How to Invest in Sommelier Finance on Notum

Yield aggregation is a fairly popular type of investment which plays an important role in DeFi yield economy. Many crypto users around the world chose it due to its automated system and maximized rewards.

When users deposit crypto assets into DeFi vaults, smart contracts automatically allocate the deposited funds among various strategies that bring the greatest profit. Thus, users don’t need to manage their investments by their own, since vaults take care of all the complexities associated with the strategy. As a reward for providing liquidity, investors receive a share of the yield generated by the vault.

Thus, yield aggregators are platforms that combine assets provided by users and invest them in profitable projects using automated and programmed strategies. Each yield aggregation platform offers different investment strategies and works with specific blockchains and assets that are worth paying attention to before providing assets.

Notum will guide you through Sommelier Finance showing how this yield aggregator works, and what benefits it offers. In addition, we will look at Sommelier’s investment strategies on Notum that will help you get high passive income in 2024.

Sommelier Finance: The Essentials

• TVL: $93,82M
• Average APY: 110.71%
• Risk Level: Low-Medium
• Blockchains: Ethereum, Arbitrum
• Foundation Date: 2020

Sommelier Finance is a popular DeFi protocol that is among the top 5 largest yield aggregators in terms of total value locked. Built on the Cosmos SDK, Somm Finance not only operates as an asset management platform, but also has its own bridge to high-value EVM networks.

Source: DefiLlama

«The protocol is powered by the validator set that reaches consensus on all rebalance messages sent by strategists before they are executed on-chain» -  Sommelier Gitbook.

Once the validators come to an agreement, the rebalancing decision is transferred through the Sommelier's bridge to Ethereum or the Axelar bridge to alt-EVMs. After that, smart contracts process the rebalance of assets.

Along with this, strategists have "whitelisted Strategist Functions", which gives them opportunity to rebalance specific vaults they manage without having to reach a rebalance agreement. These off-chain rebalance calculations are necessary for the unique Sommelier architecture, which ensures vaults’ operation and maintains confidentiality of strategies.

The platform specializes in automated vaults offering best-in-class yields and mitigated risks. Since Sommelier Finance is run by the validators, it is completely decentralized and provides secure storage of deposited funds.

Source: Sommelier

Sommelier Token | SOMM

Sommelier has a native token SOMM, which is an essential element of the project’s ecosystem that ensures its operation and security. This native token has a fixed supply of 500 million and has several main functions across the Sommelier network:

1. Staking for Proof-of-Stake Consensus. Since Sommelier network is a proof-of-stake blockchain built on the Cosmos SDK, SOMM can be used for staking to select validators. Thus, SOMM token holders not only receive rewards for staking, but also help ensure the security of the network.
2. Sommelier Governance. Token holders can use the Sommelier crypto to create or vote on various proposals for changes on the platform. Moreover, SOMM holders have control over key decisions regarding Sommelier, such as new vaults’ approval.
3. Transaction Fees. The token is used to pay gas fees on the network, which also helps ensure the smooth and uninterrupted operation of the Sommelier network.

Thus, the SOMM crypto is an integral component of the network necessary for the protocol’s safety and governance. As of March 13, 2024, the SOMM token price is $0.23. More detailed information about the token, its operating principles and unique attributes can be found here.

Why Invest with Sommelier?

Sommelier is a protocol with unique architecture, where asset rebalancing is executed by vault contract after receiving a message from strategists running off-chain model. However, in addition to this, Sommelier Finance offers users multiple advantages and interesting features that make the protocol an attractive investment option:

Pros

Off-Chain Computation

Due to the architecture that allows Sommelier to receive data input from off-chain models, protocol achieves the privacy of strategies. In addition, this architecture allows the vault to receive information from data models.

Decentralized Governance

Since protocol uses validators to manage transactions, all assets deposited by users are safe. In addition, Sommelier’s decentralized governance allows the protocol to remain censorship-resistant.

Increased Efficiency

Sommelier uses the Cosmos SDK, which offers a modular and robust protocol with Tendermint Consensus. Moreover, using Cosmos reduces the number of transactions on Ethereum, which decreases gas costs.

Adaptability

The protocol is quite flexible and its vaults are easily adapted to market conditions, which allows users to get the maximum returns on their investment. This adaptability is achieved due to off-chain computation and indicators to optimize rebalancing.

Security level

When creating the protocol, founders took a large number of safeguards into account. While some of them are encoded in the vault smart contracts, others are achieved through the validator set. In addition to this, the protocol's smart contracts have been independently audited and Sommelier still has an active bug bounty program.

Ease of use

Despite the complex architecture, Sommelier has created a fairly user-friendly interface that allows investors to simply and conveniently deposit their assets.

Among other things, the protocol also integrates with many popular DeFi platforms and protocols, such as AAVE, Uniswap, Compound, Frax, Curve, Balancer and others, expanding the capabilities of Sommelier.

Sommelier Finance: Investment Strategies

At the moment, Sommelier protocol offers investors 32 different vaults on two networks - Ethereum and Arbitrum. Users can filter vaults and choose between incentivised and deprecated options.

Notum App allows users to choose among 11 strategies with high TVL and favorable interest rates. Today we will look at 2 popular Sommelier vaults to invest with Notum:

This Sommelier investment strategy on Ethereum allows users to deposit their crypto assets into the WETH-STETH-CBETH-RETH pool to receive rewards. This high liquidity pool has a total value locked of more than $57 million, which speaks of its trustworthiness and proper level of security. By investing in this strategy, users can expect a total APY of 16.28%. Moreover, this option is incentivized by the SOMM tokens, which allows users to earn an additional 1.44% APY on top of the main rewards.

Another popular Sommelier strategy allows investors to deposit their cryptocurrency into the WETH-SWETH liquidity pool on the Ethereum network. The main advantage of this strategy is decent rewards with a total APY of about 23.73%.

The pool also has a fairly high TVL of over $1.3 million, making it a safe option for investors looking for high passive rewards. Moreover, for investing in this strategy, users also receive the SOMM tokens which can be used in the DeFi space.

If you want to deposit assets into other strategies, here you can explore all the options offered by Notum. For example, some pools such as USDC-YIELDUSD-YIELDETH on Ethereum offer phenomenally high rewards to users with a total APY of 1716.07%.

Sommelier: Risks and Disadvantages

Despite the fact that yield aggregation as a type of investment is a fairly popular and safe option, it is still not without its risks and disadvantages. Even Sommelier Finance, being fairly large protocol, also faces some problems that are important to pay attention to before investing.

Cons

Supported networks

Sommelier Finance operates only on two networks - Ethereum and Arbitrum, which may be a disadvantage compared to other yield aggregator platforms. For example, Beefy supports 17 different blockchains.

Risk of smart contracts

Despite several independent audits and a running bug bounty program, not a single decentralized protocol, including Sommelier, is safe from risks and vulnerabilities in smart contracts that can lead to potential losses.

Market volatility

Since the crypto space is rapidly changing, the prices of most assets are also volatile and may fluctuate while in the pool. Thus, the crypto market situation can affect the performance of the chosen strategy and potential rewards.

It is also important to remember that to deposit funds into Sommelier’s vaults, the user needs to connect one of the supported wallets - WalletConnect, Coinbase Wallet or Metamask. Thus, if you are using another crypto wallet, you should either create one of the suggested options or consider another platform that supports other wallets.

Notum’s Verdict

Yield aggregation is a type of investment that is becoming increasingly popular every year due to its automated strategies, low risk and potentially high rewards. Both new and experienced investors continue to choose yield aggregation platforms as they maximize the returns on deposited assets without active management on investor’s part.

Sommelier Finance is a robust, moderate-risk protocol offering a variety of yield aggregation strategies Ethereum and Arbitrum networks. With the average APY of 110.71%, the protocol allows users to invest crypto, earn rewards and contribute to the development of the ecosystem.

With off-chain computation, decentralized governance and increased efficiency, the protocol and its unique architecture have excellent adaptability and provide better pool rebalancing for best-in-class yields. Thus, despite the underlying risks associated with smart contracts and the crypto world volatility, Sommelier Finance is a simple, convenient and reliable option for investing in real yield vaults in 2024.

Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.