By: Christos Makridis
Yield optimization has emerged as a critical opportunity area ripe for disruption in the rapidly evolving decentralized finance (DeFi) landscape. As blockchain technology matures, companies like Bril Finance are leading the way by developing sophisticated, transparent and trustworthy models to maximize returns for investors while providing a more pleasant user experience – similar to a dashboard that investors have from older ones non-Web3 products would know. The way they think about designing financial products, from quantitative modeling to user interface, provides a useful template for others in the emerging technology space.
The rise of decentralized finance
According to my research in the Journal of Corporate Finance, DeFi saw an initial explosion of activity “from around 90,000 users at the start of 2020 to 4.28 million by the end of 2021,” fueled by the creative use of airdrops and governance tokens. As the sector expanded, the search for high returns on tokens led to a “Wild West” and a lack of reliable products.
Many projects promised high returns but failed to deliver. These low-quality products lacked transparency, often leaving investors in the dark about how their funds were being used. For example, yield farming platforms would offer astronomical returns but were unsustainable due to flawed tokenomic systems. Investors would flock to them, only to see their investments collapse when the protocol failed to deliver promised returns. Other developers would create a project, attract liquidity, and then disappear with investors' funds – also known as “rug pulls.” These patterns made yield farming risky and unpredictable.
For example, YAM Finance initially gained attention for its unique elastic supply model that aims to maintain stable value. However, a critical flaw in the rebase mechanism led to a sudden drop in value, wiping out investors' funds. The project’s governance token, YAM, became worthless overnight. “Data from pricing site CoinGecko shows that YAM’s total value plummeted from about $60 million at 07:40 UTC to $0 at 08:15 a.m. – barely 35 minutes later,” according to CoinDesk.
HotdogSwap was a fork of SushiSwap, another yield farming platform. Despite its humorous branding, HotdogSwap failed to gain traction due to a lack of innovation and community interest. Investors who participated in the initial liquidity pools suffered losses. Pickle Finance aimed to optimize yield by automatically switching between different stablecoin pools. Despite the initial interest, a number of smart contract vulnerabilities resulted in significant monetary losses. These and many more projects illustrate the combined trust and tokenomics gap in the DeFi space.
However, these challenges are not unique to the DeFi space. Centralized exchanges have also struggled to cope with the proliferation of wash trading, “where investors simultaneously sell and buy the same assets to create artificial transactions, distort price, and undermine investor confidence and participation,” according to reports “This is the case in other financial markets.” A recent paper published in Management Science led by Lin William Cong, a professor at Cornell University and director of the FinTech Initiative, has documented the ubiquity of wash trading.
Connor O'Shea, CEO of Bril Finance
Source: Bril Finance
A new approach to MultiChain yield
However, the industry has evolved as there is an increasing focus on transparency, security and sustainable growth to increase investor confidence. Much like the expansion of artificial intelligence and emerging technology in the traditional financial services sector has led to an increasing democratization of powerful new tools available to retail customers, as is the case with companies like Wealthfront and Robinhood, a major shift has also taken place in Web3 .
Bril Finance was founded in 2022 with the intention of helping both highly experienced and novice traders deploy their capital efficiently and has achieved impressive annual returns on the BNB chain. A unified user interface will soon be launched, allowing users to access native yields from liquidity provision across 22+ deployments across 16+ chains. Bril is a seamless yet sophisticated decentralized finance (DeFi) tool that actively optimizes and manages portfolio strategies in a secure, non-custodial manner.
The dApp allows users to deposit tokens into single-asset vaults that increase returns based on automated liquidity strategies. This gives everyone access to professional tools that deliver high returns for risk-adjusted returns. Bril leverages an underlying liquidity provision algorithm that performs category-defining, automated rebalancing for high capital efficiency. When users deposit tokens into individual asset vaults, they receive LP tokens that represent their share of the liquidity pool. Single-asset vaults eliminate the complexity of managing multiple assets in one liquidity pool. Bril stakes the deposited assets in AMMs with concentrated liquidity in blockchain ecosystems through a best-in-class cross-chain bridging partner. Positions are automatically adjusted based on market conditions, and users can then withdraw deposits and winnings at any time.
Bril Finance product dashboard capture
Source: Bril Finance
“Bril is designed to respond appropriately to drastic market changes by making necessary rebalancing adjustments in real time, in a way we have never seen before in this space,” explained CEO Connor O'Shea. “Bril monitors the differences between fast (5 minutes) and slow (60 minutes) TWAPs [time-weighted average price] and between spot price and fast TWAP. Based on the price differences, we identify situations with high volatility (depending on the pool, typically set at 6% difference) and extreme volatility (typically set at 25% difference). During periods of high volatility, a user's position is spread across the price range, limiting significant selling of your favorite token due to price changes. In situations of extreme volatility, the vault will be locked to prevent further deposits. At this point, the strategy team assesses market conditions before making rebalancing decisions,” he added.
Financial services sectors rely critically on forecasting expected returns and losses to decide how to deploy capital while addressing idiosyncratic and systemic risks. Bril Finance builds on the approach of traditional finance by developing better models for predicting returns and, just as importantly, actively monitoring them. “I think people would be surprised to learn how much of a real-time human element is involved in risk management across the global financial system, whether it's Web2 or Web3,” O'Shea said. “The fact is that great technology is critical and we have it; But highly qualified people always have to play a key role here. We are extremely transparent about this and are proud that our team combines both best practices and expertise from serious TradFi experience with, in my opinion, superior technology, a new approach and overall less bad legacy banking.”
Bril uses blockchain technology in two important ways. First, the data is abundant, transparent, and easily accessible because trades are executed on-chain. Second, there is less room for human error or malicious behavior. While there are still individuals who can execute a trade and create models, the performance is publicly available and provides inherent checks and balances. “Risk management is fundamentally different at web3 because there is no government to bail anyone out,” O'Shea said. “We take this reality very seriously, as everyone should, and it informs our entire approach to this area of the business.”
CEO Connor O'Shea (r.) and Bril co-founder Uri Ferruccio (second from right) work together … [+]
Source: Bril Finance
Institutional pedigree
In addition to the necessary native crypto expertise, Bril Finance's founding team has both a high level of traditional finance and institutional background. O'Shea spent years advising some of the world's largest banks on their goal of scaling their own private blockchains before diving headfirst into a full-time commitment to DeFi. At Binance and BnB Chain, he led corporate development and forged strategic Web3 and Web2 partnerships. Before Binance, he supported corporate strategy and business operations at JPMorgan Chase & Co. based in New York. At WPP Kantar, he developed advertising and marketing strategies for fintech, luxury goods and CPG clients. Prior to joining WPP, he was a Corporate Strategy Associate at Strategy& in their New York, Tokyo and London offices, specializing in financial services growth and M&A. Connor dropped out of high school in his freshman year and founded a San Francisco-based payments startup, CCKV.
“We solve solutions for those who trade more intensively and are looking for a way to trade and avoid actively deploying capital. We connect the exchange with the liquidity provider and that generates a return for the user. The investor wants the investments to increase in value, but also that the capital is used. We can't control the global supply of Bitcoin, but we can help you earn additional returns. The vast majority of platforms do not have a sustainable APY, and ultimately it comes down to the algorithm. “It is very difficult to develop your own revenue product. Just as JPMorgan has dedicated teams looking for revenue, we are also poised for new money to flow into Web3, where we can help users seamlessly connect to take advantage of these types of opportunities,” Oshea shared.
O'Shea and his team believe that yield optimization in Web3 has already come a long way thanks to the recent greater convergence of principles from both the TradFi and DeFi worlds. As blockchain investing matures, optimizing returns no longer needs to feel like a game of chance, but rather a strategic opportunity with reputable products and companies that offer much more transparency, reliability and a single point of contact for accountability.
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