In the evolving landscape of DeFi, managing assets and staying on top of yield strategies has emerged as a significant challenge.
Currently, DeFi's best returns are accessible mainly to a small group of technically inclined individuals who have the time and expertise to set up and actively manage complex yield-generating strategies. Doing anything less often results in missed opportunities and undue risk. In short, the complexity and demands of the DeFi landscape have turned it into a full-time job, excluding many potential participants.
This is where Sommelier Finance comes in. Sommelier aims to automate the complexities of actively managing assets within a self-custodial and decentralized environment. To do this, they have built a dedicated Cosmos appchain, capable of supporting sophisticated vaults that run automated DeFi strategies for users. Since DeFi volumes are concentrated in Ethereum and Ethereum-Virtual-Machine (EVM)-compatible blockchains like Arbitrum, Sommelier needed an advanced cross-chain platform. They turned to Axelar.
Sommelier has enabled the creation of vaults that are more sophisticated than those that could exist on Ethereum alone. Vaults on Sommelier are smart contracts that work with live, up-to-the-minute market information. Unlike static strategies, these vaults can update positions based on real-time market data. Think of them as smart financial planners that never sleep.
Axelar network provides a programmable cross-chain platform that enables Sommelier to function as a coprocessor across various blockchains, effectively reducing the cost of transaction gas fees.
Vault proposals are rigorously evaluated by external validators and must achieve consensus among all validators.
Axelar GMP facilitates cross-chain asset transfers and aligns with Sommelier's mission, enabling Sommelier to expand its DeFi strategies to Arbitrum and 48 other networks.
What is Sommelier?
Sommelier is an innovative asset-management protocol with a mission to democratize DeFi. Users are looking to optimize yield, dollar-cost average into their investments or hedge risks – but these strategies can be complex to execute. Sommelier's solution provides intelligent vaults, simplifying and optimizing these processes. These vaults navigate the complexities of sophisticated DeFi protocols like Uniswap V3, Morpho or FraxLend, effectively outsourcing expertise and simplifying interactions. This approach is breaking down barriers to entry, allowing a broader audience to engage with DeFi without the need for constant monitoring or technical expertise.
Sommelier differentiates itself from other asset-management protocols through its focus on decentralization and dynamic strategies. The protocol employs a decentralized governance model involving over 40 independent validators who must reach a two-thirds consensus for strategy execution. This adds an extra layer of scrutiny and democratization. Additionally, Sommelier's vaults are designed to be adaptive, running off-chain models that enable seamless integration with various DeFi protocols across multiple blockchains. This allows for a more flexible and expansive approach to yield generation, making Sommelier a next-generation asset management solution in the DeFi space.
How do vaults work?
Strategists propose new vaults with backtesting, expected fees and other details to Sommelier's governance. External validators evaluate these proposals to ensure robustness and security. Once approved, audited vaults can be offered to users.
The entire validator set must reach a consensus on asset rebalances proposed by strategists. This process checks strategists, ensuring actions conform to the vault's specific parameters and preventing unauthorized or risky behaviors.
Sommelier's adoption of Axelar amplifies these capabilities, rooted in its custom-built Cosmos appchain, allowing Sommelier to offer new strategies and risk profiles across multiple chains, without compromising security or transparency.
Axelar GMP expands reach to multiple chains
Of all the cross-chain options available, why did Sommelier decide to go with Axelar?
Three words: General Message Passing (GMP).
Axelar GMP facilitates asset transfers and interaction across multiple blockchains, allowing assets to remain on their native chains while synchronizing their state across chains. This innovative approach aligns perfectly with Sommelier's mission and offers specific benefits like enhanced liquidity and secure coin transfer.
Arbitrum One, with its highly active DeFi ecosystem, was the first chain Sommelier connected using Axelar GMP – which goes beyond the native connection afforded by the Arbitrum bridge. The integration was announced in May.
Implementing Axelar GMP into Sommelier's adaptive vaults was strategic, leading to numerous benefits and enhancements:
Expanded total addressable market: With Axelar GMP, Sommelier's adaptive vaults can connect with all chains Axelar supports – 49 at this writing. This integration enables a wide expansion across various blockchains, giving Sommelier instant ubiquity across DeFi.
Unique cross-chain needs met: Sommelier's requirement to send application logic to other chains is fully addressed by GMP. Its all-purpose functionality makes it capable of handling Sommelier's unique bridging needs for vaults to execute.
New opportunities: GMP sends strategy instructions cross-chain, opening new avenues for applications and strategies. It enables collaboration with protocols like GMX and Dopex, offering various risk profiles and yield types.
The newfound capabilities delivered by GMP have translated into tangible economic advantages, including marked reductions in gas fees for users and expanded user adoption for Sommelier.
For a deeper understanding of the technological underpinnings of this collaboration, the Bankless podcast episode featuring Zaki Manian, Sergey Gorbunov, and Steven Goldfeder is a highly recommended listen. The episode delves into the complexities of blockchain interoperability and highlights Axelar's role in securely bridging different ecosystems through its GMP technology. It also emphasizes the importance of decentralized security models and robust developer tools in a multichain world, themes that resonate strongly with Sommelier's mission and the benefits realized from integrating Axelar GMP.
The collaboration between Sommelier and Axelar represents a strategic advance in Web3, enabling application builders to compose functions across multiple ecosystems, broadening access to DeFi, addressing scalability and improving user experience. This partnership enhances Sommelier's vault capabilities, reduces costs and expands Sommelier's potential market for users.
👉 Builders, learn more about Axelar GMP.