Sommelier

Yield Aggregator

Sommelier is a protocol for decentralized asset management specializing in actively managed vaults. These vaults can run a variety of strategies including long/short trading, yield optimization, portfolio management and farming.

Risk Rating
Good
Protocol Code Quality
Protocol Maturity
Protocol Design
Summary
What we like
Sommelier provides a decentralized infrastructure for third-party strategists to construct complex DeFi strategies through the ability to leverage off-chain computations and models.
What we like less
Some areas of the protocol (e.g. price oracle for Cellar vaults) are still controlled by a 2/4 multisig.
What it means for you
Offers you a simple way to earn yield or generate returns based on advanced trading strategies in a secure and low cost way.

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Information
Exploit/Hacks
None
Info
  • Website
  • Token: SOMM
  • Tags: Yield Aggregator
Key Metrics
  • TVL: $72.1M (Rank #81)
  • TVL Ranking by Yield Aggregator: #4
  • Blockchain: Ethereum, Arbitrum, Optimism
  • Chain TVL
    • Ethereum: $64.57M
    • Arbitrum: $5.37M
    • Optimism: $2.13M
Risk Assessment
Good
Protocol Code Quality
  • Code not reviewed by any experienced auditors
  • Public team promotes accountability
  • No documented protocol hacks since launch
Protocol Maturity
  • Latest protocol version launched in 2023; maturity over one year minimizes technical risk as smart contracts are well battle-tested
  • Top 20% by total value locked slightly reduces risk
  • Core contracts require on-chain voting for parameter updates
  • Highly concentrated voting power increases risk
Protocol Design
  • No death spiral concerns
  • Robust controls to mitigate oracle price manipulation
  • This protocol is susceptible to risks related to yield optimizers which deploy custom strategies to automatically manage user funds
  • Sommelier`s novel infrastructure enables the active management of an ERC-4626 vault guided by off-chain computations, while remaining non-custodial and decentralized.
Things to know about Sommelier

What is Sommelier?

Sommelier operates as its own independent blockchain built on the Cosmos network. The team decided to build Sommelier to address some of the core issues behind other yield optimizers, such as trusting your funds with a limited multisig. The protocol is non-custodial and entirely governed in a decentralized manner by its community. Together, with a bi-directional ETH bridge, Sommelier is able to create dynamic yield strategies that adjust its composition based on prevailing market conditions or predetermined metrics. Sommelier leverages Cosmos to process the intensive calculations off-chain. By doing this, Sommelier uses a unique architecture to keep strategies private and allows them to utilize a wide variety of off-chain data modeling techniques.

How do Cellars work

Cellars are smart contracts or vaults that represent various DeFi strategies. The main benefit of Celler vaults is Sommelier is able to update the cellar position and effectively manage the user's funds in a non-custodial way and based on live market data. You can think of Cellars as dynamic vaults that allow for mid-frequency trading strategies versus most yield optimizers which are static (zero-frequency) and cannot take live market data as input. The lifecycle of a Cellar starts with an independent strategist first conceptualizing a strategy that takes in live market data. The strategist codes the strategy on Ethereum and deploys it in a smart contract, or Cellar. Once deployed, the strategist would then apply to governance for their Cellar to be accepted by the Sommelier chain. If accepted, the strategist would receive a reward from the Sommelier community pool. Lastly, strategists can also choose to add a management or performance fee (much like a traditional asset manager) to profit from their strategy.

How do validators work

Validators play a key role in the Sommelier ecosystem as they operate the Cosmos nodes that allow the Sommelier chain to reach consensus and process transactions. SOMM holders can delegate their tokens to validators in order to help secure the network and receive staking rewards. Sommelier validators also run additional infrastructure to enable the protocol to process cross-chain transactions and receive instructions from strategists. This process currently includes a steward, a bridge orchestrator and a bridge relayer. The steward is responsible for receiving cellar updates from strategists, verifying their authenticity and validity, and voting on-chain with these updates to reach consensus to update a cellar. The bridge orchestrator is responsible for coordinating and reaching consensus on what actions Sommelier must execute against the Ethereum bridge contract. It also observes events emitted from the bridge contract and verifies their completion. The bridge relayer is responsible for observing Sommelier's consensus on calls that must be made against the bridge contract and actually executing the Ethereum contract call. The bridge contract will verify the validity of relayed calls by inspecting the signers attesting to consensus.

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