- Enzyme V4 comes with powerful extra features that make the asset management experience much easier and more affordable
- Not only do V4 features make the manager’s life easier, but it also makes the depositor’s experience is more convenient and enjoyable ( → higher conversion and more capital)
- For new managers, V4 includes the option of launching on Polygon (1,000x cheaper to create a vault on Polygon than on Ethereum)
- For V3 managers, some important security, accounting & tokenomics aspects must be understood before the upgrade
V4 Sulu is a massive leap forward
We could talk about how Enzyme V4 helps DeFi asset managers with improved security, flexibility and performance, but that would be excessively technical and too long to explain. For all technical details, you can read through our user docs and our V4 general specs.
Here’s a list of highlights that explain why V4 is a much improved version of Enzyme:
- Way more capabilities & alpha: plenty of extra features available to managers. New integrations include fixed yields with Notional, capital-efficient liquidity provision with Uniswap V3, options with Opyn and leverage with Compound/Aave borrowing. Managers who lag behind on V3 simply won’t have access to these integrations. You don’t want to miss out.
- Affordable management: thanks to the new feature called Gas Relayer, asset managers can remove the burden of high Ethereum gas fees and redirect the cost on the entire vault. To fully understand how this works, as well as the implications and best practices, we’ll be releasing a blog shortly that covers this.
- Polygon variant: if you are a fresh starter (or you want to create an extra vault) you can now do it on Polygon as well. Quick rule of thumb: Trading on Polygon is 1,000x cheaper than Ethereum but it does not have the same level of DeFi composability and asset universe. It’s up to you to find the best trade off.
- Custom branding: V4 allows you to edit your token symbol / ticker and customise it around your brand identity. This is particularly important if you wish to create an index type of vault and market your token on a secondary market. See the next bullet for more information.
- Transferable shares: up until now, investors were only able to deposit and redeem shares. Now, they can also transfer shares to a new investor without having to redeem them. This raises an interesting opportunity to create a secondary market for your vault shares.
- Happier depositors = more deposits: complaints from depositors about redeeming pro-rata slices of all positions in your vault are a thing of the past. Now, depositors can withdraw in one single asset of your choice. Guess what that means? Less friction for depositors and more capital coming your way.
With all these extra features just a few transactions away, we’re sure you don’t want to miss out. Before you go on and submit your upgrade, here are several important points to note.
7-day review period
In order to increase the level of security and depositor protection, the upgrade happens in 2 transactions: 1) signal & 2) execution. When the manager submits the first one (signal) a 7-day review period is triggered. During this time depositors can evaluate the new settings (if any) and, if they don’t approve, redeem their funds.
The measure’s goal is to avoid malicious managers pushing unilateral changes (e.g. 100% management fee) without depositors being aware. The second transaction (execution) is not initiated automatically and must be submitted by the manager once the review period is over. Note that the review period is triggered for all upgrades, also in case there are no new / modified settings.
High water mark reset to current share price
Another important thing to consider when upgrading your vault to V4 is that the high watermark, which is the benchmark reference for the calculation of your performance fee, will be automatically reset to the present share price. That is because the smart contract migration makes it very complex to carry forward the previous V3 HWM and thus this simplification is introduced. If this change implies a substantial gap between the new and old HWM (i.e. current price much lower than previously recorded HWM) we recommend communicating it openly to your depositors. The method for calculating the performance fees is also different on V4.
New MLN tokenomics
Enzyme V4 introduces a new value accrual model for the protocol. This dramatically improves the tokenomics of MLN, generating intrinsic value and demand for the token. It also ties the TVL growth of the protocol to a more predictable long-term MLN appreciation.
In order to achieve that, a protocol fee is introduced. The fee is a levy on the AUM of each vault. This is calculated continuously relative to an annualised target percentage and results in a certain number of extra shares automatically minted for every vault and assigned to the protocol itself.
In order to optimise the process and collect $MLN passively (which is eventually burned), the protocol employs a buyback mechanism which works as follows:
- Protocol fee shares are initially minted at an inflated rate (i.e. 0.50% or 50 bps), which is above the actual target levy (i.e. 0.25% or 25 bps).
- At this point, vault managers have 2 options: buying back those protocol shares with MLN tokens or doing nothing.
- Those who take advantage of the buyback using MLN end up paying the effective target rate (25 bps). They can either do it manually or enable a convenient auto buyback feature.
- Those that do nothing and leave the protocol with the burden of finding other mechanisms for converting shares to $MLN pay the inflated rate (50 bps).
As you can see, this new feature creates a fundamentally sound demand for MLN tokens, giving a tangible incentive to hold them in your vault. In addition, the MLN used for buybacks gets burned, which should generate a deflationary pressure on the token and result in further price appreciation in the long run. That increases the purchasing power of the Enzyme Technical Council (and all MLN holders), thus increasing the capability for further protocol improvements.
For further details on how the protocol fee works you can also read here.
Mainnet vaults cannot migrate to Polygon
This sounds rather obvious but yet it’s not uncommon to receive this type of question: can I migrate my existing Ethereum vault to Polygon? So here’s the answer: vaults deployed on Ethereum mainnet cannot simply migrate to the Polygon version. Managers who wish to “relocate” to Polygon would need to withdraw all funds from the mainnet vault and redeploy them on a new Polygon vault. Quite a drastic disruption, yeah. If the rationale is gas optimisation, you may want to consider using the gas relayer on your current mainnet vault.
Get started or get an upgrade!
It’s time to connect your wallet and create your own vault if you haven’t done it yet. And if you already have one, it’s time to upgrade to V4 Sulu to enjoy a fully revamped vault management experience!
Interested in launching your own vault? 🚀
With Sulu, it’s never been easier for asset managers to create custom vault strategies and access the full range of DeFi applications and possibilities in one simple, trustless and highly efficient platform.
At Avantgarde Finance, we’re excited to help a range of clients launch their own DeFi strategies with Sulu. Here’s a quick summary of how we can help:
- DAO’s: Avantgarde helps you manage your crypto balance sheet in a safe and transparent manner while still taking full advantage of the rapid pace of innovation and iteration of new financial primitives.
- Treasury Management: Give us a mandate and we will help you earn yield transparently and in line with your DeFi philosophy and investment policies.
- Asset Managers: From investor management to strategy automation, Avantgarde provide tools and services to optimize your on-chain asset management experience.
Click here to get in touch and a member of our team will be happy to reach out.
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