A new decentralized finance platform aims to ride the wave of yield farming by automating the process of finding the most efficient opportunities for its users.
The Rari Capital platform automatically moves user funds to the platform with the highest return. At launch, Rari just plays with the yield differentials between Compound and dYdX, constantly rebalancing one and the other as their dynamic interest rates change.
Rari only supports stablecoin returns, but an integration with 0x allows users to automatically sell their cryptocurrency when they deposit on the platform. After depositing, Rari automatically switches between Dai, USDC and USDT to maximize yield and smooth out any deviations from the dollar peg.
Since it uses Compound, its users are also eligible for COMP rewards for using the platform. As Jack Lipstone, a co-founder of Rari, told Cointelegraph, the fund will automatically liquidate all COMP and distribute them to users every three days.
The team claims that despite the yield farming craze, the annual yield generated via the platform is three times that of just Compound.
The system uses a tokenized release system as first introduced by Compound with its cTokens. When users donate capital to Rari, they receive a Rari Fund token representing their share of the pool. The token can be redeemed at any time for the underlying funds plus any accrued income. The token is fungible, meaning shares can be transferred and exchanged in a manner similar to compound tokens.
The downside to using Rari is the 20% performance fee on accrued returns, similar to many traditional hedge funds. Lipstone revealed that one possible future for Rari is to enter traditional markets and “become an ETF,” although that’s a long way off.
The Rari launch is one of the first new projects to follow the Guarded Launch concept outlined by Ken Deeter, Partner at Electric Capital. Although Rari has been verified by Quantstamp and independent researchers, deposits are still capped at a maximum of $350 for the first period. This ensures that potential vulnerabilities in the smart contracts do not result in significant losses for users.
Safeguards also mean Rari doesn’t engage in high-risk strategies like aggressive yield farming on Compound. Since the rewards system also distributes funds to borrowers, some on the platform take leveraged positions by recursively borrowing and borrowing assets to maximize their share of COMP. This approach can expose “farmers” to fluctuations in market prices, which could lead to liquidation of some of their positions.
The system is not fully decentralized yet, as the balancing mechanism is operated centrally, although it is based on a whitelist that can only send funds to the protocols it works on.
Still, given the plethora of income opportunities in the DeFi space, Rari should be quite helpful for those who don’t have the time to find the best opportunities themselves.
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