[SIPS-011 & 012] Seven Seas Upcoming Community Spend Proposals

[SIPS-011 & 012] Seven Seas Upcoming Community Spend Proposals

Table of Contents

Author: Seven Seas Capital

Topic: Discussion for upcoming Seven Seas Community Spend Proposals regarding Cellar Development and Sommelier Ecosystem Development

Posted: 08/08/2022

Goal

The goal of this forum post is to discuss the two upcoming Seven Seas Community Spend proposals that will be posted to Governance simultaneously on (Monday) 08/15/2022.

The first proposal is for seed funding of the amount of 1M SOMM tokens to support the development of 8 new Cellars over the next year by Seven Seas.

The second proposal is for funding of the amount of 1M SOMM tokens to support Sommelier ecosystem development and DAO support by Seven Seas.

In this post, we would like to discuss why we are making two separate proposals, the content of each proposal, and provide opportunity for the community to provide feedback before the vote goes live.

Context

Seven Seas is the first Strategy Provider on the Sommelier platform. We are the team behind the inaugural Aave Cellar. We worked closely with the Sommelier protocol team to bring the Aave Cellar to production, in the process aiding in the design and implementation of the infrastructure necessary to run Cellars on the platform (e.g. smart contracts, fee structure, and security mechanisms).

Going forward, Seven Seas plans on developing the Sommelier ecosystem in two related but distinct ways:

  1. Developing, implementing, and operating profitable Cellar strategies
  2. Building tooling/infrastructure and offering services to improve the ease of Cellar development by other parties and support the business interests of the DAO and SOMM token holders

We are asking the Sommelier community for funding in SOMM tokens in support of these efforts.

Why two proposals instead of one?

We have decided to make two separate Community Spend Proposals each reflecting one of the above-mentioned goals.

Being the first Strategy Provider entails additional difficulty in Cellar development: every novel strategy we devise comes with new design challenges in smart contracts and data science. Solving these challenges lowers the barrier of entry for future Strategy Providers to run Cellars. We are developing the infrastructure in a way that can be reused by other teams, e.g. publicly available smart contracts.

From that perspective, the two goals we described in the previous section are related: with initial Cellar development naturally comes ecosystem development. However, our reasoning for making two separate proposals is as follows: the proposal regarding general development of profitable strategies can serve as a template for future Strategy Providers to request funding.

We feel that by separating the two concepts - developing Cellars and supporting the ecosystem - the community will have more clarity on the responsibilities and deliverables entailed by the respective proposals.

Community Spend Proposal 1: Cellar Development

SIPS Name: SIPS-011

Status: Not Yet Proposed

Author: Seven Seas Capital

Discussion: Proposal for Community Pool Funding of SOMM to Seven Seas Capital

Posted: 08/15/2022

Mission

Sommelier’s mission is to develop a platform on which Strategy Providers can make DeFi strategies available to all market participants in a decentralized way.

Sommelier creates Cellar infrastructure which is the pipeline for strategists to connect with market participants non-custodially. Strategy creation & execution is the lifeblood of Cellars. The service we provide is a core component of what Sommelier offers. In support of these efforts, we are requesting seed funding from the Sommelier community fund.

Seven Seas Capital’s mission is to develop profitable strategies on Sommelier and support the onboarding of other Strategy Providers so that they may contribute their strategies as well.

Proposal

Grant of 1M (”one million”) SOMM to seed Seven Seas Capital as a strategy development partner with the goal of creating a diverse set of Cellars on the Sommelier protocol. This grant will support 12 months of Cellar development and maintenance.

Sommelier as a platform benefits from a diverse set of Cellars and Strategy Providers. We believe that seeding strategy development teams for the express purpose of developing Cellars on Sommelier is a useful bootstrapping measure in the early stages of Sommelier. Once the Sommelier ecosystem has matured, prospective Cellar development teams will be better positioned to raise funding externally.

Team Background

Seven Seas Capital is a financial strategy development firm that focuses on providing data feeds with portfolio management suggestions to DeFi protocols in exchange for fees & profit shares. We are the strategy providers for the Aave Stablecoin genesis cellar on Sommelier.

We are a team of 10 people including data scientists, DeFi strategists, and smart contract developers with deep roots in crypto and quantitative analysis. See our website for more information on team backgrounds.

We aim to continue strategy development and maintenance for future Sommelier cellars. This will require ongoing analysis, coding, testing, and execution. We emphasize that our strategies are not static. They will evolve along with the market and adapt to changing conditions and as new DeFi primitives emerge.

Responsibilities

  1. Thoroughly backtest all strategies before execution
  2. Write up detailed reports / blog posts on strategies before proposing to Governance
  3. Ensure all contracts are audited before being made available to public
  4. Prioritize risk management of strategies with code reviews, risk assessments and code refactors when deemed necessary
  5. Continued monitoring of Cellar performance and active ongoing management of Cellar strategies

Deliverables

  • Minimum of 2 Governance-approved Cellar Strategies per Quarter for 1 year beginning from funds distribution (8 total)
  • Ongoing maintenance & delivery of strategies created by Seven Seas to Sommelier validator set. Maintenance includes continued active management of live Cellars and updating strategies when necessary (e.g. when the strategy is no longer producing the target yields).

Funding

Total amount: 1M (”one million”) SOMM tokens

New Strategy Development

Funds will be used for the initial development of 8 Cellars / strategies, including:

  • Salaries for strategists and smart contract developers
  • Testing strategies live before proposing to Governance

Ongoing Strategy Execution

Funds will be used primarily for costs associated with continued operations of live Cellars such as:

  • Cloud infrastructure for deploying strategies
  • Training and running machine learning models

Community Spend Proposal 2: Ecosystem Cultivation

SIPS Name: SIPS-012

Status: Not Yet Proposed

Author: Seven Seas Capital

Discussion: Proposal for Community Pool Funding of SOMM to Cultivate Cellar Ecosystem

Posted: 08/15/2022

Proposal

Grant of 1M (”one million”) SOMM to incentivize Seven Seas Capital to develop tooling and infrastructure to support ease of Cellar development and onboarding of new Sommelier Protocol Strategy Providers for one year. This is for the benefit of SOMM token holders and to support the business interests of the DAO.

This work will further the advancement of Sommelier’s mission by fostering a diversity of ecosystem participants. Sommelier will thrive as cellars proliferate. Seven Seas aims to ensure that the protocol can serve the largest universe of market participants possible. By enabling other strategy providers to offer their unique products, users with varying risk profiles have the best chance to discover a strategy which suits their needs.

Towards this end, we will extend the capabilities of the cellar stack by developing cellars on other chains, creating analytics & performance monitoring tools, and open-sourcing as much of our code as possible for others to utilize.

Novel Cellar strategies, be it multi-protocol or multi-EVM, require initial development efforts in DeFi strategies, smart contracts, and protocol. These initial efforts pave the way for future Strategy Providers to run more interesting and complex strategies, pressing the advantage that the Sommelier protocol provides over existing technology. In support of these goals, Seven Seas will prioritize strategy exploration on novel chains and protocols along with developing the necessary infrastructure (e.g. smart contracts) required by future Strategy Providers.

In addition to extending the capabilities of the Sommelier Cellar stack, Seven Seas will provide onboarding support to, for example, traditional institutions that wish to run strategies on the Sommelier platform. Traditional firms face the challenge of building data pipelines to DeFi protocols, connecting with the Sommelier chain to execute actions, and monitoring on-chain performance of Cellars for analytics as well as making real-time strategy decisions. Seven Seas will develop tooling and offer support to institutional parties that want to build on Sommelier. We are already working with several institutional partners to bring their strategies into production as Cellars on the Sommelier platform.

Deliverables

  • Onboard initial strategy providers voted in by governance
  • Work closely with the protocol to launch 3+ Multi-EVM strategies in effort to establish Sommelier onto other chains
  • Develop generic open-source smart contracts to increase ease of future Cellar development
  • Create open-source Cellar monitoring tooling for performance indicators & analytics

Funding

Total amount: 1M (”one million”) SOMM tokens

Conclusion

In this post we outlined the two upcoming Seven Seas Community Spend Proposals regarding Cellar Development and Sommelier Ecosystem Development respectively. We described our reasoning for making two separate proposals.

We would appreciate any feedback on how to ensure the proposals best reflect the interests of the Sommelier Protocol and Community.

This is really interesting. Thanks for this detailed approach.
The second proposal would most likely be a “yes” for me. I can not speak to the amount of 1m (even though it seems really fair for a team of 10 given the amount of time), but onboarding new strategy providers and more sophisticated tooling is exactly the stuff the community pool should invest in for the long term benefit of the chain in my humble opinion.
On the first proposal I’m a bit more skeptical. I get the argument that it might be worthwhile to bootstrap the first strategies to help advertising a new product. On one hand it’s always harder for pioneers to get a new thing rolling. On another hand the opportunity is also greater. Staker and Validator are asked to account for this by risking their assets, time and work (in the case of validators) in this beginning episode without rewards. You are asking for mitigation of the same risk. Again as a pioneer I believe this might be fair, but I am a bit incredulous, because you point out that you need part of the funds to cover running costs. Well, shouldn’t your strategies in themselves not be profitable enough to cover this? Aren’t you confident in your product? Also 8 strategies (2 per quarter) seems rather convenient. Are these thoughtful elaborated strategies or are you asking for those funds, because you are not very confident, because you will come up with something on the fly, if time demands it?
Sorry, if this comes over rather critical. I am really looking forward to this and believe both proposals are reasonable. I just wanted to lay out some naive concerns and hope you can clarify.

Greetings Niels

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Thank you for your comment. We appreciate your support of Proposal 2 (Ecosystem Development). Thanks also for outlining your concerns about Proposal 1 (Cellar Development). We have tried to address each concern in detail below:

  • Regarding quality of the 8 strategies:
    This is a good point, and is something we tried to account for in our proposal. By 8 Cellars we mean 8 Cellars that are accepted by Governance. In general we expect Governance to serve a basic gatekeeping function to prevent poorly thought-out Cellars from being accepted on chain. Even further, we fully intend to launch only strategies we are confident in and have put significant thought into. We’d be happy to update the language in the proposal to reflect this.

  • Regarding the comparison between validators and strategy providers:
    The work involved in being a validator is different in nature from being a strategy provider. While the Sommelier protocol is fully up and running, there is still the open problem of finding and implementing strategies that will attract TVL to the protocol. It isn’t obvious (in these early stages) what strategies will succeed in this task (portfolio management, trading, yield farming, etc.). In this sense, a strategy provider is more akin to a startup trying to find product-market fit - it requires creativity, trial-and-error, and consistent innovation.

  • Regarding the purpose of the funding:
    The funding is meant to support research and development of new strategies. As we described above, strategy development is not a clear-cut procedure but rather an iterative and experimental process. Therefore, it isn’t a question of whether we believe our strategies will be profitable (of course we believe this). The funds aren’t meant for providing risk mitigation, but rather for providing our team with the runway to get to the point of profitability. - We also want to emphasize that Proposal 1 may be used as a template by prospective strategy providers who want to build on Sommelier.

In general, we believe funding strategy providers to build on Sommelier is highly advantageous to the protocol. By setting the precedent that funding is available to capable and motivated teams, we increase the set of potential strategy providers that are willing to devote their resources to Cellar development. Of course, this is only a temporary measure meant to bootstrap the protocol - once the platform matures (many cellars and good TVL) there is higher incentive for external parties to build strategies on Sommelier. In fact, once the protocol matures we can imagine potential strategy teams raising funds to build Cellars externally from Sommelier.

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What I am missing is an actual business case? How will the strategy provider fund itself after the community funds have been spend? What are the “TVL” and percentage growth and value expectations over time for the proposed strategies. I am not necessarily against spending community funds, as this is the kind of proposal that will probably help the protocol grow, but I do like to see actual and concrete qualitative numbers in a plan.