Gro Protocol & stablecoin yield-optimising products: Our friends
Table of contents
TL;DR
Gro Protocol is a stablecoin yield aggregator that enables its users to create and share wealth generated from other DeFi Protocols. Yearn Finance, Origin Dollar (OUSD), and Curve Finance are DeFi protocols which also offer stablecoin optimising products. While there are similarities and differences with the Gro Protocol, each of them has been integrated into Gro DAO’s range of products.
Introduction
In the span of just a few years, the landscape of places to put one’s funds to work in DeFi has grown from a small, isolated village of a few nascent projects to a densely populated region of cities, towns, and villages, with busy throughputs between them. Stablecoins have also grown immensely in that time, and DeFi users are hungry for ways to earn yields on them.
Gro DAO aims to provide users with an easier way to navigate this increasingly elaborate ecosystem with simple products. For example, by using Gro Protocol, users can deposit their stablecoins to access underlying yields generated from other DeFi protocols — all under the auspices of the protocol’s novel tranching and automation mechanisms overseen by the DAO, to provide continuously optimised returns while offering increased protection against risks. As always, please read the relevant docs and do your own research before using any DeFi products.
This article will explore three stablecoin yield-optimising products currently integrated with the Gro Protocol. “Yield-optimising” in this context refers to products that attempt to find the most effective means of generating yield from other DeFi protocols, by utilising stablecoin assets that are deposited into the native protocol. We will be looking beyond products that are based solely on governance token liquidity mining, lending, or providing bridge liquidity and instead on products that use a combination of automated and time-tested methods for accessing DeFi yields from DAO-controlled strategies.
By learning what these protocols are, how their products work, as well as their similarities and differences with the Gro Protocol, this article aims to educate the reader about this budding ecosystem of complementary DeFi protocols, and about what makes Gro DAO’s products unique.
For those who need a quick refresher on Gro DAO’s products before proceeding, please review the docs or watch the explainer video above.
Yearn Finance
What is it?
In their own words, Yearn Finance is “DeFi’s premier yield aggregator”. Born out of the “DeFi Summer” of 2020, most DeFi users will know Yearn as the OG automated yield farming protocol which helped catapult DeFi’s appetite for passive income into the mainstream. Its legacy speaks for itself, and the fact that it still holds a respectable ranking amongst DeFi yield protocols in terms of TVL is a testament to its continued progress.
How does it work?
Yearn’s foundational product category is its yield-generating vaults, called yVaults.
These vaults are automated to accept user deposits, send them to a smart contract, and then deploy them across DeFi strategies to return the highest possible yield. Vaults can contain single assets or combinations of assets, and fees of up to 20% may be charged, depending on the type of vault and amount of APR. These fees are sent back to the protocol. While the vaults are managed automatically via smart contracts, failsafes do exist in the form of guardians and strategists who monitor the vaults and are able to step in in the case of emergencies.
For example, users who wish to earn yield on their DAI can connect to the Yearn dApp, navigate to the DAI strategy, deposit their funds to the yvDAI vault, and then begin receiving rewards and withdraw when they wish. The underlying strategy for this vault optimises lending profits via a flashmint folding strategy on Compound Finance.
As of the v2 and upcoming v3 builds of the Yearn protocol, yVaults are capable of up to 20 strategies and will likely adopt the ERC-4626 standard, an upgrade which would make their interest-bearing tokens become more standardised and composable. See our earlier article on the topic of ERC-4626 to learn more about what this upgrade enables protocols to do with their yield-bearing products.
Yearn’s core products also include yCRV and yBribe. Both are related to the Curve ecosystem and its fascinating Curve Wars flywheel, a topic too dense to cover sufficiently in this article (though interested readers are encouraged to learn more).
Main similarities with Gro Protocol?
- Yearn yVaults are automated yield aggregating products that use sets of DeFi strategies to access yield, as are the Gro DAO’s Vault and PWRD products. In Gro Protocol v1, strategies accrued yield using a fork of Yearn v2 Vaults and Convex strategies built on Curve. While this is no longer the case in the G² upgrade, Yearn has left its imprint on Gro’s history.
- Yearn and the Gro Protocol make use of 3CRV in their vaults. In G², a router contract sends stablecoin deposits into 3CRV, which is then deposited into G² itself.
- Products are permissionless, meaning anyone can use them.
- Use of ERC-4626 for vault standardisation and composability — still in beta development at Yearn, but live in Gro Protocol’s G² upgrade.
- The ability to stake governance tokens (YFI for Yearn, GRO for Gro Protocol) for rewards.
- Stopgap measures exist for the mitigation of strategy risk, though of course there are risks in both protocols. DAO governance plays a key role in determining the course of strategies and operations.
Main differences?
- Yearn does not have a native stablecoin like the Gro Protocol has with PWRD, though it does offer a wide variety of yVaults for existing stablecoin deposits.
- Yearn uses a modified vote escrow model which requires users to lock YFI tokens to participate in the governance of the protocol. It has evolved into a multi-DAO structure in which veYFI (locked up YFI) has voting power. Gro’s DAO structure currently involves a single DAO with autonomous pods, where a snapshot of GRO tokens held in wallets or being supplied to pools has voting power. However, in both Yearn and Gro DAOs, DAO members can propose and vote on changes to the protocol and governance structures. Furthermore, Gro DAO is continuing to decentralise and is in the early stages of attempting to pursue its own vesting approach to voting.
- As it steps closer towards the v3 upgrade, Yearn has begun allowing anyone to create their own “factory” yVaults on the platform for strategies involving Curve pools. In the recent G² upgrade, Gro Protocol has adopted the ERC-4626 standard and anyone can build products that make use of its risk and yield-tranching mechanisms for ERC-4626 tokenised vaults.
- Yearn’s products include an extremely wide variety of assets and strategies, some of which are not stablecoins and involve a different set of risk and price considerations. There are guardians and strategists who monitor risk in the vaults, whereas Gro DAO’s products are structured around its risk- and yield-tranching mechanisms that are also being constantly monitored. Yearn has suggested the possibility of junior and senior tranche products being built on top of Yearn v3, though v3 hasn’t been formally launched yet. For the builders out there, prototypes can be found in the Yearn v3 repository. Keep in mind that while both Yearn and Gro Protocol have methods of reducing risk, there are still risks involved. Please do your own research and make your own decisions before using them.
- Yearn operates different vaults on Ethereum mainnet, Optimism, Arbitrum, and Fantom networks. Gro Protocol currently operates on Ethereum mainnet, but cross-chain deposit and yield opportunities are being explored by the DAO as we speak.
Origin Dollar (OUSD)
What is it?
Origin Dollar’s OUSD stablecoin was launched in September 2020 as a passive yield-generating stable currency product.
OUSD is featured second in this article because, like Yearn, it shares a number of similarities with Gro DAO’s products and is also integrated in one of Gro Protocol’s underlying strategies, OUSD-3CRV.
How does it work?
Users can deposit one of three whitelisted stablecoins (USDC, USDT, DAI) to the OUSD smart contract and receive OUSD in return. Operating underneath OUSD is an automated yield farming protocol which distributes the stablecoins between strategies in DeFi projects like Aave, Compound, Convex, Curve, and Morpho. OUSD’s token supply is elastic, utilising a rebasing mechanism to incorporate the yield returns and then updating those balances in OUSD holders’ wallets. Thus, it earns yield from other DeFi strategies automatically, while keeping the price stable around $1, and the supply is backed entirely by other stablecoins. OUSD can be wrapped for a non-rebasing version with the symbol wOUSD which also earns yield, but it must be claimed by unwrapping. Chainlink is used as the primary USD price oracle.
Governance is managed by the OGV token, which needs to be staked and locked in exchange for weighted voting power. The longer the lock duration, the more voting power one receives. OGV inflation rewards are distributed to stakers, with future plans to use protocol fees to buy back OGV from the open market and distribute them back to stakers.
Main similarities with Gro Protocol?
- Gro Protocol’s DAO-approved strategies include some exposure to OUSD — friends indeed!
- OUSD shares some key features in common with Gro DAO’s PWRD stablecoin. It is pegged to the value of the US dollar, backed entirely by three major crypto stablecoins (USDC, USDT, DAI), accesses yield natively via a combination of automated farming strategies, runs on Ethereum mainnet, and uses a rebasing mechanism to accrue these yield returns for holders.
- Like Gro Protocol, Origin Dollar has also adopted the ERC-4626 token standard for security and composability.
- Both use DAO governance tokens to shape the path of economic, operational, and other decisions for the projects. There is an incentive mechanism to lock governance tokens for a longer period of time in exchange for the OGV token as well as the GRO token.
Main differences?
- Risk mitigation in OUSD is primarily handled via an automated mechanism that pauses the minting of OUSD if one of the underlying stablecoins falls below a certain peg threshold. Additionally, the team uses an alert system to stay informed of urgent security issues, and smart contract insurance can be purchased by users. Gro Protocol uses a risk balancing mechanism to keep the protocol resilient and stable in the face of asset or strategy failure, as well as various safety check mechanisms to prevent price manipulation, oracle manipulation, malicious smart contracts, and other attack vectors. For example, the protocol uses Curve for the pricing of deposits and withdrawals to be more responsive to market pricing, with Chainlink as a backup measure. The Gro DAO is also in the process of developing a more robust alerting and monitoring system.
- OUSD is Origin dollar’s core product and uses a wider variety of underlying yield strategies which come with their own unique risk considerations. Gro DAO’s core products include two offerings: the PWRD stablecoin which gives a portion of its yields from Curve strategies to the leveraged, riskier Vault product in exchange for protection. With the G² upgrade, PWRD’s yield is now fixed at a rate controlled by the DAO whereas OUSD’s yield is variable, similar to the Gro Vault product.
- Protocol fees on yield generated by OUSD are 10%, along with a 0.25% redeeming fee on the OUSD dApp. Gro Protocol’s fees, controlled by the DAO, include a 5% performance fee on the yield generated by its underlying DeFi strategies.
- Governance in Origin Dollar is managed via a modified vote escrow system that incentivises longer-term locking of tokens in exchange for voting power. Strategists handle funds and risk management, as well as other emergency powers via a multi-sig which is usually, though not always paired with an off-chain proposal. Gro DAO’s current governance structure is based on the Snapshot methodology. Tokens included in the snapshot can be GRO tokens held in a wallet, but also being staked in pools or vesting in the rewards centre. With that in mind, the Gro DAO’s governance process is evolving.
Curve Finance
What is it?
Launched in 2020, Curve is a stableswap AMM DEX (automated market maker decentralised exchange), focused primarily on the trading of stablecoin assets, though has since included non-stablecoin assets. Its purpose is to allow for more efficient trading between correlated assets and lower-risk liquidity providing.
Out of the three projects featured in this article, Curve is the most different in structure to the Gro Protocol. However, it provides an important liquidity layer in which Gro DAO’s products and many other yield-optimising products operate. Understanding Curve provides an essential foundation to understanding the DeFi landscape today.
How does it work?
Curve is founded upon the AMM concept introduced by Vitalik Buterin and pioneered by Uniswap, which uses the x * y = k formula for liquidity pools involving two assets. Curve uses a stableswap invariant formula to concentrate liquidity within certain ranges in an attempt to keep slippage under 1%.
Consider Curve’s pool called Tripool, or 3pool (3CRV). This pool holds the three largest stablecoins (USDT/USDC/DAI). Each of these assets is pegged to the US dollar and generally holds closely to that peg, but it is occasionally possible for those pegged prices to float or for the proportion of reserves to become unbalanced when users trade within them (such as what happened in the so-called “USDC depegging” of March 2023, which has since resolved itself via the incentive mechanisms below). Curve’s formula creates concentrated liquidity between a narrower band, meaning that small fluctuations in the price of assets, for instance between $0.95 and $1.05 for USD-pegged stablecoins, are absorbed by the flat curve of the pool’s concentrated liquidity which keeps the price very close to $1. Additionally, if the proportions of assets become unbalanced due to trading activity, traders are incentivised to arbitrage the proportions back towards their respective token prices.
Users can deposit any of the underlying assets in these pools to become liquidity providers that receive rewards optimised by a variety of incentives controlled by DAO voters, including trading fees, lending, and interest from token incentives.
The protocol has its own governance token called CRV and has pioneered a popular liquidity recycling system called vote escrow. Curve’s governance structure allows for the modification of pool incentives for liquidity providers and has blossomed into a flywheel of its own, with external protocols like Convex Finance stepping in to provide even further utility for Curve liquidity providers.
Vote escrow has evolved a complex ecosystem surrounding Curve and its partners, some of which is outside the scope of this article and requires time to fully digest. For those interested in learning more, there are plenty of resources to get started with.
Main similarities with Gro Protocol?
- Both protocols’ products utilise a combination of strategies that enable users to access rewards for stablecoin deposits. In the case of some Curve v1 pools, that includes, trading fees, lending, and CRV interest. Gro Protocol’s strategies utilise positions in the Curve Protocol and the Convex Protocol which boosts CRV rewards.
- PWRD’s stablecoin peg uses Curve’s PWRD-3CRV pool as the primary price oracle to help maintain PWRD’s stability.
Main differences?
- Curve’s primary function is as an AMM DEX for correlated assets with a multifaceted ecosystem that has plentiful opportunities for highly involved DeFi users. Gro DAO’s products aim to make DeFi more accessible for a wider range of users by incorporating some of Curve and Convex’s products as strategies within the Gro Protocol, ultimately offering two simple products (PWRD and Vault) for users with different risk profiles to choose from.
- Curve’s complex web of liquidity pools and currency recycling initiatives are well-suited for their novel vote escrow model, whereas Gro DAO’s current Snapshot-based governance procedures and GRO vesting mechanism are more appropriate for a relatively nascent DAO. However, as Gro DAO continues to progressively decentralise, as stated previously, it is in the process of attempting to adopt new governance innovations.
- Some projects that utilise Curve LP positions, such Gro Protocol’s risk- and yield-tranching infrastructure, are compatible with the ERC-4626 tokenised vault standard. Curve LP positions in their current state, however, are not compatible yet.
- Gro DAO’s risk- and yield-tranching products are managed autonomously by a risk balancer module to distribute smart contract and stablecoin risk between the two core products, Vault and PWRD. Curve does not have an automated risk balancer module and instead manages risk primarily via fees, lending incentives, interest incentives, and arbitrage incentives. Since Gro DAO’s products are built on top of some Curve and Convex strategies, Gro Protocol inherits this risk before filtering it through its risk balancer module. Bear in mind that each of these products involves different forms of risk and mitigation measures. As always, users must make their own decisions before using any of these products and only deposit funds they are willing to lose.
- Curve does not yet have a native stablecoin product, though it plans to launch Curve USD soon. Gro DAO has PWRD!
Bonus alpha (thanks for reading to the end!)
If you have PWRD in your wallet, you can provide it to the PWRD-3CRV metapool for more returns on PWRD. That said, please make sure you learn how it works and what the risks are, and make your own individual decisions before taking any actions.
You’ve got a friend in me
Hopefully, this article has helped readers to learn more about the Gro Protocol in relation to its peers and realise that many of the products in this category have the potential to be complementary to each other in the ever-expanding system of DeFi Lego bricks. It is up to the user to decide which products they wish to use, depending on their individual needs and risk tolerances.
If you are interested in joining the Gro DAO on its decentralisation journey, please follow the links below to get involved.
This article is for informational purposes only. It is not legal, tax, financial, or other advice. All of the products mentioned are speculative and involve risks. Refrain from taking action solely based on the information in this article. Please do your own research, make your own financial decisions, and/or seek independent financial advice from a licensed person. None of the information included in this article is an endorsement of the strategies mentioned.
All software developed by Gro DAO are tools that can be used to access and/or operate various DeFi protocols. Accordingly, users of Gro DAO products continue to be in control of their assets and decide how to manage them with the help of these tools.
Originally written by @jaypowcrypto
