The launch of our VyFinance DEx has been an incredible experience for the team, and a step forward for the Cardano Chain as a whole! Whilst we are humbled by the response to our launch, now is not the time for rest. But rather, the time to push Cardano DeFi even further. To this end, here we outline the phases involved in building our Auto-Harvester (AH), the next step in improving users’ ease of interaction with DeFi on Cardano. Let’s begin by discussing what an AH is, and how it will make DeFi easier for its users.
What is an AH?
An AH is a tool available to users that will allow for easier portfolio management in Cardano DeFi. It will allow users to liquidity farm across multiple protocols on the Cardano blockchain, by just selecting a strategy, and then conducting a single transaction to deposit their Cardano or VyFinance tokens to that strategy. It can be thought of as an Index Fund for LP tokens of projects from different sectors of the Cardano Ecosystem.
Who are Auto-harvesters for?
The AH is for everyone in the Cardano ecosystem. For new users, the auto-harvester simplifies the process of liquidity farming, users will be able to engage with multiple liquidity pools with a single transaction. Experienced users will be able to find strategies that are applicable to them, and then automate portions of their portfolio to reduce their portfolio management burden.
Our AH construction will be split into four phases. These phases are as follows:
Phase One — Native Auto-Harvester
Phase Two — On-Chain Auto-Harvester
Phase Three — Cross-Chain Auto-Harvester
Phase Four — Adaptable Auto-Harvester
Let’s discuss each of these phases in more detail.
Phase One — A Native Auto-Harvester allows access to strategies that are implemented ONLY on the platform itself. An example of this would be an Auto-Harvester on VyFinance that only provides liquidity to VyFinance. This system would allow users to automate compound strategies on our DEx, with a single transaction. As an example, if we had an AH that specialises in DEx tokens (25% WRT, 25% MIN, 25% MILK, 25% VYFI), the native AH would farm all four of these tokens on the VyFinance DEx.
Phase Two — An On-Chain Auto-Harvester allows for access to strategies that are implemented across multiple platforms on a single chain, to allow access to more unique and complex trading strategies. Using the above example, each DEx token would now be farmed on the tokens respective DEx.
Phase Three — A Cross-Chain Auto-Harvester allows for users to deposit liquidity on one blockchain, and have that liquidity be used for farming across multiple other chains. To expand on the above illustration, a user would deposit Cardano in the VyFinance AH, and access farming opportunities from other Blockchains. This will allow users to access the likes of Curve and Uniswap on the Cardano Blockchain.
Building each of these is a constructive process — ie. Each one follows the last. We will begin with a Native AH, then an On-Chain AH, and finish with cross-chaining our AH.
Phase Four — Adaptable AHs refer to systems that can change their portfolio allocation based on current market conditions. Given appropriate inputs, this allows for an equivalent level of risk control as would be achieved by an Indexed strategy in a traditional market. You are still exposed to the market risk — but the basket of assets can change based on the health of any given allocation.
Do Adaptable Auto-Harvester require AI?
Classically, there are two ways to create an adaptable portfolio strategy. Automated, and Actively Managed.
Active management is where a Fund Manager chooses assets and positions based on an underlying strategy for the portfolio. This is similar to a hedge fund from traditional finance.
Automated systems will generate allocations based on a risk management system. This is equivalent to an Indexed fund in classic markets. Automated Portfolio Management can be further divided into two streams, AI management, or Bot Management.
The principal advantage to an AI managed system is the ability to adjust the inputs of your risk management model, and optimize them for current market conditions. This in turn allows the portfolio allocation an added layer of “thought” before execution, ideally reducing the active management load on the user.
How would an Auto-Harvester create more liquidity for Cardano?
By reducing the difficulty for first time engagement with DeFi protocols on Cardano, we create a streamlined system whereby all who are interested will easily be able to provide liquidity to multiple sources.
Due to the indexed nature of the auto-harvester, users who engage will automatically be supplying liquidity to multiple projects, across multiple platforms. This makes it easier for liquidity to be spread throughout the cardano ecosystem, rather than concentrating itself on a few platforms.
By reducing the barrier to entry for liquidity mining on Cardano and increasing a project’s capacity to access liquidity on the blockchain. The VyFinance auto-harvester will improve the capacity for liquidity across the entire blockchain from both a user and builder perspective.
In regards to timeframes, we expect to have phase one complete in Q4 of this year, 2023. We are currently building our timeline and will have more details on expected timeframes around the other phases soon.
We cannot wait to bring automated farming to the Cardano Blockchain to simplify the farming process even further whilst helping projects on-chain gather liquidity!