Use Cases
Fusion enables a wide-range of on-chain optimization strategies, limited only by an Atomist's imagination.
Rewards Farming
IPOR Fusion has been designed with reward management in mind.
Rewards may require special treatment to be translated into risk-adjusted returns. For example, a strategy with an APR of 10% in USDC and 5% USDC equivalent in COMP token is not necessarily as attractive as a strategy delivering 15% APR in USDC.
The realization of profits from accumulated rewards is essentially a strategy in itself.
Fusion enables Atomists to implement their own rules for managing accumulated rewards (e.g., based on frequency, breakeven, or trading signals).
Portfolio Rebalancing Based on Slippage Data
According to simulations, allocating funds without taking money market slippage (pool APR being affected by withdrawn/deposited liquidity) into account could significantly overestimate attainable returns.
Running a realistic simulation, whereby an allocator rebalances weekly but simply tries to optimize for slippage (with no knowledge of the future), hints at significant performance improvement over the market portfolio.
Fusion enables slippage optimization with the Fusion-powered USDC vault on Arbitrum already featuring this strategy.
Stablecoin Cross-chain Lending Optimization
As an example, while Circle’s USDC is the most widely used stablecoin in DeFi and is present in all major money markets its the interest rates can vary significantly, even within two blue-chip protocols like Aave v3 and Compound v3.
Fusion enables automatic arbitrage of stablecoin money market spreads to improve yields (especially when combined with slippage optimization).
Incorporating Correlation Information - Mean-variance Portfolio Optimization
Incorporating correlation information between different markets could help produce more stable returns.
Fusion enables strategists to apply a mean-variance optimization approach. Allocators can express their preferences regarding return volatility and incorporate correlation information through the use of a variance-covariance matrix of historical returns.
Alternatively, allocators that are not interested in volatility of returns but rather “Jump-to-default” risk and qualitative risk assessment can implement their own version of “efficient frontier” as part of their off-chain “Alpha intelligence” logic.
Fusion offers core optimization functionality and capabilities that Atomists might want to reuse as part of their intelligence layer.
Yield Enhancement Through Tactical Trading and Indicators
Adopting a tactical trading strategy to enhance yield — either as a standalone or complementary to a portfolio construction strategy — may also deliver improved returns. Tactical trading similarly requires real-time monitoring of market rates and is only possible by utilizing an off-chain intelligence layer, as enabled by Fusion's Alpha.
Rates Arbitrage with Blue-chip Collateral
Currently, in DeFi, there are opportunities to take out a loan against high-quality collateral and lend it elsewhere at higher interest rates.
For example, an IPOR Fusion WBTC vault could mint crvUSD against wBTC collateral and deposit it into a crvUSD yield optimizer vault, earning the spread between borrowing rates and lending rates. An Alpha could ensure automatic health factor management, minting crvUSD when the WBTC price rises and repaying crvUSD when it falls. The LLAMMA soft liquidation mechanism introduced by Curve Finance also allows for very high capital efficiency.
IPOR Fusion also enables the creation of fully automated stablecoin funds. These funds could invest in selected blue-chip stablecoins and deposit them at the highest available (risk-adjusted) yields, even borrowing other assets to deposit them in another market to earn an additional spread (arbitrage).
"Fund of Funds"
Thanks to the composability of ERC-4626 vaults, Fusion also enables the creation of a fund of funds.
The composition and weighting can be determined as desired. The allocation of such a fund of funds stablecoin vault could look like this:
55% optimized blue chip / low-risk vault (Aave + Compound only)
40% medium-risk stablecoin arbitrage vault
5% high-risk optimized emerging markets vault
Such a portfolio would have achieved the following returns from January to July 2024 compared to the market portfolio and pure blue-chip vault strategies:
Market Portfolio: 6.74%
Optimized (Aave/Compound only): 9.2%
FoF Portfolio: 16.8%
Building a Smart Funding Rate Farming Vault (AKA "Decentralized Ethena")
Fusion enables a more sophisticated variation of the ‘Ethena trade’ that can deliver attractive returns with increased transparency and capital efficiency thanks to the combination of centralized and decentralized venue interactions.
Liquidity permitting, the strategy will be able to farm funding rates on DEXеs and trade the spread across venues. It will be able to utilize DeFi credit markets to generate yield for idle collateral and intermittently create synthetic positions by looping in credit markets.
Please refer to this piece in the IPOR blog for details on how Fusion enables "Decetralized Ethena."
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