[OGP-6] Use of Yearn Vaults for Ethos Reserve

Proposal Type: OATH Improvement Proposal (OIP)

Supported Chains: Optimism

Proposal Author: omgcorn (Yearn Contributor)

Executive Summary

This is a proposal for Ethos Reserve to onboard Yearn Vaults on Optimism as a source of yield for WBTC, WETH, OP, or any future additions to the actively managed assets within the Ethos Reserve protocol.

Proposal Motivation

Yearn is uniquely positioned to offer Ethos Reserve yield-generation opportunities across its collateral. Yearn is an established and reputable organization that shares Ethos Reserve’s ideals around decentralization and safety. Yearn’s risk-adjusted vaults are battle-tested (some v2 vaults are over 2 years old) and have handled an all-time high of $6.4 billion.

Yearn aligns with Ethos Reserve’s safety-first strategy. Ethos Reserve’s use of Yearn Vaults will further validate the case for Decentralized Finance where safety and transparency matter most.

Proposal Specifics

In addition to the strategies below, Yearn is distributing OP incentives for another ~4 months in an effort to help bring value to the Optimism ecosystem.

The following are the proposed potential yield strategies:

Aave Optimizer: 0xe82DEb62412DB78D00Cae77BE3d1334e26034Cf6 Supplies USDC, USDT, DAI, WBTC, or WETH to AAVE v3 to generate interest, earn OP tokens, and rewards. Earned tokens are harvested, sold for more USDC, USDT, DAI, or WETH which is deposited back into the strategy.

Sonne Finance Lender Borrower: 0xD299aa23E8395F02f73D6B4E30dB579314440753 Supplies and borrows USDC, USDT, DAI, WBTC, or WETH on Sonne Finance simultaneously to earn SONNE. Earned tokens are harvested, sold for more USDC, USDT, DAI, OP, or WETH which is deposited back into the strategy.

Sonne Finance Lender Borrower: 0x2Ca0b2F1D00d6b70Da68D7C99B1dD08FF34D9c54 Supplies and borrows USDC, USDT, DAI, or WETH on Sonne Finance simultaneously to earn SONNE. Earned tokens are harvested, sold for more USDC, USDT, DAI, OP, or WETH which is deposited back into the strategy.

Team Experience

Yearn is DeFi’s premier yield aggregator giving individuals, DAOs, and other protocols a way to deposit digital assets and receive yield. Yearn was created in the Summer of 2020 and quickly became known for the best risk-adjusted returns in DeFi with their core product Yearn Vaults.

In addition to Yearn Vaults, Yearn contributors have created the DAO management tool Coordinape, the audit firm yAcademy, and assisted with the development of software tools like Ape-Safe, Apeworx, Vyper, Brownie, Gnosis, Robowoofy, ERC-4626, Weiroll-py, Disperse, Allowlist, yPriceMagic, and Serpentor. Yearn has also contributed to funding Gitcoin, LexPunk, and Nomic Labs.

Yearn has presented on risk management and strategy creation at ETHCC, ETHDenver, ETHDubai, ETHAmsterdam, The Stanford Security Summit, and has been mentioned in research from Messari and Ark Invest.

Yearn also contributes as a whitehat to SEAL 911, an experimental Telegram bot created by samczsun which anyone can use to seek help during a hack.

Yearn is maintained by a team of full-time contributors and is governed by the YFI token.

Key Objectives & Success Metrics

Yearn seeks to be a safe source of yield for Ethos Reserve’s actively managed assets through three Yearn vaults (Aave Optimizer, Sonne Finance Lender Borrower Strategies) to provide the highest risk-adjusted return possible.

Length of Engagement & Budget Breakdown

While the current allocation of OP incentives only lasts for another ~4 months, we are happy to extend this engagement as a perpetual arrangement as we will not be deprecating any Optimism vaults. Should this program attract enough attention and value, we may consider applying for an additional period of incentives with the Optimism Foundation.

Community Support

Collaborative efforts between Yearn and the Ethos Reserve team have assessed integration feasibility (verified by both teams). The Ethos Reserve team expresses their support for the proposed initiative and is open to gathering input from the community on the Yearn vault integration proposal.

Partnerships

Yearn currently holds an OP grant awarded from Optimism governance. Renowned as a security focused protocol across many networks, Yearn aims to establish a working partnership with the Ethos Reserve team (and larger OATH community).

Risk Assessment

Vaults

Yearn Vaults are capital pools that automatically generate yield based on opportunities present in the market. Vaults benefit users by socializing gas costs, automating the yield generation and rebalancing process, and automatically shifting capital as opportunities arise. End users do not need to have proficient knowledge of the underlying protocols involved or DeFi, thus the Vaults represent a passive-investing strategy. In 2021, Yearn Vaults had over $6 billion in contracts.

Yearn Vaults are comprised of up to 20 strategies and are considered “up-only”, as they take no directional risk and have no unhedged exposure to impermanent loss. Additionally, strategies are able to accept large deposits with little slippage and they must pass the Yearn Risk Framework.

Controls

Yearn Vaults use a 6-of-9 multi-signature wallet, made up predominantly of public figures in the DeFi community, along with two core Yearn team members. Yearn controls are not a requirement for your vault. However, you may want Yearn to have permissions for Operations Procedures including emergency situations.

The Yearn Risk Framework

The Yearn Risk Framework (explained at the Stanford Security Summit) is modeled after risk management process in the aviation industry and uses eight key metrics for evaluation: TVL Impact, Third-party Audit Quality, Internal audit, Complexity, Longevity, Protocol Safety, Team Knowledge, and Testing.

Yearn consistently receives top scores from third-party rating organizations like DeFi Safety.

Yearn core contracts have been audited by multiple third-party firms. A full list of Yearn Strategy third-party audits is also available. Should users desire to verify/audit contracts for themselves, all code is verified on Etherscan or other explorers, GitHub repositories for all production code are public, and Yearn developers are always happy to answer questions as needed.

Even with Yearn’s extensive preparation for hacks and loss of funds through documentation and war room simulations, there is always a chance that funds are not recoverable. Yearn does not offer a guarantee on funds of any kind. Yearn is purely on-chain DeFi and risk must be managed accordingly.