Yield-bearing Tokens

Traditionally, short-tail asset money markets have turned their noses at yield-bearing tokens—smart contract risk compounds with each smart contract layer added to the stack. Smart contracts like Uniswap V3 have undergone extensive testing and withstood the test of time—not only have they been formally verified, audited by top auditing firms, they have also survived in the wild with an effective blackhat bounty in the low billions, their TVL. These industry standard contracts were so battle-tested, Maker’s Risk Team was able to justify their inclusion as collateral.

Nero is going to support yield-bearing projects that have survived in the wild and have extremely high quality codebases. As such, its users will be able to access leverage to turbocharge their yield generating strategies!

Initially, we are looking at Sandclock vault tokens, Uniswap LP tokens, and potentially specific Compound and Aave receipt tokens.

Real Yield: A Wildly Simplified Example

Imagine you’re a Sandclock user. You deposit to a strategy with 15% APY. You receive a receipt token which is then used to mint synthetic USD. This token is then swapped for the underlying of the vault and redeposited to it. You can repeat this process a number of times to get up to, say, 3x leverage — or use flash minting to save gas. Your APY is now considerably higher, minus the interest, so as long as the vault’s APY is reliably higher than the interest, you won’t get liquidated.