So this is a random example. I don't think this is particularly useful, but it's something that can be done with this system is you could have the API steward look at, for example, the uni-v3 tick ranges that a strategist is suggesting and reject it if they're like very weird tick ranges, right? Like in the middle of nowhere or something like that, that's actually possible in the system. So the fact that we're a Cosmos chain, the fact that validators can run custom software provides a ton of flexibility for how we can provide security, for how flexible the strategies can be, et cetera, beyond the standard multi-chain and owning the whole stack arguments that we have in Cosmos. Got it, got it. Yeah. Interesting. So, you know, with this whole setup, how exactly does, I guess, how does SumMiller differ from some of these other yield optimizers in terms of the strategies you're able to offer? Say like a Yearn. At a glance, from my point of view, it seems like one of the major advantages is you're able to, with the off-chain computation and modeling, you're able to implement more advanced strategies like the uni-v3 positions. Would you say that's correct, that a large driver or a differentiator is ability to manage more of these v3 positions? I think the ability to do uni-v3 tick optimization is more like a symptom of this core fact that Somali vaults can leverage off-chain computation. In contrast with, you know, say a Yearn vault, right? All of that strategy logic is coded on-chain. You can see exactly what the vault is gonna do under every condition. And that's potentially good from a security perspective, right, because you as a user can inspect exactly the behavior and you know exactly what the future behavior is gonna be under normal conditions, right? What's, what the downside of that is, is that you're very limited in what strategies you can actually offer that way, right? Like, vault strategies that are coded entirely on-chain, which is pretty much the current state of DeFi are, cannot be sophisticated, right? For various reasons, one being that, you know, solidity or whatever language you can write your smart contracts in is not expressive enough to do anything interesting like machine learning, right, number one. Number two, it's probably too expensive to do anything, any interesting on-chain computation. And number three, there's this like more subtle point of protecting IP, right? So we see this thing where people post strategies right in Yearn and those strategies are decent for like a month, right? And then they get filled up because the alpha is gone, people can just copy it and that's the end of it, right? So these strategies don't scale, but with the ability to keep some of the secret sauce off-chain, right, it's, you get this effect of having much more longevity in strategies, but the key, I think the key piece there is how do you have a system that enables a flexibility of that sophisticated off-chain computation, but retaining, you know, a lot of the benefits of DeFi that, you know, that DeFi users have come to love. And this is kind of the value prop of SOM, right? It strikes this balance between preserving the security guarantees of DeFi, so transparency, non-custodial, right? That smart contract has shown you exactly what the strategy can do, but you have the benefits of, you know, a lot of sophisticated strategies in traditional finance, which is these things have proprietary strategies, right? They're doing more interesting things. They're ingesting data from many, many different sources, and Somalia really strikes the balance here. Josh, I don't know if you want to add to that. No, I think you got it. Okay, cool. Yeah, why don't we dive into some of your strategies? I know your flagship vault is the, or seller is the real yield USD strategy. And just to clarify here, when we talked about real yield, we're referring to, I'm assuming organically driven fees from lending and borrowing or trading fees. Yeah, why don't you talk a little bit about the real yield strategies, how they work? What's 7C's background in this, how do they benefit from the strategy? Sure. So you nailed it on what we mean by real yield, you know, in DeFi there are various sources of yield, one of them being, you know, like incentives, Ponzi dynamics, whatever you want to call it, where, you know, you can form a token. There's not that much interesting going on. Those yields tend to dry up, right? But there's this other source of yield, which is driven by usage, right? So Uniswap V3 fees are non-incentive driven. They're driven by people actually using the platform and paying to use it, right? Paying market makers and LPs to use their services. Similarly with lending, right? Like lending fees are also organic. So real yield USD is this effort to essentially produce best in class stable coin yields on Ethereum mainnet when we restrict ourselves to number one, only blue chip stable coin assets, right? So DAI, USDC, USDT. There are obviously other more exotic stable coins that are potentially higher yielding, but that wasn't really the goal for this product. So that's one constraint, blue chip stable coins. And number two, only battle tested protocols, right? So again, you know, you could go farm USDC on some more exotic protocols, probably on decent yield, but what we've restricted ourselves to here is lending on Aave, lending on Compound and LPAing on Uniswap P3. And within that space, you know, the performance results are out there, but we're able to be very competitive, best in class on Ethereum. I think I can say that for sure in terms of organic yield. And the way that we were able to do that is by being really good at Uniswap V3 tick management. So, you know, to get into a little bit of the 7Cs team's background, we've been, you know, studying Uniswap, we've been researching Uniswap for a long, long time. We at the 7Cs team has been a part of the Somalia ecosystem for several years now. For people who didn't know, Somalia actually started out as a Uniswap V3 specific platform. And since then it has become this more generalized strategy execution platform. All that's to say 7Cs is very, very knowledgeable on Uniswap V3. We think that's kind of the edge of real yield USD, which is the ability to really, you know, place, do well-placed ticks and provide liquidity while remaining dynamic, which is what the Somalia architecture enables. So that's real yield USD. You know, it's kind of, it's been this product that we've been developing for like six months plus before it launched in end of January. It took a lot of work on the Somalia protocol side, as well as smart contract development, plus on the strategy side. So definitely, you know, probably at least from my perspective, the most promising strategy on Somalia. I'm sure we'll get into, you know, upcoming ones, but yeah, I don't know if you want to add some more or anything I missed there, Josh. No, I think, you know, hopefully we touch on the one that, the strategy that's going to launch tomorrow. Cause I do think that's pretty interesting for the group. Yeah. Why don't we segue there now? You know, you guys have a new real yield ETH strategy in the works, launching tomorrow. Perfect timing for Shapella upgrades. The focus here is more on leveraged staking tokens with the ETH staked or staked ETH focus. Yeah. The initial backtest results seem very promising. Yield looking the double digits, I believe. Yeah. Why don't we dive into that? How does that work? And what are the benefits versus other ETH yield strategies? Yes. Tomorrow we are launching Real Yield ETH, which is pretty much what the name suggests. It's like the sister product to Real Yield USD. Instead of maximizing organic stable coin yields, this product is maximizing organic ETH yields. And as you mentioned, it's doing that by using liquid staking tokens. So there are two primary strategies, a kind of sub-strategies in this vault. One of them is leveraged staking. That's fairly common in DeFi. There's a ton of, you know, DeFi protocols that offer leveraged staking products. What we're able to do better in this one is two things. Number one, we're able to more closely monitor, you know, like liquidations. We're able to do tighter loops. And that's a function of being able to add this off-chain computation piece, right? Like we can look at, you know, look at, get a state of like kind of on-chain world every minute or so, right? And make decisions that way. The second advantage is actually the ability to offer leveraged staking simultaneously across multiple assets, right? So let's say one day, you know, CBE is the most profitable leveraged staking opportunity, right, just for a day. The next day, StakedETH is the most profitable leveraged staking opportunity. We're able to actually alternate between those two as those opportunities change, which is not something that, you know, other DeFi protocols are able to do. You know, rebalances can happen very frequently in the SOM architecture, whereas they can't necessarily in other architectures. So leveraged staking is one piece. We think we're going to do it better than everyone else. The second aspect is, again, our bread and butter, which is LPE-ing on Uniswap V3. So there are some pretty interesting opportunities to provide liquidity on ETH, Liquid Staking Token pairs. That's another aspect of this strategy. And one thing that's interesting is the version we're launching now actually doesn't have all of the features that we were imagining for this. So as time goes on, as our smart contract capabilities improve, that product is going to be getting more and more functionality, meaning, you know, like more Liquid Staking Tokens, more protocols, and, you know, we think that it's going to be competitive for a very long time. Anything to add, Josh? No, I mean, I think it's a really exciting addition to the Somalia platform, just because we've had some trading-type vaults. So like, ETH and BTC are trading on ETH. BTC, like a vault dedicated to ETH and BTC that is sort of optimizing that by opportunistically buying or selling those assets in accordance with like price trends and price momentum. So that's a certain type of strategy that's going to attract, you know, users that are focused on those assets and, you know, are trading focused. And then we have the stablecoin strategy, real yield USD, again, geared towards stablecoin users that are trying to optimize their yield. And so this brings a new dimension with the fact that it's gaining leverage, with the fact that it's doing yield on a volatile asset, as opposed to just a stablecoin. So I think there's just like, from a platform overview perspective, this is going to cater to yet another audience, which is really exciting. And the fact that the 7Cs team and the Define Logic Labs team is collaborating on this is really cool, because the Define Logic Labs team is just so crypto native, and is bringing a new perspective to vaults in the SmallEight ecosystem. So I'm excited to see what, you know, the 7Cs team and the Define Logic Labs team cook up in the future, like as a duo, and then as just distinct teams. Awesome. Yeah, I wanted to pivot a little here to maybe the risks aspect of these vaults, or strategies. How do you guys sort of manage the risk of these strategies, you know, specifically for the US real yield strategies? You're exposed to a couple of different stablecoins and liquid staking tokens there. So what's the risk mitigation strategy if one were to, say, de-peg, like what we saw earlier this year when USDC de-pegged? How are you guys able to handle those situations? Yeah, I think it would be great if Sun walked through what the real yield USD vault did during that de-peg. They wrote an extensive debrief as a blog post that y'all can check out. I can share the link, but it would be really cool, I think, for the audience to understand how the real yield USD vault managed the de-peg. And then Sun can also touch on the different risk factors and mitigation techniques in the real yield ETH vault. Yeah, so as Josh mentioned, we wrote up a retrospective on the de-peg. I think it was, so TLDR is that real yield USD performed extremely well during this de-peg. It confirmed a lot of our hypotheses about what the benefits of SOM are. So just to kind of get into a little bit of that, one extremely important aspect of real yield USD is that it's a diversified and stable coin exposure. So when news of Circles exposure to SVB broke out, at that time, real yield USD was 50% in USDC, 50% in USDT. So right off the bat, this is good. And it's a fairly subtle point because before this USDC de-peg, I think the prevailing market sentiment was that, you know, the safest thing you can do with your stable coins is just to sit in USDC, right? And any tether exposure is kind of increasing that risk. But the reality is that the world is very complex, right? And diversification is one of the essential things you can do to mitigate downside risk. And so, you know, real yield USD and its exposure is comparable to three pool in the sense that, you know, at any given time you can be taking arbitrary exposure to DAI, USDC, USDT. The difference is that three pools exposure is kind of driven by like, you know, like the worst asset to hold, right? At the time, it's not, there's no intelligent exposure there. So during the USDC de-peg, if you looked at three pool composition, it essentially went up. USDT exposure essentially went to zero, right? While DAI and USDC went to 50-50 before USDC, you know, and then people started fleeing to DAI and USDC went up all the way. In contrast, right, the most exposure to USDC that real yield USD had was 50%. And on average, actually, soon after that, the vault rebalanced to be 25% DAI, 25% USDC and 50% tether, right? So that's just one mitigation that's important, which is diversification. The second aspect is that as a general policy, when shit hits the fan, you do not want to be like quoting on Uniswap v3, right? That's a pretty dangerous position to be in, just given how the AMM dynamics work. So we actually, you know, in a sense got lucky that when that news broke out, we were already not quoting on Uniswap v3. So what we did is just continue to not quote. As a general policy, though, you know, when extreme market events, when the market's doing crazy things, real yield USD will not be quoting on Uniswap v3. So that's a second piece. It's that, you know, we were able to stay in lending protocols and avoid a lot of the crazy stuff that was happening on Uniswap v3. The third piece, which is related to diversification, is that there were some really, really profitable tether opportunities during this event. So, you know, the market kind of overreacted in a sense, right? The way the market was pricing USDC was fairly extreme. And so what a lot of sophisticated traders were doing is going levered short USDT, levered long USDC. And that resulted in astronomical lending rates for tether on Aave, Compound, whatever. So the fact that, you know, real yield USD was composed of 50% tether means that we were able to very easily just lend out that tether and earn really, really good yields there. You know, so other vaults, you can imagine a vault that would do that, like kind of levered short of tether. It's a little more detainee. But number one, real yield USD doesn't have the ability to take leverage. It can't take on debt, which is like a security feature. And again, it's something, you know, that strategy isn't consistent with the kind of risk averse nature of real yield USD. So overall, I think it was, you know, largely a positive reflection of the ability for some OLA vaults to be a little more dynamic, a little more responsive. And you know, I think the event overall just confirmed our vision that this is the future of DeFi. This is the kind, these are the kind of things that, you know, we need to be building. And then on the real yield ETH side, do you want to touch on, you've touched on it briefly, like the monitoring capabilities, but are there some other risk mitigation techniques that the vault will use? Yeah, a lot of it is, you know, a lot of it is kind of at a core level, like what assets are we taking exposure to and what protocols are we interacting with. And for both real yield USD and ETH, we are very much limiting to only, again, like very high market cap, very liquid assets and protocols that have done billions in TVL and volume. So real yield ETH, for comparison, real yield USD takes positions on Aave, Compound and Uniswap v3, right? Real yield ETH are the exact same three protocols. And in terms of what liquid staking tokens it will take exposure to, it's the standard ones, you know, so Staked ETH and Robbed Staked ETH, Coinbase ETH and Rocketpool ETH are the set that we're launching with. And you know, the nice thing about Somalia is the ability to add functionality over time, which I think we can get into, like how that works. But we very much are expecting, you know, the kind of yield opportunities that both real yield USD and real yield ETH have access to, to expand slowly over time. Yeah, so you made the point of the ability to produce vols to be dynamic, you can add or remove different protocol strategies. So how exactly does that process work? Is it when the initial seller is created or at what point can new assets be added or new protocols be added to the same strategy? For example, say a new ETH staking derivative comes out, are you able to add that to the real yield ETH strategy? So first right off, whatever the initial set of assets and protocols that you want a vol to interact with have to be specified on deployment. And then there's, you know, a governance process where the SOM community discusses. And finally, the vol is accepted if it passes that proposal to the SOM chain. Now that set of assets and protocols that a vol can interact with is frozen until there's a new governance proposal to expand that functionality. So I want to emphasize that Somalia vols are not upgradable in the technical sense, right, in the way that you have like a proxy contract, et cetera. They do have the ability to add new positions and new assets, but those functions and that ability is gated by governance, right? So in the case that we want to add, let's say some new stable coin to a real yield USD, right? The strategist or 7Cs does not actually have the capability to do that. What needs to happen is a governance proposal is made. If that governance proposal passes, then that functionality becomes available. And now strategists can add what, you know, whatever has been made available. So it's one of the key security features of SOM, right, is this ability to add new features, right? Because then if you don't have that, you get into this situation where vols don't have longevity, but at the same time, you know, leverage a lot of the governance and security measures that, you know, people appreciate in DeFi, which is slow changes, but in changes that have been approved by the community. Awesome. Yeah. I think we've seen some of that happen with, you know, currently some of the urine balls you see strategies may have worked a couple of months ago, but not so viable maybe in the current market and just not the ability to dynamically adjust with the markets. Well, you know, I think as we wrap up, get to a close here, I wanted to ask what's in the roadmap, what's next for Sommelier? You mentioned multi-chain. Are there plans to go to other EVM networks? Yeah, so we're... like really pleased with some of the progress we're making on a theory of and want to serve You know deep like DeFi users more broadly, you know, we're here to make it defy more accessible Profitable and efficient so to the extent we can serve Other users on these other EVM ecosystems like an avalanche or an arbitral or other layer twos We want to do that and we want to do that for two reasons one Just from an accessibility perspective. It is you know ETH gas fees are still prohibitive for some folks especially those people that have lower deposit amounts so Depositing, you know a couple hundred dollars into a stable coin strategy that yields 6% And then you pay, you know $30 in gas fees or $50 in gas fees Even though like that strategy is rebalancing daily and you're not paying for that just that initial Gas fee to enter the vault is still prohibitively expensive and doesn't make sense Because you're only earning a certain amount so Going to some of these other EVM compatible chains where they're not only fast, but more importantly very cheap Just allows vaults to be accessible to a wider range of users and then So that's like one component of accessibility and then on the strategist side You know If gas fees are cheaper than that opens the design space for them Maybe they can do strategies that rebalance more frequently because gas fees aren't going to eat into the profitability of the strategy so those are like I guess two sides of the accessibility coin and then a final component is that You know as a platform Sommelier wants to be integrated with High-quality protocols that open the design space for strategists that allow them to do new things And so I think a protocol like GMX provides strategists with a new capability that they don't currently have on the small e8 platform and isn't quite as You know accessible on aetherium. So for those like few reasons as far as like reaching new user bases having more accessibility and Creating or opening the design space for strategists Like it's very important for us to to go multi-chain and so expect That to happen within the next several months like you'll start to see some announcements about Sommelier Coming to some of these popular edm networks Awesome, yeah, I think that'd be really exciting. Um Going multi-chain Especially as you as you mentioned Especially as you as you mentioned Uh, we're starting to see some of the eth gas prices starting to creep up again Um, and that definitely a lot going on in arbitrum and gmx. So yeah, super exciting Uh, well, I think we're we're out of time now I wanted to thank you josh and sun for for taking the time to walk through the protocol and and the different strategies um Um, and uh, yeah wish you guys success going forward. Um But I think uh, actually share just wanted to open up the space real quick for a q a um Yeah, is this if anyone has questions for for josh son or I uh, please Request for for speaking and I can I can get you to ask a question So Okay, uh this slide from exponential I just had a question about How do you think about security? when you have This ability to almost inject Information code or Something about an external strategy into a vault Is that a place where? There is a risk for someone to inject a Code that is not Like that that can push the vault to behave in a weird way This is a great question and it's I think the fundamental design consideration for Sommelier like that problem is the core of what Sommelier is trying to do right which is Have flexible off-chain computation that informs an on-chain strategy um, and so you're right that there are some, you know, there are some potential risks with that, but I can Do a high level of like, you know, what? mitigations the Sommelier So there are basically two security layers So you have this strategist who's kind of doing things making decisions and submitting those instructions on chain one thing is that Strategists don't actually submit directly to the smart contract Uh, only the Sommelier validator set can actually execute Uh anything on that smart contract, right? So what strategists do is they submit their rebalance recommendations to the Sommelier validator set The validators come to consensus and if consensus is achieved then they submit those rebalance instructions to the smart contract So for example, you know, there's a couple cases for why this is useful Number one if a strategist is behaving maliciously Validators can just stop accepting signals from them right cut the strategist out entirely That's one thing right and they're able to do that on a much Like lower time scale right much faster time scale than something like governance, right? Which is there's a whole process and voting validators can just not submit those instructions And number two, let's say, you know, the vault is in some interesting position and the strategist just disappears, right? Fall offs they fall off the face of the earth uh, the validators can then actually move funds into a safer position And shut down the vault and let users, you know, withdraw whenever they want So one layer is this validator set right the validator validators act as an intermediary between the strategist and the vault The second layer is of course the vault itself, right? So Uh, the kind of actions that a strategist can take are constrained by what the vault allows them to do Right. So to give you a concrete example in the case of real yield usd, right? Strategists, it's not like, you know, seven seas can go like 50 eggs long on heath or something, right? What really old usd allows the strategist to do is essentially move between die usdc and usdt Right and move those assets between have compound and uniswap v3 So like the spectrum of misbehavior Is is very much limited like, you know, we could as seven seas we were misbehaving we could do like weird tick ranges Right, we could like maybe swap assets back and forth or something, but it's not like The vault actually allows Those funds to be moved to arbitrary places places. So just to summarize there's two like key layers for security one is the smart contract itself, which limits the space of possible actions that validators or strategists could take and number two is the validator set which Is this intermediary between the strategist and the smart contract? Thank you, this is very clear I like the two-step approach With the validators doing a specific job of like double checking that information, which is great Yeah, and the just the beauty of this is like again no multisigs, right the architecture was designed where every component is replaceable So strategist disappears validators can replace it with the new strategies. There's like, you know, 40 plus independent validators So a couple of them go offline. That's no issue, right? So this was this is kind of the whole The whole the whole point of SOM. So thank you for that question Yeah, I just love that like in addition to the accessibility and efficiency goals like Underpinning all of that is this desire to create a secure robust system So all the smart contracts are audited by a third party independent third party Macro, they do your maker they do frax you know other top-notch protocols So we've developed a like a deep relationship with dev as far as reviewing our contracts Vaults and strategists are onboarded through governance, right? You can't just roll out of bed and launch a strategy on the platform the same day You have to go for through this community approval process You have the validator set acting uh as a check against strategist and then like sunset if they fall off the face of the earth The validator set can step in and just get funds to a safe position for users to withdraw We don't deal with wrapped assets like the assets are native to the networks um, so there's just like if you Tick through there's just all these items that when you combine them together Create a very robust and again security is top of mind for the entire team so I just are really proud of the the system that the team has built and like we I know the Exponential community is very focused on risks and like that's extremely prudent in the DeFi landscape Just because a lot of this stuff is new. It's experimental Even well-intentioned teams like something can easily go wrong just because things are so complex. So Y'all take like risks seriously And a security first approach and we do as well. So just wanted to highlight that Thank you. Well, it looks like there's no more speakers Um, so we'll end it here guys. Thanks again for for joining. Uh, thanks everyone for listening to Degen Responsibly, have a good day