Sommelier, a DeFi platform, recently introduced five new vaults designed to provide passive yields of 2% to 4% for governance token holders. The new vaults support 1inch, ENS, LINK, SNX, and UNI. Developed by data research firms Seven Seas Capital and Define Logic Labs, these vaults aim to address the limited yield opportunities currently available to existing governance tokens in the DeFi space.
For instance, lending governance tokens on Aave provides a yield below 1%. Sommelier co-founder Zaki Manian explained that the new vaults have been designed to tap into the massive arbitrage opportunity available in the ETH market. With a large portion of ETH loaned out on platforms like Aave at a 4% borrow cost, the yield opportunities on ETH are considerably higher.
These governance token vaults are designed to capture this arbitrage and convert it into yields for UNI, LINK, ENS, and other supported tokens. Users can leverage their governance tokens in these new vaults to borrow ETH, which is then deposited into Sommelier’s Real Yield ETH vault. In the vault, assets generate yield through looped leverage and the optimization of tick range liquidity on Uni V3.
Despite the inherent liquidation risks associated with looped leverage, Manian emphasized that the Real Yield ETH vault is equipped to mitigate these risks by continuously monitoring market conditions and adjusting leverage ratios accordingly.
Another noteworthy feature offered by these new vaults is “gas holidays.” During these periods, the vault holds a simple position when rewards are harvested, effectively reducing gas costs. Although the first gas holiday occurs within the initial 48 hours, further gas holidays will be announced to depositors.
The first 40 addresses that deposit over $1,000 in liquidity in each of the vaults are set to receive an additional $25 in rewards. Unfortunately, Sommelier vaults are not accessible to US-based traders.
As DeFi continues to evolve, the introduction of these new Sommelier vaults is an intriguing development for those holding governance tokens. Though questions regarding risk and return remain, these vaults are designed to strike the right balance while offering attractive passive yields.
Source: Blockworks
