On the heels of the Real Yield USD vault, we’re pleased to share that a vault in the similar mold is coming to Sommelier to help maximize yields on ETH liquid staking tokens. Liquid Staked Tokens (LSTs) have gained significant traction since Ethereum’s transition to proof-of-stake by allowing users to earn staking yield while also using that capital within DeFi, resolving the tension between securing the network and accessing liquidity to pursue DeFi opportunities. The innovations from liquid staking providers like Lido and RocketPool have seen LSTs become a growing component of Ethereum DeFi, and Real Yield ETH is poised to be a powerful vault for capturing organic yield across prominent LSTs.

The Real Yield ETH Vault

The Real Yield USD vault from Seven Seas has set the benchmark for organic stablecoin yields on Ethereum, and now Seven Seas is collaborating with a new Sommelier ecosystem partner, DeFine Logic Labs, to optimize Yield for ETH LSTs. More specifically, Real Yield ETH will allocate stETH, cbETH and rETH across Aave, Compound and Uniswap to generate yield.

The vault will initially generate yield using two primary techniques, but has the ability to integrate with other protocols for new capabilities in the future. The techniques used in the first version of the vault are:

1. Leveraged Staking: This method involves a continuous cycle of exchanging ETH for an ETH denominated LST, utilizing the LST as collateral on Aave or Compound, borrowing more ETH, and repeating the cycle. This process is commonly referred to as “looping.”
2. Liquidity Provisioning: This approach involves providing liquidity to ETH/ ETH denominated LST trading pairs on Uniswap V3. As a liquidity provider (LP), the vault deposits both ETH and an LST into a liquidity pool, earning fees from traders who swap between the two tokens.

Sommelier’s novel architecture gives the vault advanced capabilities when it comes to both leveraged staking and liquidity provision strategies. More specifically, for leveraged staking, the vault uses a sophisticated solution to accumulate leverage that is highly capital efficient and significantly reduces gas and flash loan fees frequently associated with typical leverage practices. While the vault is leveraged, its smart contract enforces a minimum 1.05 health factor during each rebalance as a safety precaution and the vault closely monitors on-chain conditions to mitigate liquidation risk. If market conditions change, the vault is able to rapidly adjust leverage ratios to help avoid liquidation.

For the liquidity provision strategies, the vault’s ability to run off-chain computation combined with Seven Seas’ deep Uniswap V3 experience, positions the vault to be a top performing LP in the pools that it utilizes. The vault will be able to dynamically adapt to changing price movements to quote the optimal tick range(s) that collect the most fees while minimizing impermanent loss. We’ve already seen the Seven Seas team leverage a similar approach to make Real Yield USD a top 5 performing LP on the USDC-USDT 1bps pool, the most used stablecoin pool on Uniswap V3.

Real Yield ETH is poised to become a powerful vault for capturing organic yield across prominent ETH denominated LSTs. With leveraged staking and liquidity provisioning, the vault maximizes yield while managing risk. As the LST market evolves, the vault will also evolve to capture new opportunities. All in all, we’re excited to make using LSTs more accessible and efficient for everyone.

Note that Real Yield ETH and Sommelier vaults are not open to persons or citizens of the United States and other restricted countries — for more details please refer to the Sommelier User Terms.

About Sommelier

Sommelier is an innovative asset management protocol whose mission is to make DeFi more accessible, profitable, and efficient for everyone. Our advanced technology built on the Cosmos SDK, enables intelligent vaults that can optimize portfolios, trade long-short, borrow-lend, and farm. Independent strategists can leverage the power of off-chain computation to bring algorithmic vaults on-chain, allowing vaults to dynamically adapt to market conditions and provide enhanced opportunities and risk mitigation to users. All vaults are enabled by audited smart contracts and controlled by protocol governance, ensuring transparency and security.