Investors in decentralized finance (DeFi) have a new way to generate the best possible returns.
Staked's new Robo Advisor for Yield (RAY) service, which launches today, automates the process of finding high-yielding opportunities. Normally, investors have had to watch constantly and reallocate quickly to catch an enhanced DeFi return. Now they can set a smart contract to do the monitoring and allocating for them.
"This product is targeted to people who hold eth or dai and want to earn yield on it," CEO Tim Ogilvie told CoinDesk in an interview. "If you hold ETH, you can earn more ETH. If you hold DAI, you can earn more DAI."
already helps investors place funds with various proof-of-stake protocols (blockchains that reward users for locking up their coins for periods of time, such as Tezos, Decred and Dash). The New York startup announced a seed round in January backed by Pantera, Coinbase, Winkelvoss Capital and others.
With RAY, investors can put their assets (ETH, USDC or DAI) into an asset-specific pool and the smart contract will automatically invest all or part of that pool into contracts with the best yield at any given time. For now, it will invest only on the money market Compound and with the derivatives protocols DYDX and BZX. But Staked is vetting additional smart contracts for safety and reliability.
An example of how RAY works: Imagine an investment pool has one million dollars worth of ETH in it and Compound is offering 5 percent. But then DYDX starts offering 7 percent for collateral on ETH-based derivatives. RAY would move as much of its collateral as DYDX had space for, and the entire pool would share in the extra return.
"We're not necessarily saying we are going to beat the market. We're just saying you'll get the best of what a savvy watcher would get in the market," Ogilvie said.
"The vision we are building toward is the same level of sophistication the fixed income markets have in traditional finance," he added.
Staked smart contract store
Staked is building a pool of liquidity that will automatically move to where there's opportunity. Right now, every investor has to decide which DeFi app to put their assets in, which means that entrepreneurs need to get enough people's attention to get that collateral. With Staked, there is a pool of capital ready to move automatically if an application shows attractive returns.
Tom Bean, CEO of BZX, a derivatives protocol that lets users long and short different crypto assets, told CoinDesk he was "excited" about a new pool to tap into.
"We put a lot of emphasis on integrations, because once we've plugged in, that's easy liquidity," he said. As a newer company that isn't venture backed, it hasn't been able to attract capital as easily as some others. The Staked pool could remove this pain point for BZX and any other new smart contract that gets whitelisted, Bean said.
On a day-to-day basis, the returns for providing capital to any smart contracts tends to be fairly uniform, meaning the market is generally efficient, as both Ogilvie and Bean noticed. But Ogilvie noted that it's still new enough that returns on one smart contract spike over the others from time to time, and a vigilant investor can do well by catching those upticks. The point of RAY is to take advantage.
To encourage participation, Staked is set up so RAY makes a return only if it beats a baseline.
"We take a benchmark rate of Compound, and we'll take a percentage of anything we can make above that," Ogilvie explained. RAY makes 20 percent returns above whatever the funds would have made if they were all just in Compound.
The tech behind RAY
Proving at long last that non-fungible tokens (NFT) aren't just for games, RAY will rely on the same ERC-721 standard the runs CryptoKitties. Instead of proving ownership of a procedurally generated cartoon, it will authenticate rights to part of a financial product.
When users put assets in RAY, they will get an NFT that indicates how much they put in and when. That token will be redeemable for the assets and whatever returns they made, whenever the user is ready to take it out.
"Everything we do is non-custodial," Ogilvie said. The token goes into a smart contract, not into RAY, and the assets can only be transferred back to the wallet where they originated from.
"It pools everyone together and you get the benefit of scale," he said.
Ogilvie sees RAY as just the beginning of an ever increasing set of decentralized finance (DeFi) products. It's easy for him to imagine a future where ever bigger robo advisors serve specific tranches of investment clients.
"You can just allocate it optimally, subject to your risk preferences. You shouldn't have someone like a Goldman Sachs creating a giant haircut on it," Ogilvie told CoinDesk. He noted:
Photo of Tim Ogilvie, CEO and co-founder of Staked, right, with Max Mensch of Fabric Ventures, from Consensus 2019 (via CoinDesk archives)