APY Finance Review: Yield Farming DeFi Robo-Advisors?

APY Finance is a project that aims to attract more people to the decentralised finance DeFi wave promising automated profit generating
APY Finance is a project that aims to attract more people to the decentralised finance DeFi wave promising automated profit generating

APY Finance is a project that aims to attract more people to the decentralised finance (DeFi) wave, promising automated profit-generating opportunities through its own protocol.

Governed by smart contracts, APY Finance achieves decentralization on aspects such as portfolio management, strategy execution, and protocol governance. It also offers one of the most profitable yield farming options in the space without the exorbitant gas fees that traders suffer from on other platforms.

APY Finance Background

The motivation for the APY Finance project is to provide today’s traders with a wide array of yield farming strategies. One problem that they’re trying to solve is the complexity of the technical knowledge required to fully maximize the potential gains that investors can make in DeFi.

With just a click away, APY Finance helps its users take advantage of the compounding value of their assets by way of liquidity mining. APY supplies liquidity to some of the best exchanges in the space, such as Uniswap, 1inch Exchange and SushiSwap. Users just have to deposit their assets in the smart contracts and it will do the rest.

APY.Finance allows users to connect with major DeFi protocols
APY.Finance allows users to connect with major DeFi protocols

Review What is APY Finance?

APY Finance is a decentralized yield farming protocol that offers different profit strategies out of a single, unified liquidity pool. It gives traders exposure to different DeFi projects with just one deposit which effectively diversifies their portfolio while mitigating all the potential risks involved (e.g. smart contract risks or price volatility).

APY Finance implements an automated portfolio rebalancing mechanism that adjusts itself based on risks and potential yield. In addition, the protocol promotes cheaper transaction costs on the platform, with over 99% of gas savings on rebalance fees for traders and 80% gas savings on deposit and withdrawal fees.

APY Finance interface
APY Finance interface

APY Liquidity Pool

APY Finance features one liquidity pool powered by smart contracts that are in charge of depositing and withdrawing via one currency. The pool aggregates the holdings of investors into a single pool of liquidity. When users make deposits, they receive APT tokens as a representation of their share in the liquidity pool.

The liquidity contracts governing the pool are backed by Ethereum-denominated Chainlink aggregators. The main purpose of these contracts is to determine the value of the pool’s outstanding reserves.

APY Portfolio Strategy

APY’s portfolio strategy is also governed by smart contracts called “strategy contracts.” They follow certain parameters based on the types of assets supported by the pool and execute adjustments based on different trading sequences, among others.

Types of Assets

There are three asset types that compose APY’s portfolio strategy: input assets, intermediary assets, and output assets.

The input assets, such as DAI and USDC, are required assets for users who want to start yield farming.

The intermediary assets, such as cDAI and yCRV, are the tokens locked in smart contracts while the strategy is operating.

And finally, the output assets, such as COMP and CRV, are the yield tokens given to the traders.

Types of Sequences

There are also different sequences that affect the yield farming strategy of the protocol. These sequences also perform specific functions.

The entry sequence covers the deposit of input assets into strategy contracts. This takes form, for example, by way of contracts facilitating the deposit of input assets, such as DAI, for the minting of intermediary assets, such as cDAI.

The loop sequence sustains the strategy for optimal yield. This can be seen from the contracts swapping output assets, such as COMP, for input assets to mint new intermediary assets. These newly-minted assets are then reinvested back into the strategy contract.

The exit sequence unwinds the whole strategy. This automatically redeems intermediary assets into the currency of the input asset so the trader can withdraw his holdings.

But basically, what the sequence covers is the whole life-cycle of the strategy. Its continuous aim is to ensure that the user can easily deposit funds in one currency and earn through an automated trading strategy.

The APY manager is the interface that allows users to process their deposits, withdrawals, adjust portfolio strategies, and earn yield.

Yield Approximation

The protocol also computes for the optimal yield on a user’s deposit. Users can have a view of the estimated yield in order to make adjustments to their chosen strategy should they wish to do so.

Risk Score

Strategies are attributed with risk scores which can be affected by different market factors. Users can update the risk score for strategy contracts to limit the amount of risk that they are willing to tolerate. The risk scores are also valuable in determining the estimated yield for strategy contracts.

APY Token

APY is APY Finance’s native utility token. It is used for the transaction fees, rewards program, and the protocol’s governance mechanism.

APY holders are given the opportunity to vote on different protocol parameters, such as strategy changes, as well as the inclusion of new portfolio strategies.

Liquidity miners also earn APY tokens when they deposit stablecoins in the protocol’s liquidity pool. The platform implements a per-block reward for liquidity providers.

Governance

The initial phase of the program will be run by DeFi experts who will develop the yield farming strategies for the protocol and monitor them for potential issues. Until the platform reaches a point of stability, the team behind APY Finance will begin the process of progressive decentralization.

APY Finance Review Conclusion

APY Finance is an interesting use case for smart contracts in DeFi. It can address the psychological barrier that keeps people from tapping yield farming options, which is probably one of the fastest-growing areas in the DeFi market. And since the platform is decentralized, the whole strategy for optimal yield profit can be owned by its community.

However, like many other platforms that depend on automation, the security and reliability of its smart contracts should be scrutinized carefully by the users before they decide to deposit their assets. But looking at where the project stands today, it appears to be a strong competitor in the yield farming and liquidity mining market.