Brahma’s strategy vaults will initially launch as DegenVaults, alpha peer-reviewed releases of its vaults. DegenVaults will be limited in size and gated, accessible by experienced DeFi users who hold a specific KARMA score.
The first two DegenVaults focus on protecting capital while generating alpha. The DeltaUSD vault aims at capturing staking rewards while hedging asset-risk while the Protected Moonshot vault uses stablecoin yields to take systematic long/short bets on assets.
Brahma is a protocol enabling seamless access to risk-managed, cross-chain strategies for sustainable yield.
Chasing returns by managing capital, security, and positions is one of the biggest pain points for an average DeFi participant. Brahma grants users unfettered access to advanced, risk-managed strategy vaults that interact autonomously with multiple chains, all through a single-sided user deposit. At the same time, Brahma contributors can build on-chain trading vaults with solid smart contracts and integrations, which allow composing with multiple protocols and chains in a single flow.
The aim here is two-fold: reducing overall complexity for the user, as well as providing a sustainable diversification to liquidity mining, with strategy vaults leveraging market inefficiencies and multiple payoff profiles.
As Brahma interacts and leverages novel protocols, there are multiple risks and considerations to be made for our users and for how our vaults are created, reviewed, and scaled. This is where DegenVaults come into play.
What’s a DegenVault anyway?
DegenVaults are experimental, peer-reviewed but not yet audited, early releases of strategy vaults, accessible only to experienced DeFi users familiar with on-chain primitives and their underlying risks. DegenVaults are part of Brahma’s research lab, built with a higher risk-return profile for risk-tolerant users.
Brahma’s vaults are trading solely on-chain, aided by off-chain logic, and often will initially run on thin liquidity interacting with new primitives and trading pairs, waiting for the instruments' liquidity to deepen. In order to balance shipping fast with a proper amount of testing and safety, DegenVaults are introduced as an alpha release lab for new strategies.
How to check if you are one of these Degens? Head to karma.brahma.fi to check your KARMA score by connecting your web3 wallet. Read through this for a deeper take on KARMA and its significance.
Once a specific DegenVault has been audited and its capacity scaled, it is added to Brahma’s open strategies and made available to everyone.
∆Delta USD DegenVault
Since the advent of DeFi summer, we have been blessed with an abundance of protocols offering double and sometimes even triple-digit staking yields. However, the underlying token performance has often not only eroded away most of the yields earned in these positions, but even resulted in USD capital losses.
The ∆USD strategy aims to overcome this by deploying stablecoins into a delta-hedged position that capitalises on market-leading DeFi rewards without exposing your hard-earned assets to the price volatility of the underlying tokens.
The ∆USD strategy creates a delta-neutral position by deploying 50% of capital into a long token position while the remaining 50% of capital is used as collateral to open a 1x short position on the token (currently via Perpetual Protocol). The long token position is then staked in order to generate yield while the short perpetual future position can earn funding fees (provided that funding rates are positive).
The strategy aims to maximise the total yield from staking rewards and perpetual future funding rates through careful token selection. Funding rates can be very volatile so these positions are actively monitored and closed in the event that negative funding rates exceed staking rewards (in order to limit losses). In addition, capital is also frequently rebalanced between the spot token position and perp.fi margin account to manage liquidation risk.
Multiple backtests were performed to analyse the strategy’s performance and associated risks. These were imperative in ensuring that our signalling logic for opening and closing positions, as well as our liquidation management, was robust. The data sources for the backtest included:
- perp.fi v1 data from 2021, in order to test the strategy against real-world decentralised derivative exchange data
- 12 months of FTX data from Feb2021-Feb22 as a centralised exchange source given the longer history and maturity of the market.
The backtest of the strategy’s performance on CRV are presented below. CRV was a natural candidate for this strategy initially due to the large and consistent staking rewards and generally positive funding rates historically (more on this in a later blog post).
The strategy performed well in both backtests over the course of 2021, generating an APR of around 30% during the time period with minimal drawdowns (<2%) and in spite of a highly volatile CRV price.
Protected Moonshots DegenVault
Crypto prices have always blessed/cursed participants with insane volatility. If YouTubers and binary option adverts are to be believed, then this volatility provides infinite opportunities for us to wagmi. The reality is a little different, especially during the middle and end stages of bull runs. The FOMO and shameless abuse of those that dare to hold stables leaves a lot of entrants buying high and in the end left holding everyone else's bags.
What if there was a way to hold stables but still take those moonshots and advance your journey to the citadel?
The Protected Moonshot DegenVault deploys USDC into blue-chip yield farms, with the weekly harvested yields used to take leveraged long and short bets on crypto prices on decentralised derivative exchanges using a momentum trading strategy. Returns from these bets are compounded back into the stable coin yield farm weekly.
Initial backtests of this strategy look promising with decent alpha being generated from the leveraged bets instead of just stacking stables yield. Current stable pool yields and price data from the start of 2021 until Feb 2022 for a variety of assets provided a robust data set due to the double top and subsequent sell-off. Results for running the strategy taking 7.5x leveraged perpetual future bets on Perpetual Protocol (max leverage is 10x) on a [REDACTED] asset (can’t leak all the alpha) are shown below.
Importantly, the strategy would have outperformed current stablecoin yields (assumed 12%) in 11 of the 14 months tested, highlighting the sustainability of this strategy through various market regimes.
Core contract development is underway, and we are doing internal testing on the vaults’ functionalities. As these vaults are cross-chain [meaning you deploy on L1 and the strategy takes a position on different chains], we have to require extra rigorous testing before we open it up for fellow Degens.
Keep in mind, we will be launching these solely as DegenVaults for now, and moving these to the general offering post successful audits (Q2, 2022).
Stay tuned for more detailed posts including additional in-depth background on each of the strategies.
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Disclaimer: The content of this post is provided for informational purposes only.
This article is not an offer of securities, an invitation to sell or a recommendation to subscribe for or purchase any securities, and it has been prepared without any consideration of particular investment objectives. Nothing herein constitutes investment advice or recommendation. Nothing on this site should not be relied upon as a basis for making an investment decision.