At a high level, the stablecoin strategy maintains a lending position with the best performing stablecoin (highest interest rates, highest liquidity mining incentives, etc).
For example, the strategy will put the cellar liquidity into the DAI lending pool on Aave if the returns are best in DAI. If the market conditions change so that it is more profitable to put the cellar liquidity into the USDC lending pool on Aave, the strategy will move the cellar liquidity from DAI into USDC. As time passes, the strategy will change into whichever lending pool is most profitable and less risky. In this sense, this Cellar highlights the Sommelier value as a dynamic mid-frequency trading strategy which is also non-custodial.
Due to providing liquidity on the Aave platform, Aave provides liquidity mining rewards in the form of staked Aave tokens (stkAave). A second aspect of this Cellar is to reinvest the stkAave. The strategy will swap the stkAave for the current lending positions token, and then reinvest the liquidity mining rewards into the current position. For example, if the current lending position is DAI, and the Cellar has 1MM worth of DAI in the form of stkAave rewards, then the Cellar will swap the stkAave for the 1MM DAI, and then reinvest the 1MM DAI into the current lending position. This reinvest functionality also necessitates the Sommelier dynamic infrastructure, so to optimize the best time to reinvest the liquidity mining rewards.
Benefits To Users
Users benefit from this strategy because the cellar yield farms on Aave on behalf of the users, saving users precious time from needing to monitor all the positions and swapping between them. Further, since the Cellar re-positions its funds as a whole, gas-fees are effectively spread across all users, making the cellar much more gas-efficient than performing transactions without the cellar. Next, the cellar is managed a sophisticated strategists which selected by the validators. The strategist can perform a collection of off-chain calculations, and push the action to the cellar. Moreover, early users will be rewarded Somm tokens for using the Sommelier protocol.