[RFC-Grant Request] Chaser Finance

Chaser Finance Proposal

Title: Chaser Finance Proposal (RFC)

Author(s): Chaser Finance (Michael Manzano), neondaemon

Status: RFC

chaser.finance

Summary:

Chaser Finance proposes a milestone-based grant from the Across DAO to finish its development. To enable novel investment strategies for decentralized protocols, Chaser implements Across V3 for bridging and depositing into reputable DeFi lending markets. With a successful launch, Chaser can bring great value to Across with a high volume of bridge transactions. The grants requested would reimburse necessary development expenses. Chaser also requests a deposit from the Across DAO to be returned with yield generated for the sake of promoting Chaser after launch.

What is Chaser?

Chaser is a smart contract platform for custom, data-based DeFi strategies. With Chaser, DAOs make better yields off of their liquidity while gaining deeper control over risk. Chaser uses Across V3 to directly enter positions on protocols like Aave and Compound on multiple chains.

At ETHOnline 2023, Chaser originated with success by winning the top prizes for 3 sponsors, including Across/UMA. The inspiration for data-driven DeFi strategies came from my experience working on the Messari Standardized Subgraph project. During this time, I began to conceptualize what would be possible if the kind of data indexed in subgraphs was brought on-chain. Making time-series and granular position data available in smart contracts has the potential to significantly enhance the investment capabilities of all vaults, lending platforms, and DAOs.

What Does Chaser Solve?

Current DeFi yield strategies are limited. Pools can only deposit to investments on their local network, preventing easy entrance into markets with better returns on the same asset. Additionally, there is a lack of useful data for investment calculation on-chain. Decentralized protocols cannot move investments based off of historical data points or granular metrics like open position balances or user counts. These calculations can only be done off chain and are inaccessible to DAOs and yield vaults.

Chaser addresses these limitations by leveraging Across V3 to move pool deposits between different chains and lending markets, generating the highest possible yields from your favorite protocols. With UMA for strategy management, Chaser serves as a platform for building customizable yield strategies to maximize your liquidity usage while following your specific risk parameters. Using subgraph data from protocols like Aave and Compound, Chaser allows protocols to factor in various metrics such as:

  • Historic pool volumes, revenues, and yields for any day
  • Granular data on all open positions
  • Protocol wide data, comparisons between corresponding markets on different networks.

Users can create Chaser pools to dynamically move deposits between chains and protocols based on insights from this data. This maximizes yield while allowing for filtering based on custom metrics, helping avoid lending markets with undesirable characteristics like high volatility or low volume.

Example Strategy #1: Highest Daily Yield USDC

Let’s take a Chaser USDC pool with a strategy that deposits into the Aave or Compound market with the highest yield over the past 24 hours. Over a 90 day period, moving deposits to the market with the highest daily yield returns an APY of 14.06%.

Whereas leaving the funds on any given USDC market on these two protocols over the same period would have the following yields:

  • Compound Ethereum USDC: 9.77%
  • Compound Arbitrum USDC: 8.00%
  • Compound Polygon USDC: 10.28%
  • Aave Arbitrum USDC: 9.75%
  • Aave Base USDC: 5.90%
  • Aave Ethereum USDC: 8.75%
  • Aave Optimism USDC: 9.67%
  • Aave Polygon USDC: 10.41%

CHASER USDC: 14.06%


(Yields recorded between Feb. 1 2024 to May 1 2024)

This optimization is unmatched for protocols aiming to maximize cross-chain investments and create more flexible custom on-chain strategies with historical and positional data.

Example Strategy #2: Low Liquidation Risk

Instead of solely chasing the highest yield, this second strategy demonstrates how a pool could use Chaser’s inter-protocol, inter-chain optimization while also setting custom filters for risk. Imagine a pool that wants to invest into riskier protocols with higher leverage and lower deposit volume while maintaining a threshold of acceptable risk. This “Low Liquidation Risk” strategy uses data from Aave and Compound subgraphs to:

  1. Query subgraphs for the top 100 depositors in the proposed market.
  2. Get these depositors’ open collateral and borrow positions.
  3. Measure each depositor’s risk.
  4. Calculate the weighted average risk for the market.
  5. If weighted risk >= 50%, prevent the pivot.
  6. If weighted risk < 50% AND the proposed market yield is higher than the current market yield, move the investment.

This pool pivots investments to the proposed market only if it is higher yielding and with a liquidation risk below 50%.

Let’s say a Chaser WETH pool with this strategy is currently invested in Aave V3 Mainnet with a 2% return. There are two other Aave WETH markets that are yielding higher:

  • Aave V3 Optimism - 3% return and 63% liquidation risk
  • Aave V3 Arbitrum - 2.5% return and 37% liquidation risk

If a user proposes to move the pool’s investments to Aave V3 Optimism, the proposal will be rejected because the risk passed the acceptable threshold filter. However, a proposal to move to Aave V3 Arbitrum will be accepted as it meets the criteria for both higher yield and acceptable risk, even though the yield is currently lower than the Optimism market.

View this strategy logic

How do Chaser Strategies Work?

Chaser employs the UMA Optimistic Oracle to execute and maintain its custom strategies. Users deploying a Chaser pool can write custom JavaScript logic to fetch subgraph data and calculate necessary metrics. When a superior investment opportunity is identified by a user or monitor, they open an assertion that a specific market on a particular protocol and chain offers a better yield. This is then proven by running the strategy script according to specific parameters. If the proposal is approved, the oracle instructs Chaser to move the investment to the new position.

Why does Chaser Use Across?

To optimize for yield between chains, Chaser bridges exclusively with Across V3. Across V3 is both cheaper and faster than alternatives while simplifying fee payments. The fees are deducted directly from the transferred tokens, eliminating the need for separate fee management. In contrast, competitors like CCIP and LayerZero require maintaining a LINK/ETH balance across all chains. Additionally, Across V3 easily integrates for executing logic upon receiving a bridge, without needing routers, configurations, or special contract imports. Even though Chaser uses CCIP to help with inter-chain state management and callbacks, Across is used for all bridging needs.

Vision

Chaser aims to provide the highest possible returns, recognizing that many DAOs and DeFi users prioritize yield over the specific chain generating it. Additionally, there is demand for more mature investment options offering deeper analytical insights on-chain. Chaser acts as infrastructure to elevate decentralized investing opportunities, enhancing risk management and closing gaps that previously hindered analytical deposit strategies.

Chaser is targeting two markets:

  • DAOs investing unused treasury funds for higher returns.
  • Lending protocols/Yield Vaults looking to build on top of Chaser to offer products that use the Chaser investment strategies platform.

Although these markets already exist, chain interoperability is still a new concept and opens up space to build a service that arbitrages the differences between chains and offers higher returns to depositors.

By launch, I plan to expand strategy logic capabilities to enable more complex mathematical analysis. Additionally, another priority for expansion is to integrate more lending protocols and assets for investment. Both of these adjustments create the potential for more interesting strategy use cases.

How Will Chaser Improve Across?

By using Across for all inter-chain value transfers, Chaser will significantly increase transaction volume on Across. Every deposit and withdrawal interaction in a Chaser pool with a position on a different chain sends funds through Across, resulting in many bridge transactions. Additionally, when a Chaser pool identifies a better investment opportunity, it moves the entire pool’s funds through Across, generating high-value bridge transactions. Both types of transactions contribute to increased fee revenues and usage on the Across platform.

Chaser also serves as a prime example of how the Across+ messaging feature can be utilized effectively. By leveraging Across’s messaging capabilities, Chaser demonstrates how inter-chain applications can be built to solve interoperability challenges. This showcases the practical applications of Across V3 messaging, promoting it as a valuable tool for developing inter-chain solutions.

Implementation

Chaser Beta is now live on Arbitrum Sepolia (https://chaser.finance), with a Mainnet launch scheduled for September. The beta has a working integration with Across V3, using the messaging handler to bridge and enter positions into both Aave and Compound on Sepolia, Optimism Sepolia and Arbitrum Sepolia. In order to fulfill the vision laid out above and bring true value to the Across community, there are some major product development tasks to be done before launch:

  • Finish V1 contracts: There is still some refactoring to be done and features to be added before auditing. Additionally, I will make any fixes needed resulting from the audit.
  • Hiring a JavaScript Developer: I am bringing on a full-time JavaScript developer to focus on building the front end and the strategy script mechanism. This will allow me to concentrate entirely on the smart contracts and protocol design.
  • Searching for a Co-Founder: I am actively seeking a co-founder to handle the operational aspects of the project, including growth and finances.
  • Conducting a Professional Private Audit: As a DeFi protocol aiming to attract investment, it is crucial to undergo a professionally conducted private audit to ensure depositor confidence. Given the unique mechanisms Chaser employs to move liquidity between chains, a thorough audit is essential to identify any design flaws and vulnerabilities.
  • Marketing: Beyond offering a quality service, we need to attract users to Chaser. Following a successful audit, we will start marketing on X (Twitter). The plan includes contracting a firm specializing in DeFi projects for social media management and content creation. Additionally, we will allocate an ad spend budget to reach as many users as possible.

Downsides and Security Considerations

  • Smart contract risk: Because of general vulnerabilities when dealing with moving funds and data between chains, there is a higher level of risk when depositing to Chaser. Even though this is an inevitability for protocols looking to solve interoperability, this risk can be mitigated with good design and thorough auditing. While a private audit is a necessary step before launching Chaser, we are exploring doing a competitive audit as well for the sake of spotting these vulnerabilities.

  • Deposit and withdrawal delays: When depositing to Chaser, if the pool you deposit to has its position on another chain, you do not have instant liquidity. When needing to withdraw funds from Chaser, you have to send a request inter-chain to bridge back your deposits. During this process, you cannot make any further actions on the pool until completed. Your position tokens are locked in escrow until you receive the funds. While this entire process is about 10 minutes, it can make a big difference for a protocol needing liquidity at a moment’s notice. For depositors looking to avoid this drawback, Chaser allows pools to enable certain chains, letting Chaser pools only move investments between protocols on the home chain where liquidity is instant within a singular transaction.

  • Position movement illiquidity: In order to prevent issues with conflicting inter-chain messages and state among various contracts, depositor liquidity is paused during proposed position movements on a pool. Deposits and withdrawals to pools are blocked within one hour of the position change assertion being resolved. To impede unnecessary interaction pauses, Chaser pools select the bond amount required to propose an investment movement, making bad actors put up large amounts to be lost when submitting erroneous proposals. Also, if a pool deployer wants to only let a pool monitor bot automatically propose movements, they can assign the monitor address a specific role to be able to submit proposals.

Milestones and Funding Request

To successfully position Chaser to facilitate innovative strategies and optimize yields inter-chain, we seek support from the Across community. Below are the proposed milestones and the funds requested upon completion of each:

Milestone #1: Finish Product

  • Complete a successful audit
  • Build strategy monitors and create five basic strategies
  • Finalize the front end
  • Complete V1 contracts
  • Estimated Completion: Late-August

Funding Request for Completion of Milestone #1:

  • $8,990 in USD to cover the audit cost, as quoted by a reputable auditing firm.
  • $7,000 in USD for development, including the front end, strategy scripts, monitor bots, and other tools. This amount is based on the developer’s salary.

Total for Milestone #1: $15,990 USD (Paid in ACX)

Milestone #2: Launch

  • Launch on Arbitrum Mainnet
  • Initiate a marketing campaign on X and establish social media presence
  • Estimated Completion: Mid-September

Funding Request for Completion Milestone #2:

  • $10,000 USD for marketing to grow the user base organically. Approximately $5,000 will be allocated to contract social media experts for content creation and initial marketing strategy, and remaining amount for ad campaigns on X.
  • $25,000 USDC deposit in a Chaser Aave/Compound pool, to be returned with yield earned to the Across DAO after 6 months. This is to help demonstrate the protocol’s legitimacy and yield-generating capabilities.

Total for Milestone #2: $10,000 USD + $25,000 USD deposit returned with yield generated (Paid in ACX)

TOTAL REQUEST: $25,990 USD + $25,000 USDC deposit for 6 months (Paid in ACX)

Future Plans

Leading up to launch, Chaser will request grants from other DAOs such as Arbitrum and Aave. While this grant proposal is to cover the absolute essentials in finishing Chaser, there are additional expenses to further guarantee Chaser’s success. This includes:

  • Code4rena campaign to find a wider range of security vulnerabilities and inefficiencies
  • Hiring another Solidity developer
  • Increase the marketing budget

After the Mainnet launch, most focus will be on adjusting the protocol for any sorts of issues or feedback based on the first users. While Chaser will move towards whatever early users show a need for, there are some ideas to pursue that could grow Chaser:

  • Decentralized governance: Within a few months after launch, many actions will be decentralized in order for Chaser to grow as a decentralized protocol. As is standard in DeFi, major protocol decisions and certain pool configurations should be voted on by the entire community to enforce quality. This would include implementing an approval process for strategy code. Decentralizing Chaser governance would be done by airdropping a governance token (perhaps in addition to functioning as an instant liquidity token, see below).
  • Enable borrowing assets: Similar to using strategies to filter deposit markets, enabling borrowing against these deposits would allow for new use cases and greater transaction volume. Rather than only having use for depositors who want yield, Chaser could be used for entities that want to borrow against these deposits. With more protocols developing cross chain position capability, there is additional opportunity to deposit into a market on one chain, and use strategies to borrow assets from the market on the best chain according to customized parameters.
  • Chaser Liquidity Token: While still just a conceptual idea, a Chaser token would be used to exchange positions on other chains for instant liquidity in a withdrawal. The mechanics of this token would borrow funds from Chaser pools that invest solely on the home chain and bridge back deposits from other chains to pay back this loan with fees. The token would incentivize Chaser pools to provide instant liquidity for pools with positions on other chains.

Links:

dApp: https://chaser.finance

Repo: GitHub - MichaelC1999/chaser

Docs: GitHub - MichaelC1999/chaser

Conclusion

The Beta launch of Chaser Finance is live on Arbitrum Sepolia! chaser.finance

Please check out the dApp and comment about your experience! It would be great to have some feedback to perfect the Chaser dApp before the Mainnet launch.

All comments are appreciated! Before finalizing a proposal, we want to hear thoughts about the requests laid out here and further elaborate on any details about Chaser. Looking forward to engaging further with the Across Community!

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