Thread by @atro0o

How can the paradigm of a managed fund be implemented in #DeFi without the risk of managers rugging?

This is exactly what the #Sommelier (@sommfinance) platform accomplishes with the introduction of Cellars, with the first Cellar launching on #Ethereum today! 🧵

TL;DR: To demonstrate the power Sommelier offers to both investors and strategists, we're partnering with @7SeasCapital who will be the Strategy Provider for the first Cellar! Read more here, or deposit today! app.sommelier.finance

If you want to dive deeper, read on...

Until now, there hasn't been a way to invest in a DeFi strategy that is both dynamic and decentralized.

By dynamic, I mean a position can adjust itself in response to changes in the market.

If you put your funds in a static Vault, they're going to be allocated the same way for all market conditions. This means suboptimal returns and often high impermanent loss (IL, opportunity cost of providing liquidity).

By decentralized, I mean no single or concentrated group of entities have control over the smart contract, and consequently, access to user funds. In general, when a vault claims to be dynamic, it probably means it's managed by a small group of people via a multisig.

Cellars are both dynamic and decentralized, yet they still have managers. We call these managers "Strategy Providers", or SPs, because they do the necessary analysis and computation to execute the Cellar strategy. SPs can, but don't have to, write the Cellar contract themselves.

How does Sommelier allow for a single entity to manage a Cellar strategy while maintaining decentralization? This is where the Sommelier chain and a little process called Steward comes in.

Sommelier is a Cosmos app-chain specially designed to provision the management of Cellars.

Cellar contracts are owned by the Sommelier validator set. This means that non-public Cellar functions can only be executed by a call signed by a suitable number of Sommelier validators.

Perceptive readers may note that this is *also* a multi-sig, just like I mentioned in a negative light for other types of vaults...

Decentralization is measured on a continuum. More multi-sig holders -> more decentralized.

Cellar multisigs are split among a much larger set of entities than is usually seen (the validator set!) which will continue to grow, and these holders are *NOT* manually executing any function calls that manage the position, but rather *relaying* them automatically.

In contrast, traditional multi-sig Vaults are held by a few people who have to manually manage the Vault.

So what's stopping any user from sending Cellar function calls for Sommelier to relay to a Cellar? This is where Steward comes in.

Each validator is running their own instance of Steward. Just like a function call from Sommelier to the Cellar has to be signed by many validators to work, the request from the Strategy Provider (SP) to the Sommelier chain also has to be signed by the set!

When an SP wants to execute a Cellar function, they send a request to each validator's Steward instance, each of which then authenticate, validate, and sign the request before submitting it to the Sommelier chain.

Importantly, Steward only accepts requests signed by its hardcoded client Certificate Authority, and its API only exposes and signs calls to functions necessary to execute the strategy. What this means is

1. Steward will only accepts requests from the SP and no one else. And...

2. It is impossible for SPs to use a Cellar's withdraw or transfer functions and rug because Steward doesn't support those functions.

Even if a malicious request is somehow accepted by Steward, the chain will reject calls to contracts that are not approved by governance.

To summarize, the flow of function calls to a Cellar is

SP -> Stewards -> Sommelier chain -> Cellar smart contract, and each of these links is authorized and validated.

Finally, notice I said #Sommelier is a *platform*. Anyone that wants to can create and run a Cellar on Sommelier!

If your team or organization wants the benefits of Sommelier to underpin your protocol, or you just want to make a new strategy, check out this rundown of what went into the creation of the first Cellar: tricky-sand-5e6.notion.site/The-Data-Scien…

And that's how Sommelier is enabling #DeFi investments that are both dynamic and decentralized! If you found this helpful, please let me know! You can deposit to Aave V2 Stablecoin Cellar today: app.sommelier.finance

If you have questions, hit me up!
Cheers! 🍷

P.S. There's a lot not covered here, this is a high-level overview of the system. If there is interest, I'll do more threads like this in the future!