Yield Aggregator
The magic starts here

How do we produce yield for our users

Like traditional banks, we lend the users' deposits to third parties as a liquidity provider so they can later return the funds with interest. Doing this automated process between several DeFi money markets allows us to be more efficient than traditional banks.
The magic of Rand is in its Yield Aggregator, which works like a traditional bank does, offering interest to its clients for borrowing their money. Rand works as a liquidity provider by lending users' deposits to third parties, who then return those funds with interest. By using this automated process between DeFi money markets, Rand is more effective than a traditional bank — we have ten times less associated costs.
Since the beginning, Rand has designed and tested many different yield strategies using several money markets and across different chains. All these strategies have the same core principle of using stablecoins to mitigate, to almost zero, the exposure of users’ deposits to market price volatilities. The beauty of Stablecoins is that they allow for interoperability as well as stability across blockchains and via different money markets.
These strategies are based on providing liquidity to borrowing and lending protocols (such as Acala liquid staking ), leveraged money markets (such as Alpha Homora), or existing aggregators (such as YearnFinance). We are always testing new strategies as the DeFi markets innovate and evolve.
In the longer term, we plan to integrate hedge fund strategies to maximize yield production and to mitigate DeFi yields going below 5% should we enter a strong bear market. This will allow us to diversify our strategies to reflect changes in market conditions and adjust accordingly.
Some of these hedge fund strategies will be developed and executed by our internal team on DYDX and some others will be directly outsourced to be executed by third parties such as Nexo.

Providing liquidity on a borrowing/lending money market

DeFi replicates traditional borrowing and lending money markets, but with some distinct advantages. In conventional finance, banks are the largest intermediary between borrowers and lenders. They provide the infrastructure to open lending positions and borrowing positions, and they charge fees to both parties for these services. DeFi enables open and permission-less money markets where anyone can become lenders or borrowers with the click of a button.

Providing liquidity by hedging

Over the longer term, Rand will integrate providing liquidity to third parties that produce yield by executing hedge fund strategies. These strategies are performed using option positions to the market (Short and Long).
The differences between these two strategies are described in more detail below:

Long Position:

Investors can establish long positions in securities such as stocks, mutual funds, currencies, or even derivatives, options and/or futures. Holding a long position is a bullish view. The term long position is often used in the context of buying an options contract. The trader can hold either a long call or a long put option, depending on the outlook for the underlying asset of the option contract.
  • A long—or a long position—refers to the purchase of an asset with the expectation it will increase in value—a bullish attitude.
  • A long position in options contracts indicates the holder owns the underlying asset.
  • A long position is the opposite of a short position.
  • In options, being long can refer either to outright ownership of an asset or being the holder of an option on the asset.

Short Position:

A short, or a short position, is created when a trader sells a token first with the intention of repurchasing it or recovering it later at a lower price. A trader may decide to short a token when he/she elieves that the price of that token is likely to decrease in the near future. There are two types of short positions: naked and covered.
  • A short position refers to the trading technique in which an investor sells a token with plans to buy it later, usually at a lower price.
  • Shorting is a strategy used when an investor anticipates the price of a security will fall in the short term.
  • In common practice, short sellers borrow shares of stock from an investment bank or other financial institution, paying a fee to borrow the shares while the short position is in place.

Providing liquidity on a DEX

Another way to get exposure to higher yields in DeFi is to provide liquidity to existing decentralized exchanges to facilitate trading and make their markets run smoothly.
Definition of a DEX
A decentralized exchange (or DEX) is a peer-to-peer marketplace where transactions occur directly between crypto traders. DEXs fulfill one of crypto’s core possibilities: fostering financial transactions that aren’t officiated by banks, brokers, or any other intermediary. Many popular DEXs, like Uniswap and Sushiwap, run on the Ethereum blockchain.
In traditional stock markets, corporations and individuals are trading/depositing billions of dollars in different markets which ensures that the markets are always liquid. Having a very liquid market facilitates trading between parties and reduces volatility.
In decentralized markets, corporations and individuals are not depositing funds by processing millions of transactions every day for two main reasons:
  • Max capacity of transactions that the chain supports: All blockchains have a maximum number of transactions that they can support every minute because the validators/miners can only validate a fixed number of blocks per minute, therefore the capacity of the network to process transactions is limited by the number of validators/miners. If the network received millions of transactions simultaneously to create liquidity in markets, what would happen? In this case, there would be a super-saturated chain that cannot perform all these transactions, resulting in a very poor trading experience.
  • Fees implied for every transactions: Every time a transaction happens on-chain, there is a fee to pay, called gas, to the miners or validators of the network. This fee incentivizes miners/validators to run nodes on the chain and verify transactions for the network. In addition, miners make sure that when a transaction occurs, your balance decreases (Sender) and another balance increases (Receiver), therefore removing the possibility of double-spending. Nodes validate transactions and verify blocks which are then recorded on-chain.

What is a liquidity pool:

A liquidity pool is a collection of funds locked in a smart contract. Liquidity pools are used to facilitate decentralized trading, lending, and many more functions we’ll explore later.
Liquidity pools are the backbone of many decentralized exchanges (DEX), such as Uniswap. Users called liquidity providers (LPs) add an equal value of two tokens in a pool to create a market. In exchange for providing their funds, they earn trading fees from the trades that happen in their pool, proportional to their share of the total liquidity.
Liquidity pools allow everybody to become a market maker and provide liquidity in an efficient way to many different markets.
Rand provides liquidity to different DEXs that have stable coins on both sides of the pair, and earn trading fees as a result.

Providing liquidity on a DEX with a leverage position

The last strategy that our Yield Aggregator executes to generate yield is providing liquidity to a DEX with a leveraged position. At its core, the strategy is the same as providing liquidity to a pool, but with one main difference. When we provide liquidity to the pool, we also inject a loan. In this strategy the first step is to collateralize a loan with the funds we are providing. Once we have the loan, we invest the loan plus the principal to the liquidity pool.
Performing this strategy with stablecoins allows us to maximize the APY, while reducing the risk of liquidation to very low levels. Rand believes in a multi-chain future where DeFi projects will be fully composable between several existing chains. This is why we are building this system of vaults on several blockchains including Terra, Ethereum, Acala, and Moonbeam so far.