Syracusia Upgrade: Phase 1 – Protected Single Pools | by Alvin | Archimedes Alpha | June 2023

The development of Protected Single Pools is the first step towards finalizing the final form of the Archimedes Syracusia Upgrade, Omni leveraged pools of synthetic assets and LSDFi liquidity pairs. Like the ETH/stETH pool on Curve. As I recall, it was a certain Tony Montana who said, First you get the protected singles pools, then you get the leverage, then you get into the pools. Wise words – and he was right. We build omni pools, and the omni pool funnel (or just pool funnel) is the next foundation for those pools. The pool hopper is a mechanism that allows LP collateral to hop from pool to pool following the options with the best returns in liquidity pools whitelisted by the DAO.

When it comes to building omni pools, we like to refer to Smalls’ s’more theory: you can’t have more until you’ve eaten some. So before we create Omni Pools, we will introduce Protected Single Pools.

Protected individual pools are “individual” in the sense that the LPs do not pool hop for those individual pools. You are limited to a single pool. Additionally, the LPs are protected by guard rails established by Archimedes to mitigate risks for liquidity providers with different risk profiles.

Archimedes Protected Single Pools are designed for DeFi users looking to use their idle ETH to unlock the value of LSDs and other synthetic assets – but with fewer risks. Protected pools help reduce a user’s risk of getting locked in the pool of xETH, where X is the LSDFi protocol behind the synthetic asset. Should the yield pool for the investment strategy become imbalanced, Archimedes will do the heavy lifting and remove the liquidity on behalf of the users.

The first pools to be listed as new yield strategies on Archimedes are: alETH by Alchemix, msETH by Metronome, and pETH by Jpegged on Convex. These are what we consider ETH/xETH liquidity pools (in the documentation), where the xETH asset is a type of synthetic asset pegged to Ethereum.

Similar to our ETH pools, USD/xUSD pools are built for fiat stablecoin maxis. Both strategies are aimed at users with a low-risk profile who want to earn a return on their Ethereum without incurring impermanent loss (IL).

The xETH and xUSD assets that enable liquidity provisioning without transient losses are commonly referred to as synthetic assets or in some cases LSDs (Liquid Staking Derivatives). The core concept of LSDs is that the staked asset, entitled to some form of return, now has a liquid counterpart that can play the DeFi Lego game.

For example, FRAX achieves this by allowing users to deposit ETH as part of their dual token LSD scheme for frxETH (Part 1). When a user deposits ETH with FRAX, the actual ETH is sent to FRAX’s Ethereum validation nodes to generate income, and the depositor receives a liquid frxETH token as a receipt. Holding frxETH is similar to simply holding ETH.

In order to earn the earnings entitled to the ETH staked by the FRAX validators, users must stake their frxETH in the sfrxETH vault (smart contract) and receive a liquid sfrxETH token in return (part 2). Users can redeem their sfrxETH for more frxETH than they initially deposited at any time. Here’s how:

• sfrxETH and frxETH initially have a redemption ratio of 1 to 1.
• When FRAX’s ETH validators generate ETH stake income, a corresponding amount of liquid frxETH is minted and added to the sfrxETH vault, creating surpluses (income).
• As newly minted frxETH is sent to the sfrxETH vault, over time 1 sfrxETH token can redeem more than 1 frxETH token.

xETH tokens like alETH often accept LSDs (like sfrxETH or rETH) as yield-producing collateral.

On the other hand, for users who are ok with higher risk and temporary losses using ETH and USD as underlying assets, we will also provide ETH/X pools and USD/X pools. These are essentially protected individual pools where the X token is native to a DeFi protocol and used for protocol management, rewards or other purposes.

With protected pools protecting user resources, Archimedes adds another catalyst for one of the hottest crypto topics this summer: LSDFi.

LSDFi refers to a niche of DeFi protocols that are developing products that cater to the needs of the LSD protocols and Ethereum’s user base. Protocols like Lido and Rocket Pool are currently leading the LSD narrative in terms of Ethereum dominance. However, there is plenty of scope for protocols like Alchemix and Metronome to eat away at that market share as they offer additional use cases for LSDs.

By creating protected pools for LSDs and other synthetic crypto assets, Archimedes is able to absorb some of the liquidity flood into this DeFi sector and maximize potential returns for the base asset hodler.

Regardless of which pool a user chooses, our smart contracts will do the hard work for them. automatic compounding of rewards and active position management through routine checks on the state of the liquidity pool. These health checks help give some reassurance to LPs looking to generate income from their LSDs. Users can “set and forget” and know that if the pool falls out of favor for any reason, Archimedes will pull out the user’s assets in time. Assets withdrawn from a pool are kept as base assets in an Archimedes vault. In the case of an ETH/xETH liquidity pool, the underlying asset is Ethereum.

As an example of what “doing hard work” looks like, let’s say you enter a pool you see on Convex for alETH and ETH Liquidity (ETH/xETH) on Curve. At the time of your entry, the pool has 55% AlETH and 45% ETH reserves. Let’s say you go to bed and wake up to find that the pool you just entered has changed drastically overnight due to a macro FUD spreading on Crypto Twitter. The pool now holds 90% alETH and only 10% ETH reserves as investors have left the pool in large numbers and swapped their alETH for ETH.

You could follow this example and exit the pool, but now the price of alETH has dropped drastically and you will suffer a big loss compared to when the pool was closer to 50/50. You can also wait and see if the pool is back in balance. At this point you can officially check in for 1 person at the Hopium Lounge.

To avoid this outcome, you could have stayed up all night monitoring the pool to notice the moment it started getting too unbalanced, but you know what – that’s hard work.

Protected individual pools mitigate risks to our users in two ways:

• Whitelisted Liquidity Pools
• Automatic position management

Whitelisted liquidity pools are selected by the Archimedes DAO. Community members can participate in the governance discussions that take place in Discord about proposed AIPs (ideas) and vote on-chain with veARCH once an idea becomes an official proposal. With this method of creating proposals and polls, the community chooses which assets to add or remove from the transcript.

The second remedial factor, automatic position management, is managed by the Protected Pool algorithm. This algorithm regularly performs two types of health checks on whitelisted liquidity pools via the isPoolHealthy function. These checks determine whether user resources should remain in the pool or be deducted.

isPoolHealthy – health checks:

• Check #1 – Is the pool enough? “real” assets?
• Check #2 – Do Archimedes LPs do this? Pool unbalanced?

The check for “real” assets refers to whether or not a pool has enough underlying assets. If Archimedes LP’s liquidity accounts for the bulk of the base wealth, the first check will fail. Without enough real assets, there is a chance that the underlying asset will drop significantly. This check ensures that user resources are removed from the pool before this happens.

Likewise the exam imbalance in the pool ensures that Archimedes LPs do not account for 35% or more of the pool’s total liquidity. If at any point the Archimedes LPs exceed 35% of the pool’s TVL, this check will fail. The reason for this review is that if Archimedes has too much liquidity in a pool, an emergency withdrawal from the pool can have a significant impact on price.

If funds have previously been removed and a pool returns to a healthy state after passing all checks, Archimedes will step back in with the liquidity held in that pool’s vault.

Aside from the risks checked by the Protected Pool algorithm, there are also inherent smart contract risks to consider.

Archimedes builds on other protocols and often benefits from their existing audits and well-tested security measures. The same actions can also ultimately leave Archimedes users at risk if an underlying protocol used for an asset strategy is exploited. For example, if we create ETH/alETH-protected liquidity pools but Alchemix is ​​exploited, this is a risk that users of the ETH/alETH pool face, along with the risks of Convex, Curve and Archimedes’ own smart contracts.

At the first start, the protected individual pools are not checked. However, Archimedes has historically received both smart contracts and front-end audits from Halborn Security, an industry-leading cybersecurity company. Finally, all the features of the Syracusia upgrade (Archimedes v2) are checked.

The Protected Single Pools form the basis of Archimedes’ new yield strategies, offering users: maximum LSD liquidity pair yields, leverage, and omni-pools. All of this is provided on the Ethereum mainnet and Arbitrum L2.

You can learn more about the Archimedes DAO and our latest developments of the Archimedes v2 (the Syracusia upgrade) by visiting https://archimedesfi.com/ and following on Twitter, Discord and Telegram.

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