Spool — Research by Cryp2Gem
Composable Capital Deployment
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FOUNDED: Q1 2020
WEB PAGE: spool.fi
FIELD OF INTEREST: DeFi MIDDLEWARE
Spool is decentralised middleware that allows anyone to create an automated, diversified, and risk-reward-optimized yield-farming strategy — a “custom vault creator”. It allows users to pick their favourites from a list of supported protocols and create a diversified portfolio based on their individual risk appetite accessible through a single deposit address. After depositing, Spool will automatically recognise changing yields (and potential risks) via oracles and off-chain risk models and rebalance between the chosen protocols as needed.
CHAIN /TOKEN TYPE: Ethereum/ERC-20 — Spool will expand to other blockchains as well in the future
Philipp Zimmerer: “We will launch on Ethereum because diversification is an important aspect of risk management, and therefore for Spool (due to its focus on risk as an important metric). Ethereum has the most diversity for stablecoin based yield generating strategies and the highest amount of battle-tested, trusted protocols. Naturally, other chains will be interesting in the future, and I see Spool on multiple chains for sure, but when and where we will make it available is not clear yet. For now, we are focusing on deploying a working, stable, and safe product on Ethereum. BSC and Polygon would be natural candidates for expansion, though, due to them being EVM-based.”
It would be fantastic if Spool considered other exploding ecosystems like Cosmos, especially as the recently launched Inter-Blockchain Communication (IBC) protocol is available now and the Gravity Bridge to Ethereum. Thorchain, Terra, Osmosis, Gravity DEX…will all have a lot of liquidity aggregated within the ecosystem and yield growing options. There will be significant demand for stablecoin yield aggregation optimisation products like Spool.
The Gravity Bridge will enable the free flow of ERC20 tokens between Ethereum (and other EVM-enabled chains) to the Cosmos Hub, allowing DeFi dApps to scale — and expanding the ATOM’s scope well beyond the Cosmos. The Bridge will also allow IBC tokens from Cosmos to be sent to Ethereum. (source)
LAUNCH: in Q3 2021 (per roadmap)
DEV ACTIVITY (Github): Due to security reasons, code is currently private but will become publicly available at a later stage
PRODUCTS: Spool protocol under development
There are several permissionless and automatic yield aggregator protocols and services within the Ethereum DeFi ecosystem. From vaults(Yield, Value DeFi, robo-advisors (APY.Finance, Rari, DAOVentures) to interface/aggregation tools (Frontier, Zerion, Argent). It is impossible to compare Spool with those as each can use the middleware and integrate Spool into their protocol/product.
Spool is designed under the motto “Compete with no one, synergise with everyone”.
For capital aggregators such as wallets, exchanges, communities, or funds, Spool is a tool for them to build a DeFi product tailor-made for their audience easily that they can integrate into their brand, effectively making Spool “piping” for them to give their users simple, and customised DeFi access.
For DeFi protocols, Spool acts as a liquidity funnel: If a protocol is chosen while creating a Spool, a part of every deposit into said Spool will be routed there, depending on how the risk model selected judges risk-reward. This means that Spool allows these DeFi protocols to gain access to liquidity from people who may never even have visited their website, significantly increasing their potential audience.
Spools main challenge is not competitors (due to the strategic positioning of Spool). It is instead the evolution of the market: Spool lives and dies with the relevance of the protocols and chains it covers. Therefore, we have decided on a very fluid and democratic governance system that counts on many experts and community members having their “ears to the ground” and always covering the most relevant strategies.
How Spool is governed is very close to the decentralised ethos, and we are committed to scaling from the current “selected DAO” into a real DAO with real powers in the medium term.
The core contributors come from the Faculty Group, but Spool expanded with additional founding DAO contributors. Essentially Spool is DAO governed, and all of the protocol income flows into DAO Treasury controlled by SPOOL token holders. Spool is fully decentralised with no company representing the DAO, while every contributor in the DAO is equal.
Faculty Group provides an end-to-end incubation solution for blockchain startups by supporting, advising, and architecting all aspects of emerging blockchain-based projects. They provide marketing, market-making solutions, and capital backing and have collaborated with companies such as Ocean Protocol, Bridge Mutual, Energy Web, and AllianceBlock.
Spool DAO contributors coming from Faculty Group will be equal to other DAO members and will help with the following: Philipp Zimmerer, Product; James Childs, Operations; Hendo Verbeek, Risk; Luke Lombe, Communications and Adrien Huang, Project Management.
Let us introduce the other founding DAO contributors who have committed to support Spool since its early stages: Tyler Ward (Co-Founder of BarnBridge and Universe Protocol/xyzDAO), Sean Lippel (Principal on the investment team at FinTech Collective), James Wo (Founder and CEO of Digital Finance Group (DFG)), Keegan Selby (Co-Founder at Fourth Revolution Capital (4RC)), Mirko Schmiedl (Founder, CEO and Product Lead of Staking Rewards), Leslie Tam — (Co-Founder of Genesis Block Ventures (GBV)), Rachid Ajaja & Johannes Schoster (AllianceBlock), Aaron McDonald (Centrality), Kain Warwick (Founder of Synthetix), Kenzi Wang (Co-Founder of AU21 Capital and Cere Network), Jerome de Tychey — Global Head of Client Success at Ledger, President of Ethereum France and builder at Cometh), Walter Kok (COO of the Energy Web Foundation) and Hartej Sawhney (Founder and Principal at Zokyo).
Amongst Spool DAO Contributors, we can find several other representatives mostly from blockchain-based companies and VCs like Signum Capital, LD Capital, CMS Holdings, JRR Group, Digital Strategies VC, Bancor Founders, ATKA Founders, DAIC Capital Founders, F2Pool Co-Founder, Iconomy partner, Minterest co-founders and core team members, Zcoin Lead Developer, Scentan Ventures, dOrg, Poolz Co-Founder, BlockBank Co-founder and CEO, Boxmining, Bridge Mutual Co-Founder, CEO of DOT Finance and a PhD candidate in Economics.
Spool DAO will not only consist of notable individuals who will help to govern and contribute to the protocol, but a large number of currently introduced contributors is also great merit on its own to see the interest and importance of the use case of the Spool risk optimised DeFi middleware.
Apart from the DAO, there will also be a Spool Labs entity, a traditional equity-based company currently information. Its purpose will be to foster the adoption of Spool in the conventional world. It will be offering advisory, risk modelling, the building of portfolios, technical help etc., to traditional entities Spool is connected with via Faculty Group. Spool Labs will be helping the Spool DAO as well as becoming a profitable company (as all of the Spool profit is going to token holders and DAO treasury).
Spool didn’t hold a traditional raise but chose to allocate and distribute preDAO tokens to people that wanted to be involved with the DAO. All those people and investors can be found under the “DAO Contributors” section.
TOKEN USE CASE:
The Spool Token (SPL) serves as a DAO governance and incentive token. It is used for voting on improvement proposals, incentive payouts, risk model proposals, and the management of the DAO Treasury.
Governance via staking in the vault and 10% performance fee from all Spools is going to SPOOL stakers.
TOKEN: SPOOL (ERC-20)
TOTAL TOKEN SUPPLY: 210k
INITIAL MARKET CAP: set by LBP
FUNDS RAISING INFO:
There was no private sale!
The 10% of the SPOOL supply is reserved for all founding contributors (with vesting). Another 20% of the supply will be allocated to the core DAO contributors (also vested). The rest of the supply is controlled by the DAO, with further sales rounds being subject to a DAO vote.
20% Team, Advisors & Ecosystem
55% SPL Reward Distribution
SPOOL will be primarily distributed via yield farming in a “Genesis Spool” (that will include some of the largest and most established Yield Generators) and later via DAO directives. These SPOOL rewards can be shared within the community to incentivise community engagement further and increase TVL. For example, the creation of new Spools covering different protocols or Risk Models can be incentivised with SPOOL rewards.
Up to 10,500 SPOOL tokens will be sold during the LBP!
*Alpha 1.0 (Q3–2021)
● Spool Genesis Pool Front End UI
● Deposits, Withdrawals, Staking Functions
● SPOOL Reward Distribution (per block)
● Manually Triggered Rebalances
● Risk Model 1: Designed by Spool Labs
● Supported Protocols at Launch
● Curve, AAVE, Compound, Uniswap, Convex, Yearn, Harvest, Idle, Balancer, Sushiswap
● SPOOL Vault: SPOOL Stakers receive a % of yield generated in all Spools
● SPOOL Vault Front End
*Alpha 1.5 (Q4–2021)
● Spool DAO
● Assisted Partner Spools
● SDK for Front End Integrations
*Beta 2.0 (Q1–2022)
● User Generated Spools
● Customisable User Interface
● Public Spool Market (SpoolIndex)
● DAO Approved Alternative Risk Models
● DAO Governed Partner SPOOL Rewards
● Risk Model Scripting Environment PoC
Spool is composable and permissionless DeFi middleware that connects Capital Aggregators with DeFi Yield Generators to dynamically, automatically, and efficiently allocate funds and ensure optimised yields for custom strategies managed by DAO-curated Risk Models.
If we check DeFi and Total Value Locked (TVL) growth in DeFi protocols, we see constant growth since March 2020 crash until a recent market drop in May 2022. In the meantime, there were about 180x more assets locked in DeFi.
DeFi products are used mainly by technically experienced users who follow all the new products and constantly search for the highest yield protocol, which presents a more negligible risk at the same time. DeFi is hardly suitable for novice users and is challenging and time consuming even for more experienced audiences.
Solutions that offer customisable and straightforward DeFi products that help to aggregate the capital yield while providing proper risk management mechanisms are needed to attract more regular users interested in locking their assets in DeFi.
Spool offers a mechanism by which users can mitigate risk and maximize returns without the need for technical knowledge of risk modelling and DeFi. Spool connects Capital Aggregators, Risk Model Providers, Yield Generators, and End Users to most efficiently deploy capital. The addition of Spool to the DeFi ecosystem will offer a trustless, End-Users governed, non-custodial and fully composable protocol that improves the DeFi end-user experience while providing better risk-adjusted returns.
Capital Aggregators can create a ‘Spool’ — a custom strategy consisting of their preferred Yield Generators, a Risk Model, and a Risk Profile. Capital is deposited via a single point of access, after which it is dynamically and automatically allocated and managed by the selected Risk Model. End-Users can enter and exit Spools through a single point of access via a Capital Aggregator UI (like a Web3 or Mobile App) or directly through the smart contract.
Spool will help both capital aggregators, and DeFi protocols integrate its protocol into existing products and use it to funnel and aggregate assets.
Spool highlighted its key features:
● Decentralised Middleware
Seamlessly integrate your chosen Spool(s) into your DeFi applications or proprietary asset management software via the Spool SDK.
● Permissionless & Non-Custodial
100% Smart Contract-based, funds never enter centralised custody.
● Fully Automated
Intelligent algorithms dynamically rebalance portfolio weighting according to input parameters.
● Fully Composable DeFi
Spool is an open-ended tool. Create custom strategies based on a range of editable inputs, including an array of Yield Generators, Risk Models, and Risk Profiles.
● Programmable Risk
Select from established Risk Models or create your own and present it to the DAO. If selected, your Risk Model can be used by Spool Creators.
● Earn Fees as a Spool Creator
Create Spools with a custom strategy for your DeFi app and set & earn performance fees according to usage (or make it free to use).
Users will be able to automate their Spools partially. There are two main points of automation available: the allocation and reallocation and balancing of funds when risk models and yields change and the auto compounding of chosen strategies.
Spool will consist of several different entities within their ecosystem:
● End Users — newcomers may select someone else’s Spool and deposit their funds into that smart contract.
● Spool Creators — DeFi experts and platform providers can customise Spool and integrate it into their platform or offer it to the End Users. Risk Models can be automated.
● Risk Model Providers — algorithmic models that automatically optimise the individual DeFi array chosen by the Spool Creator based on the indicators the Risk Model Provider specifies for their individual model.
● Spool DAO
● Yield Generators and Optimizers
● Spool Labs — a separate entity, comprised of the founding contributors and other resources, with the sole purpose of furthering the adoption of Spool
Spool Labs will create the initial Genesis Spool to enable farming of the Spool Token and the formation of the DAO. It will also provide the initial Risk Model available for Spool Creators upon the full launch of Spool. The Spool Labs Risk Model will power the Genesis Spool.
Genesis Spool will test a product and distribute SPOOL tokens to the community’s early participant/yield farmers. They will earn APY of the underlying protocols and SPOOL tokens.
Spool Labs will create one risk model as the default one to use in the early stages, but users can choose whichever they want as more become available. Custom risk models will be proposed to the DAO, which will vote on it.
Essential to the Spool Mechanics are Custom Risk Models. These can interact with newly created Spools if selected by the user after being voted in by the DAO. These Custom Risk Models will also be made in a custom scripting environment at a later stage — the Risk Model attached to a Spool Vault grants risks scores to all protocols in that vault. A mathematical model translates it to a distributed portfolio allocation.
Philipp Zimmerer: “The risk scores come from risk models that the DAO curates. There is a system of checks and balances that is transparently maintained via DAO governance that would require very unrealistic levels of collusion that would make something like that possible. For the early alpha and beta stages of Spool (Genesis Spools), you’ll be trusting our Spool Labs risk model, but the methodology it employs will be open to anyone. Later on, if people decide they do not like our standard risk model, they’ll be able to use other DAO curated models instead or submit their own and get the DAO to vote it in.
Suppose your Spool or the Spool you’ve deposited into is exposed to a protocol or strategy that experiences a black swan event; you are naturally exposed as well. But due to Spool being risk-managed and thus diversified by nature, only a percentage of your funds will ever sit in any given smart contract, thus limiting your loss.
This is one of the core reasons we’ve built Spool. We asked around our founding contributors, and basically, everyone knows that diversification is essential, but in reality, it’s not practised by everyone because it’s cumbersome and expensive.”
What about the risks of using the Spool protocol?
Philipp Zimmerer: “There are risks that come with Spool, but we expect this risk to diminish over time as Spool becomes battle-tested (Lindy effect), as the risk is static. When depositing into the Spool you created, your funds are routed to a master contract managing and distributing the funds of all Spools to the appropriate protocols.
Technically this master contract is a single point of failure, but it is non-upgradeable for security reasons. This means that as it becomes a known entity, the risk it represents will tend towards zero as it cannot be changed, and as time goes on, the risk of it being exploitable becomes lower and lower.
So if we assume that, then Spool decidedly lowers user risk as it spreads your exposure automatically over the protocols you’ve chosen. If a protocol supported by Spool is exploited, we can issue an emergency exit and blacklist it to get their funds back without having to be at the computer when the exploit happens etc.
Spool technically is a single point of failure, but the risk it represents will tend towards zero over time. On the other hand, Spool offers multiple functionalities that will DRASTICALLY improve the risk profile of an average user’s DeFi portfolio.”
To conclude. Spool’s goal is to make DeFi openly composable, but keep it simple and have it automate whatever makes sense while tackling the risk! Spool is building a permissionless middleware that simplifies access to DeFi, allows easy integration to other existing protocols. It will enable automatisation and optimisation of a risk-managed variety of yield strategies and customised risk to reward ratios. Completely free, available to anyone and 100% DAO!
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