It has been almost 13 crazy weeks since Brahma launched the first-ever DegenVault: Protected Moonshot (PMUSDC). The intro blog at the time highlighted the “unprecedented time of uncertainty” given the macroeconomic backdrop and looked “to provide users with an attractive alternative”. ETH was still above $3000 at this point and even the most bearish amongst us couldn’t have predicted the craziness that unfolded. Since then UST depegged and Luna went below zero, Celsius seemed to go insolvent, 3AC flew too close to the supercycle and blew-up, J Powell stopped going brrrr and ETH once again became triple-digit.
Through all of this PMUSDC depositors slept well at night, grateful that they didn't keep buying a dip that kept dipping and knowing that their hard-earned stables were safe and generating boosted returns from the market volatility.
Brahma is excited to announce that PMUSDC is graduating from a DegenVault to a “Main Vault” together with numerous upgrades and improvements, allowing all users to access boosted stablecoin returns throughout market cycles.
Strategy Recap
For those not familiar with the original DegenVault (beware KARMA), the PMUDSC strategy is centred around the premise that the highly volatile nature of crypto assets presents significant trading opportunities. However, this volatility also means that the probability of being rekt is high. For most retail users this is especially true. Whether it's the $ETH maxi's buying valueless governance tokens at the height of Defi summer to the Bybit apes longing every level on the way down from $60k no matter how many times they or the supercycle gets liquidated.
PMUSDC looks to take advantage of these trading opportunities systematically in order to provide boosted stablecoin yields without having to risk base capital. So how does it work to provide the best place in Defi to park stables:
- The vault receives single-sided USDC deposits
- The USDC is put to work in Defi in order to earn a base yield
- The base yield is harvested weekly and sent to decentralised derivative exchanges
- This yield is used to take derivative trades based on a systematic momentum strategy that looks to profit off crypto asset price movements
- Any trading profits are compounded back into the strategy
The end result is boosted stablecoin returns with a reduced reliance on unsustainable token emissions. The systematic trading strategy aims to provide returns through all market regimes - leaving you comfy and moisturised in your lane.
V2 Upgrades
The projected APY currently stands at 13.99% for PMUSDC Main Vault/
PMUSDC V2 introduces many upgrades from Brahma’s V1 learnings in order to provide users with the best and most accessible boosted stablecoin yields in DeFi.
The upgrades are split into the two main components that make up the strategy, the base yield generation and the weekly derivative trades.
Base Yield
In V1, the vault capital was deployed to a single Curve stablecoin liquidity pool (and the LP tokens staked on Convex) in order to generate the base yield. When providing liquidity to a stablecoin pool, one takes on the peg risk of all the stablecoins in that pool. If one of the stablecoins loses its peg then the pool will end up holding the majority of its assets in the depegged coin. Deploying all of the vault's capital to a single stablecoin pool presents a significant concentration risk.
Multiple Base Pools
The revamped architecture for V2 allows for the vault to deploy capital to multiple stablecoin pools at once. This diversifies the exposure away from a single stablecoin as well as provides better long-term yield sustainability.
Stable Risk Framework
How are the multiple base pools chosen? Brahma developed a Stablecoin Risk Framework in order to manage base capital allocation more efficiently and deliberately with the aim of mitigating capital risk and generating sustainable returns.
The framework uses a combination of qualitative and quantitative factors to determine the most appropriate stablecoin pools to allocate capital.
Continuous Monitoring
The framework also leverages the transparency that Defi provides by continuously monitoring the above-mentioned Quantitative Factors for the stablecoin pools to which PMUSDC is allocated. All necessary pool and token information is collected from on-chain in real-time. Brahma’s Python implementation of Curve’s stableswap allows for a much more comprehensive analysis of stablecoin pool risks such as peg resilience simulations. Automated alerts provide actionable warnings in the event of a significant change in the health of a pool. Users will also be able to see the stablecoin pool parameters in the Frontend as well as in Discord.
Derivative Trading
In V1, the weekly derivative trades were perpetual future positions on the ETHUSD market on Perpetual Protocol. The direction of the weekly trade (long or short) was determined by using simple moving average indicators.
Recap Pepo Performance
Before we get into the details around the weekly derivative strategy upgrades, a quick recap on the performance of the PMUSDC V1 trades.
The derivative trading strategy made a profit in 8 of the 12 weeks of trading and resulted in an Average Yield Boost over the period of 1.37x (for example if the base stablecoin pool yielded 10%, PMUSDC would return 13.7%) - evidence that V1 actually did provide boosted stablecoin results.
A key challenge V1 faced with the weekly perpetual future trades was the liquidation risk. Since only the weekly yield is used to open positions, large leverage is used on the position such that potential trading profits are meaningful to the overall vault return. Liquidation events are extremely costly for a trading strategy and currently, a stop-loss trigger is used to close the position before liquidation occurs - this has been triggered on 4 occasions.
Two key areas were identified in order to provide much improved derivative trading returns: the direction signal and the trading instrument/venue.
Direction Signal Upgrade
The direction signal used in V1 was fairly rudimentary, using simple moving averages. While this simple signal has provided some stellar returns; it suffered in certain market regimes. More advanced signalling methods were investigated with a focus on making the returns more consistent.
After extensive testing and development, the signal has been upgraded to a trend-scanning algorithm (good paper here for those looking to deep dive). By fitting multiple regressions at every decision point and making the decision based on the maximum absolute t-values it allows us to introduce much more robustness to the system, providing a better, more consistent distribution of returns. This algorithm allows the signal to have an organic reaction to current market conditions, providing the flexibility that models with fixed horizons don’t possess. Trend scanning judges the current trend fairly, which leads to a great improvement in the strategies’ performance both metrics-wise and in terms of returns stability (Sharpe ratios).
This can be seen by comparing the backtest results for the two signals for a Perpetual Future Strategy and an Option Purchasing strategies.
The upgrade to Trend Scanning provides similar returns but with much improved Sharpe ratios in both cases, illustrating the improvement in returns robustness and stability
Derivative Venue
As mentioned above, leveraged perp futures positions are prone to getting stopped out to avoid liquidation which can cause a significant drag on performance. In the development of the ETH Maxi DegenVault, the weekly trades were taken using options on Lyra Finance in an attempt to overcome this performance drag. While a long option position provides large effective leverage and cannot be liquidated, it presents other challenges. The cost of an incorrect signal is larger as the entire week's yield will be lost (this can be seen in the lower Sharpe ratios above for the Option strats compared to the Perps).
The upgraded architecture for PMUSDC V2 allows the vault to be able to deploy the weekly yield to either Perpetual Protocol to open a perpetual future position or to Lyra to purchase an option (can confirm the devs did something). The dual integration to these derivative platforms allows the construction of a more adaptive and dynamic weekly derivative trading strategy. Trading returns are maximised and return stability improved by using the yield to open a trade with the derivative instrument that is best suited to the current market regime.
The impact of including an adaptive derivative choice in the trading logic can be clearly seen in the final backtest results (base yield of 8% is assumed for this backtest).
On historical backtests, the V2 derivative trading strategy provides a significant improvement in the yield boost while also giving the returns a higher Sharpe ratio. The Stablecoin bears in disbelief.
While Pepo may be upgraded, Discord users will still be able to check-in anytime.
Audit & Security Updates
Audits were conducted by third-party auditors namely Zellic and Consensys. The devs did something and these are the important factors for the architecture design.
- Principal Protection - core assets are always monitored. Automations check every few blocks for market conditions like instability, depegs, liquidity, etc, and alert the team to take action. [UST example link to twitter]
- Omnichain Protection - Bridging large amounts of funds to L2s is quite unsafe because we get txn data from the bridge backend which is a closed source. To safeguard, we take the bridge txn, decode it and validate it on-chain to make sure funds don't go to sifu.
- Pricing and Front-running protection- In the case of core assets on curve pools, our contracts validate the asset price based on current pool liquidity, calculating spot price and comparing it against chainlink price. This would give us the real slippage vs the supposed slippage.
Brahma’s UI 2.0
Transparency and accessibility have been at the forefront throughout the UI revamp process.
While a new light theme is being introduced alongside a mobile adaptive UI, there have been more alterations than what aesthetically may meet the eye. New risk monitoring dashboards are soon to be released for systematic pool health tracking, real-time charts and seamless connection interface among other things. Safu to say the new Brahma app is experiential more than ever.
Explore UI 2.0 here
KARMA and DegenVault UI 2.0 are currently in the works.
The PMUSDC main vault is now live
Prep to try out the new vault for thyself. See you real spoon.