Spool V2 Smart Vault Guards: Adding control for Institutional DeFi product creators.
What is Spool V2
Spool V2 is the infrastructure solution for risk-managed and automated investment into DeFi yield solutions. Rebuilt from the ground up to be faster, more efficient, and easier to use than V1, V2 represents a huge leap forward both for Spool and for institutions looking to create DeFi investment products.
Spool V2 introduces several key new features to make institutional DeFi investment products more effective. We’ll discuss these over the coming weeks as we get closer to launch, and the first set of features we’ll cover is “Guards”.
What are Guards?
In V1, any investor can create or invest in any Smart Vault. This is ideal for fully open Smart Vaults, but for institutions looking to create specific investment products, it creates certain limitations. Anyone can still create a Smart Vault product, but Guards limit investor access to them by enabling the Vault Creator to add specific requirements that must be met to complete a deposit.
As regulation increase and are clarified around DeFi, this allows institutions to create products using the Spool infrastructure, and only allow the investors they are happy with to invest in them. In turn, institutions are then above to offer additional services to their Smart Vault investors, such as bonus options, increased subsidies, or reduced fees.
While some Smart Vault Guards have been pre-configured for launch, the only limitation on what they can be is that the data must be captured through a smart contract. Our team is happy to discuss potential Guards and their implementation with institutions looking to create their own Smart Vault product, and this ensures the level of flexibility in creation and requirements such institutions need.
As well as for investing in a Smart Vault product, Guards can also be set on the withdrawal of funds from the Vault. This allows the institution creating a Smart Vault product to know how long funds will be invested, under what circumstances they will be withdrawn, and where they will be withdrawn to; key information when creating legally compliant long-term investment products for clients.
What guards are available?
As we previously mentioned, Guards can be anything recorded using a smart contract and our team are happy to discuss specific requirements with you around configuring them. This flexibility means the Smart Vault end products created can be designed to work exactly as needed by institutions.
For the launch of Spool V2, specific Guards are already in place and can be easily implemented through the fully-redesigned UX. These are designed around key functions institutions have told us they need to move further forward into the DeFi ecosystem.
The following is an overview of some of the key Guards already in place for the V2 launch.
Whitelisting
Whitelisting is something everyone involved with web3 and DeFi is already familiar with and, for institutions looking to create investment products, is key.
A whitelist is simply a list of wallet addresses that can invest in or withdraw from a specific Smart Vault. This is configured during the creation process and can be a single wallet address, or can be as many as needed.
For example, a business with custodial control of clients’ assets, or with clients who don’t want to directly handle cryptocurrency, may want to restrict access to a single wallet under their control. Alternatively, if their clients are more familiar with DeFi investment and handling their assets, the institution can create a list of wallets whose owners have completed KYC and AML processes to act as their whitelist.
Once this has been configured, only wallet addresses on the whitelist will be able to send funds to the specific Smart Vault, ensuring only authorised wallets can send funds. Critically, this also works for funds being removed from Smart Vaults, so for AML purposes institutions can confirm in advance where funds are being moved to once they are removed from the product.
Combined with the inherent traceability of cryptocurrencies due to their blockchain architecture, this creates a robust model for compliance with global regulations as they continue to evolve.
NFT Gating
NFT Gating is another concept that crypto-native investors, particularly those who are active in the wider web3 ecosystem, will be familiar with. Whereas projects already use this concept for access to closed communities such as Discord groups, Spool V2 applies it to investment products.
Rather than a list of confirmed wallet addresses in a whitelist, wallets that hold a specific NFT gain access to invest in or withdraw from a specific Smart Vault. Due to some additional functions of Spool V2, including the ability to tokenise Smart Vault investments as NFTs, this is potentially one of the most powerful gating solutions currently in place.
For institutions looking to create Smart Vaults as investment products, there are two methods to utilise the NFT gating solution. The first is via established NFTs, the second is to create bespoke NFTs.
The first model, that of utilising existing NFTs to allow access to Smart Vaults is likely to open up the world of DeFi investing to high-profile web3 communities already established in the ecosystem.
Following the recent surge and then reduction in the NFT ecosystem, there are multiple established large NFT communities that are searching for the use case of their held assets. Many of the companies running the projects, such as Yuga Labs, have also issued their own tokens to reward their holders.
With Spool V2, these projects will quickly and easily be able to create fully branded investment products, that only their NFT holders are eligible to use. They can then subsidise these products using their tokens.
The NFT holders gain a powerful use case for their assets which they can trade freely as normal, and as the Vault Creator, the project earns as more people invest and see ROI from the DeFi strategies in the Vault.
Alternatively, institutions looking to engage a crypto-native or web3 audience may want to launch new NFTs giving access to their Smart Vault investment product as part of their product roadmap. If sold, these can create an early revenue stream for the project, or they might be issued for free to key investors who have supported them.
The advantage of the NFT gating is truly in its flexibility to appeal both to existing NFT holders looking to leverage their assets, and those web3 natives looking for an entry point into DeFi in a risk-managed and automated, yet still self-custodial manner.
In addition, as we will discuss as we get closer to the launch of V2, Smart Vault deposits can be issued as a digital receipt in the form of NFTs. In turn, this creates not only another tradeable asset but also another token which can act as an access key to further investments.
For example, additional Smart Vault products can be created which would only let users who have invested in previous specific Smart Vaults invest in them. As these NFTs are burned to withdraw funds, if a user is to withdraw from an earlier Smart Vault, they would also lose access to the newer Smart Vault.
Fungible token, or cryptocurrency, gating
While similar in principle, fungible token/cryptocurrency gating is another model that offers solutions to institutions looking to engage an existing DeFi or cryptocurrency market.
Whereas for NFT gating, the single NFT would normally act as the “key” to the SMart Vault Product, with fungible token gating access can be restricted to those who hold a certain amount of a currency.
This can be used by institutions to reward larger holders of their currency or to appeal to holders of a specific cryptocurrency.
For example, an institution behind cryptocurrency “X” may have a high volume of holders with a low amount of the currency, but a smaller section of followers who hold a much higher amount. Rather than restrictive staking solutions, multiple Smart Vaults which each has its own services and benefits could be set up by the institution.
In this instance, a more general Smart Vault with a lower subsidy could be established for holders of a lower minimum, with a separate Vault with higher subsidies only available to larger “whales”.
Using that model, holders are encouraged to maintain (or increase) their holdings to invest in the Vaults, but they are not forced to do so and maintain full custody of their tokens. In particular, as regulations continue to evolve and custodial solutions come under heavier scrutiny, this model of non-custodial incentive is likely to gain wider appeal.
Time Locks
Time locks are a concept investors are used to from traditional financial investments, and are key for institutions creating long-term financial products which require a level of investor stability.
Using them, time restrictions can be added to a deposit with funds being unable to be withdrawn early, or facing penalties for doing so. As we move from sole day-trading models to longer DeFi yield-farming strategies, this approach helps create stability, not only for the Smart Vault creators in developing financial models for their Vaults but also for the underlying strategies.
With manual yield farming, done directly through the strategies, this approach creates issues due to fluctuations in value and their often highly volatile nature. However, the Spool model of diversification and automated balancing between diversified yield strategies based on selected risk models, means these longer-term financial investments become viable and require a much lower level of constant human intervention.
In combination with other factors, such as the issuing of deposit receipts as NFTs, this creates an entirely new financial economy where additional yield-bearing assets can be created, with their perceived value also potentially based on the length of time until their time lock expires.
Wallet age gate
Wallet age is a relatively simple gating process, but one that is critical in the highly competitive DeFi world. One of the common issues within the wider web3 ecosystem is the ability to create multiple wallets to “game” particular systems or bonus features.
In particular, this is a known issue with many whitelisted solutions where users apply (or compete) to be added to a whitelist for a particular project. While a wallet age gate does help reduce this issue, it also has several other use cases for institutions looking to implement their own Smart Vault investment product.
One key use is the “early adopter” reward model.
For example, if the company behind a specific wallet wanted to create a Smart Vault, one way they could reward early adopters of their technology could be to set up a wallet age gate. Using this they configure how old they want the wallets to be which will have access to the Vault.
If they were partnering with a cryptocurrency project or had their own currency, they could also set a minimum holding of that currency as well.
Conclusion
Gating is an incredibly powerful and flexible tool in the Spool V2 toolbox, enabling institutions to build fully bespoke Smart Vault products for their custom audiences. In this article, we’ve scratched the surface of what is possible with the first set of Guards, but there are many more use cases, in particular when guards are combined, and the other functions we’ll talk about in the coming weeks.
As anything that can be measured and tracked on-chain is potentially a Guard, more will become available over time, and our team will be happy to discuss particular solutions or implementations that you would like to use.
To find out more, and arrange a call with our team, visit enterprise.spool.fi.
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Spool is a permissionless DeFi platform that connects Capital Aggregators with DeFi Yield Generators. Funds are dynamically and efficiently allocated to ensure optimized yields, for custom strategies, managed by DAO-curated Risk Models.
Spool was established as a DAO, with a selection of founding contributors representing a diverse cross-section of the blockchain community.
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