What is Sommelier?

Introduction and evolution of the market

As the market is getting flushed with new protocols, and products from the traditional finance world (derivatives, perps, leverage etc.) enter the DeFi ecosystem, the era of simple funds and basic strategies needs a turbocharged remake. The majority of existing platforms in the current market perform actions which were best suited to the past few years. For example, some invest in an index portfolio. Others simply invest users money into a specific pool, and then reinvest rewards over time. In this scenario, when the pool-specific strategy stops working and the users abandon the strategy like a deserted city, they move onto newer pool-specific strategies that work in the newer market conditions.

But, what if there was a way for us to create a dynamic strategy which could adjust its composition based on current market conditions or predetermined metrics? Moreover, what if there was an architecture that allows the metric calculations to be done off-chain while utilizing live data feeds to adjust your current positions, and only the newer instruction set needed to be sent to the strategy? We would be able to create more nimble, flexible, and most importantly, profitable and resilient strategies. Further, in traditional finance, we have come to rely on the power of off-chain computation using financial and data modeling techniques, because it allows your strategy to be proprietary and include the work of highly sophisticated quant and data science teams. Sommelier aims to do all of this but without the tradeoff of centralization that exists in traditional finance.

Welcome to the era of strategies that no longer have to recreate new vaults for newer conditions. Strategies now can monitor & predict volatility, volume, even profit percentage, and financial ratios that we are used to in traditional finance. These strategies can adjust the positions to achieve optimal outcomes. We have deliberately rethought every layer of execution to be able to provide one of the first mid-frequency strategy execution platforms on a highly secure validator set (and not a multisig wallet).

Sommelier runs on Cosmos with the use of one of the best performing ETH bridges. Further, we are currently expanding this bridge to allow access to other chains (like Polygon, Avalanche, etc) so strategies are not tied to just high gas ETH markets. All of this is built by a team who requires no introduction in the Cosmos ecosystem. We are building connections to new markets, and development is being focused on cross chain asset movements to leverage the best opportunities wherever the market takes us.

Our Approach

Sommelier is a DeFi blockchain protocol, built on the Cosmos SDK, and a bi-directional Ethereum bridge. Taken together, this collection serves as a co-processor to Ethereum - that is we are using a Cosmos chain to process as many of the calculations as possible off Ethereum. The protocol is powered by validators and LPs who can benefit from a wide array of transaction features, such as portfolio rebalancing and limit orders based on dynamically changing market conditions.

Although Sommelier is created to support multi-chain transactions, Sommelier has predominantly focused and tailored its overall model to tap into Ethereum’s vast DeFi ecosystem as a starting point.  By allowing strategy calculations to be done off-chain, Somm employs a unique architecture to keep strategies private and allows them to employ a wide variety of off-chain data modeling techniques which are used in traditional finance.

The protocol also aggregates and batches transactions, thereby reducing gas fees, providing an attractive alternative to Ethereum’s high transaction costs. As for security, Sommelier uses a decentralized governance mechanism run by validators, ensuring state-of-the-art safety of user funds.

Community members can create strategies that execute on an investment strategy through smart contracts. Strategy providers who develop trading strategies, send the recommended actions to the Sommelier Validators to be executed on the Cellar, with the intention of gaining yield.

All parties contributing to a cellar can gain profits, i.e.,