Sommelier Finance: YieldGPT

Introduction

Permissionless and decentralized financial rails have the potential to increase economic freedom by lowering the barriers of entry to access capital and compound wealth. Unfortunately, however, transparent financial systems still require knowledge of how to systematically capitalize on market opportunities.

In traditional finance, investors can leverage wealth management advisory platforms and multi-strategy investment funds that actively manage investments on behalf of clients. In DeFi, onchain users can deposit their capital into yield aggregation protocols like Yearn Finance, where strategists create vaults that seek the highest onchain yield available for a particular asset. With almost $88T (60% of global AUM) forecasted to be under active management by 2025, the total addressable market for DeFi yield aggregation platforms is unparalleled over the long term.

DeFi’s Nascent Yield Strategies

While yield aggregators amassed over $7.5B in TVL during the peak of the last bull market, they did so with static strategies that took advantage of unsustainable liquidity mining programs of other DeFi protocols and borrowing/lending rate dislocations in top lending protocols.

Once DeFi yields compressed as the desire for leverage dissipated, liquidity mining programs ran out, and more sophisticated market participants came onchain, these yield strategies began underperforming even less risky opportunities.