2️⃣Automated strategies. Architecture. Mechanics of work
Last updated
Last updated
The Cadabra Finance platform is an automated yield aggregator. It means that many passive income opportunities are combined and automated on this platform: liquid staking, yield farming and lending protocols, as well as many others. The goal of the Cadabra platform is to provide users with a “set it and forget it” experience:
The platform’s algorithms work continuously to maximize APY returns while keeping the risk profile as low as possible.
The platform interface is designed to simplify using without the need to understand the details of many DeFi projects.
We created Cadabra as the gateway to optimal passive income in DeFi, as we combine potential sources of income, assess their risk levels, and combine them into simple but effective automated strategies.
Our strategies are aimed at guaranteeing the continuity of passive yield — for a given asset (or group of assets), the strategy will find the most profitable protocols now and in the future. This means you no longer have to worry about rebalancing your liquidity as you will always receive the best possible yield available.
Due to automation and the constant involvement of our technical team, it is possible to receive higher rewards from the DeFi market in “one click”, without the risk of making erroneous actions or taking them at the wrong time.
Cadabra strategies are the main tool for generating profitability. And we will talk about them in detail in this article.
From a technical point of view, strategies on Cadabra are implemented in the form of smart contracts with built-in functions that automate and maximize yield from third-party DeFi projects. Strategies through adapters benefit from multiple external yield sources through interaction with their smart contracts.
This can be illustrated with the following diagram:
On the logical side, the strategy combines yield sources by type of return and by asset. For example, Cadabra has a strategy for the BNB and its liquid derivatives (BNBx, stkBNB, ankrBNB и т.д.), or a strategy that combines into one abstraction all the major stablecoins such as USDT, USDC and DAI, that treats them as a single token. Grouping assets expands yield opportunities and allows you to move funds to the most profitable source of income at the moment, maximizing profits. Read more about the rebalancing mechanism in the corresponding section.
Strategies are divided according to the following criteria:
Base asset: stablecoins (Conservative Strategy), derivatives for liquid staking (Derivatives of BNB, ETH, MATIC, etc.), or individual tokens.
Method of making a profit: liquid staking, yield farming or lending protocols.
Reliability of assets and protocols: it is no secret that riskier assets can bring high returns, so we have created different strategies where we divided stablecoins into conservative (Conservative: USDT, USDC, DAI) or risky (Degen: FRAX, LUSD, PYUSD)
Blockchain network: BSC (initial network), Polygon, Optimism, Etherium, etc. In the future, we plan to remove this division and create multi-chain strategies, which will further expand the space for yielding.
The proposed division, from our point of view, gives the opportunity to choose in accordance with your preferences: the protocols integrated into them, on which networks these protocols operate, in which tokens the liquidity in these protocols will be stored, and the degree of risk. And at the same time, it removes the need to understand in detail the technical intricacies of DeFi protocols, the complexity and number of which is constantly growing.
To sum it up, Cadabra Finance makes it easy to invest in DeFi so your funds can work more efficiently for you. The platform quietly handles all technical difficulties, and you get maximized profitability by using of strategies with minimal effort:
One-click depositing through a user-friendly interface eliminates barriers to getting started.
Complex algorithms increase APY due to: 1) Aggregation of assets, expanding the space for yielding. 2) Dynamic rebalancing between yield sources, maintaining maximized APY at all times. 3) Optimized frequency of yield harvesting, reducing the risk of inflation of third-party platform reward tokens. 4) Socialization of transaction costs, when any action occurs in one transaction and costs are shared among all participants in the strategy.
Depositing in “one click” in this case is not a metaphor — investments in strategies are automated and can be in any fairly popular token, then the strategy:
Exchanges the deposited token for the required assets and in the required proportion on the 1inch liquidity aggregator, which guarantees the best rates.
Invests in yield source, which in manual mode can be quite complicated and require several steps.
As a result, the process of obtaining profitability in the DeFi market comes down to two actions: choose the Cadabra strategy and invest. A list of active strategies, as well as a list of planned strategies and networks, can be found on the platform interface.
There are several types of rewards that a Cadabra user can receive:
Continuous passive income from Cadabra strategies.
Bonuses from locking ABRA tokens: 2.1 Part of the profit from strategies, collected as a platform commission (Performance fee). 2.2 Platform owned liquidity profit. 2.3 One-time personal bonus up to 100% of the amount of locked ABRA tokens. 2.4 Income from participation in the referral program is up to 30% of the rewards for personal locking of the team.
Indirect benefit from deflationary tokenomics if the price of ABRA grows up.
In this article we talk in detail about (1) and (2.1) types of profit, the rest are described in detail in articles about referral program and tokenomics.
Cadabra is an automated Yield aggregator, so the profitability of strategies is ensured by the profitability of third-party DeFi protocols integrated into them. These sources of profitability are integrated into the system through adapters — smart contracts, which unify the interaction of strategies and external platforms and protocols.
Strategies and adapters work on top of our innovative deflationary tokenomics, which you can read about in a separate article. The foundation of the tokenomics of the Cadabra platform is the utility multichain token ABRA. Users receive all types of income, including income from strategies, in the form of ABRA tokens.
The whole process can be described step by step as follows:
The Cadabra Finance team constantly monitors the DeFi market and looks for new yield sources.
New yield sources are internally assessed for safety.
Sources that we assess as safe are integrated into strategies through the development of new adapters; new adapters undergo internal testing and, in some cases, external audit.
The strategy capitalizes on external sources of return while maximizing APY through regular collection of yields and rebalancing liquidity among more profitable sources of return.
The platform distributes income among users in the form of ABRA tokens.
The main part of the strategy’s profit is distributed among users who have invested in the strategy, and a commission for automated management of up to 5% is collected from the profitability, which is distributed among the holders of veABRA tokens, which can be obtained by locking ABRA tokens.
Commissions are an important part of the platform and have the main goals: fraud protection, deflationary pressure and community engagement. Or they are external, such as gas fees when making transactions.
Deposit fee
Strategies have a small deposit fee, usually 0.01–0.05%. This commission is necessary to counter potential arbitrage opportunities. The commission is made minimal so that the earned income compensates for the costs of a particular user within 1–2 days.
In this case, the deposit commission is distributed proportionally among all participants whose funds were already part of the strategy before making the deposit.
Performance fee
Each strategy has a Performance fee. This fee is taken from profits only. In other words, before ABRA rewards are distributed to strategy participants, performance fees are deducted and collected in the form of ABRA tokens. It can vary depending on the strategy, but usually is around 5%. Commission is charged on compound operation.
All ABRA tokens accumulated as performance rewards are distributed proportionally among users who have locked ABRA (veABRA token holders), motivating them to lock as much as possible.
Gas overhead
Although gas overhead costs are not part of the Cadabra platform commissions, we consider it important to mention them. At a minimum, because we tried to reduce them.
Transactions to enter and exit a strategy cost gas. These gas costs can be significant on some blockchain networks. The possible high amount of gas used by Cadabra strategies is explained by the complexity of the processes associated — a significant part of gas costs is accounted for by the costs of creating and dissolving liquidity on the side of external yield sources.
All gas costs associated with rebalancing and income collection operations are distributed (socialized) among strategy users and are already included in the performance fee. Gas socialization refers to the concept of distributing the cost of a transaction among a group of users. In Cadabra, this is done by performing rebalance and compound operations for all strategy participants in a single transaction. As a result, the gas fee for this transaction is shared among all users, resulting in lower individual gas costs.
Funds are deposited into the strategy using the token of your choice. Cadabra will automatically convert your investment into tokens accepted by the strategy. For example, you can deposit USDT into an ETH derivatives strategy and your tokens will be converted into one of the derivatives, such as sfrxETH. Conversion is carried out through the 1inch liquidity aggregator to guarantee the best exchange rate.
The adapter invests on behalf of the strategy in a yield source (external DeFi protocol). In return, the user receives created LP (Liquidity Provider) tokens. On the Cadabra platform, such LP tokens are called SST (Strategy Share Token) and are issued to users when depositing funds in a strategy, and are a guarantee that the user’s funds belong to him through a share in the total liquidity of a particular strategy. The value of all SST tokens issued by the strategy is equal to the value of its underlying assets — all funds that are managed by the strategy.
If a strategy has several sources of income, funds are automatically invested in the most profitable yield source at the moment.
You can invest your funds in several ways:
Through the interface of the main Cadabra website, this is the easiest way.
By exchanging your ABRA tokens for SST (Strategy Share Token) tokens in the appropriate strategy pool based on Uniswap v3, this is the cheapest way.
Through the smart contract interface, if the site is not available for any reason, this is the most difficult way.
Compounding is the practice of reinvesting income to maximize APY through compound interest. But in the context of Cadabra strategies, the compound process has some features:
Compounding occurs only when it is truly profitable, taking into account all the overhead costs of executing transactions.
Received rewards are first sold, as they are usually in the form of third-party projects’ native tokens, and then contributed to the strategy.
This process results in the creation of new SST (Strategy Share Tokens) and ownership of these newly issued shares is transferred to the Cadabra protocol.
The Cadabra protocol uses these SSTs to purchase ABRA tokens through the strategies’ liquidity pools, and these ABRA tokens are distributed to strategy participants in proportion to their share of the total supply of SST tokens issued.
The protocol retains ownership of these newly issued SSTs, and as they continue to generate revenue that is distributed to users (veABRA token holders) and can positively influence the ABRA token.
So the exponential compounding effect remains, albeit in an indirect way.
More details about the liquidity owned by the protocol, about strategy pools and the deflationary model can be read in an article about the tokenomics of the project.
Regular collection of yields has another goal — saving rewards expressed in the form of reward tokens of third-party platforms, which are often subject to inflation. Saving occurs in more stable tokens or reinvestment back into the source of profitability.
Anti-fraud
It is necessary to describe one more feature related to compounding and income distribution, or rather, protection from potential fraudulent activities. Compounding occurs on a regular basis, but is optimized in terms of overhead costs, and an attacker can choose the moment to invest immediately before compounding, and then he will receive almost instant profit. To counter such actions, the yield is distributed among users not immediately, but linearly over 7 days.
Rebalancing is the process of redistributing assets between yield sources integrated into a strategy.
The strategy can improve overall profitability by reallocating funds from one protocol to another. Rebalancing is triggered when APY protocols change. For example, a strategy has equal assets in two protocols (A and B), and both have an APY of 5%. If at any point the APY of Protocol B increases to 10%, the strategy will reallocate funds to Protocol B.
Periodic rebalancing
Periodic reallocation occurs only when it improves your profitability, taking into account the overhead costs and APY impact of the source and target yield source. As part of the rebalancing, tokens of the current yield source can be converted into tokens of the target protocol.
Initiating rebalancing occurs off-chain, as it requires taking into account many factors and involves complex calculations:
exchange cost;
the cost of entry and exit into yield sources;
the impact on APY of current and targeted yield sources, as the movement of significant amounts of liquidity could either lower or increase their APY;
current gas price.
After calculating the profitability, the corresponding method is launched on the strategy smart contract to perform the operation.
Organic rebalancing
Organic rebalancing occurs every time a new user deposits/withdraws funds into the strategy. Upon deposit, funds are automatically sent to the most profitable protocol. Likewise, when a user withdraws funds from a strategy, funds are removed from the least profitable protocol. In this way, funds organically gravitate towards the most effective yield source.
You can withdraw your funds back at any time and there are several ways to do this:
Through the interface of the official website, this is the easiest way.
Through the smart contract interface, if the site is not available for any reason.
Through the exchange of your SST (Strategy Share Token) in the appropriate strategy pool based on Uniswap v3.
When you withdraw funds, you will receive tokens from the least profitable underlying protocols of the strategy, which may be different from the tokens you invested in the strategy. This allows the strategy to organically rebalance the strategy’s assets and concentrate funds in the highest-yielding protocols. It is important to understand that withdrawals from the least profitable adapters do not negatively affect the amount of funds you withdraw from the strategy.
We care about your safety. We know that trust is easy to lose, so security is our top priority. Smart contracts of the Cadabra platform are audited by top auditors — Certik and PeckShield, we also regularly attract external independent specialists to review our contracts, and, of course, internal tests and multi-stage internal reviews.
We didn’t stop at smart contracts audit and conducted an external audit of our innovative deflationary tokenomics.
The results can be found at link.
Our contracts are partially mutable, like almost all contracts of many famous DeFi projects. This allows creators to make edits — correct errors found, add new functionality and develop the project. And most importantly, do this without re-issuing all contracts and releasing new versions, which requires, for example, manual migration of all funds. In the Cadabra architecture, only such a way is possible because our level of automation requires changing some parameters, for example, a set of strategies, add and remove yield sources.
To minimize risks, we divided contracts into mutable and immutable. For example, vesting contracts are immutable, which ensures that the ABRA token unlock schedule will be never changed.
In mutable contracts, any significant changes will go through the timelock. All these changes and the time of their application can be seen on the blockchain network, and we will also set up notification in the main communication channels so that everyone has time to think and make their own decision. For example, when adding a new yield source, there will be time to decide whether to withdraw your funds or not, if suddenly you see the risk of sending money to the new external protocol being added.
The safety of each strategy is a combination of the following factors:
The complexity of the strategy itself, that is, the complexity of interaction with third-party yield sources. Some adapters include complex logic that improves profitability, but we understand that any complication carries risks.
Security of assets used within the strategy. For example, the major stablecoins can be considered extremely secure, as well as tokens like BNB or ETH. Please note that while tokens may be volatile, this does not negate their stability.
Security of external yield sources. Our team researches the protocol in detail and evaluates security based on multiple criteria. We look at the amount of liquidity on the platform and in a specific pool, the history of the project, its social networks and publications, and, of course, the smart contract code and the results of security audits.
The starting set of strategies works on the BSC blockchain network. The initial set includes the most popular and safest assets. On the website you can also see our plans for development on other networks.
A conservative strategy that works on the USD stablecoin abstraction. This low-risk strategy aims to increase the value of your stablecoin deposit. The abstraction includes the 3 most popular stablecoins: USDT, USDC, DAI. The strategy works by distributing funds to secure and proven protocols such as Thena, Stargate, Venus and Alpaca.
A conservative strategy that operates on the BNB derivatives set. This low-risk strategy aims to increase the value of your deposit of one BNB token. The set of liquid derivatives on which the strategy works includes:BNBx, stkBNB, ankrBNB. Currently, the main source of profitability is Thena, the largest platform on the BNB network. Also we are planning to add the Equilibria and Penpie platforms.
By using Thena pools, strategies can make additional profits from farming on liquid derivatives. Also, the specificity of Thena’s work is to change the size of rewards every epoch, which is equal to a week, so the strategy monitors the APY of integrated Thena pools and rebalance funds to the most profitable one.
A conservative strategy that works on the ETH derivatives set. This low-risk strategy aims to increase the value of your deposit of one ETH token. The set of liquid derivatives on which the strategy works includes: frxETH, ankrETH, sfrxETH, wBETH. Currently, the main source of profitability is Thena, the largest platform on the BNB network. Also we are planning to add the Equilibria and Penpie platforms.
By using Thena pools, strategies can make additional profits from farming on liquid derivatives. Also, the specificity of Thena’s work is to change the size of rewards every epoch, which is equal to a week, so the strategy monitors the APY of integrated Thena pools and rebalance funds to the most profitable one.
A conservative strategy that works only on USDT stablecoin. This strategy utilizes only one stablecoin and is an alternative Conservative Stablecoins USD, but for users who prefer only a single token.
This low-risk strategy aims to increase the value of your USDT deposit. The strategy works by distributing funds to secure and proven protocols such as Stargate, Venus and Alpaca.
This strategy is similar to the previous strategy, but for users who prefer USDC.
Strategies page in Cadabra Finance website: https://cadabra.finance
