By: Christos Makridis
Yield optimization has emerged as a critical area of opportunity, ripe for disruption, in the rapidly evolving landscape of decentralized finance (DeFi). As blockchain technologies mature, companies like Bril Finance are leading the charge by developing sophisticated, transparent, and trustworthy models to maximize returns for investors, while delivering a more palatable user experience—akin to a dashboard that investors would recognize from non-web3 legacy products. The way they think about designing financial products, ranging from the quantitative modeling to user interface, provides a useful template for others in the emerging technology space.
The Rise of Decentralized Finance
DeFi saw an initial explosion of activity “with roughly 90,000 users at the start of 2020 to 4.28 million by the end of 2021,” fueled by the creative use of airdrops and governance tokens, according to my research in the Journal of Corporate Finance. As the sector expanded, the search for a high yield on tokens led to a “Wild West” and an absence of dependable products.
Many projects promised high yields, but failed to deliver. These poor-quality products lacked transparency, often leaving investors in the dark about how their funds were being utilized. For instance, yield farming platforms would offer astronomical returns, but they were unsustainable due to faulty tokenomic schemes. Investors would flock to them only to see their investments collapse when the protocol could not sustain the promised yields. Other developers would create a project, attract liquidity, and then disappear with investors’ funds—also known as “rug pulls.” These patterns made yield farming risky and unpredictable.
For instance, YAM Finance initially gained attention for its unique elastic supply model, aiming to maintain a stable value. However, a critical bug in the rebase mechanism led to a sudden collapse in value, wiping out investors’ funds. The project’s governance token, YAM, became worthless overnight. “Data from price site CoinGecko shows the total value of YAM collapsed from roughly $60 million at 07:40 UTC to $0 by 08:15 – barely 35 minutes later,” according to CoinDesk.
HotdogSwap was a fork of SushiSwap, another yield farming platform. Despite its humorous branding, HotdogSwap failed to gain traction due to lack of innovation and community interest. Investors who participated in its initial liquidity pools suffered losses. Pickle Finance aimed to optimize yield by automatically switching between different stablecoin pools. Despite initial interest, a series of smart contract vulnerabilities led to a significant loss of funds. These projects, and many more, are illustrative of a combined trust and tokenomics gap in the DeFi space.
These challenges, however, are not unique to the DeFi space alone. Centralized exchanges have also had a hard time navigating the prevalence of wash trading “whereby investors simultaneously sell and buy the same assets to create artificial transactions, distorting price and hurting investor confidence and participation, as seen in other financial markets.” Recent work published in Management Science led by Lin William Cong, a professor at Cornell University and director of the FinTech Initiative, has documented the ubiquity of wash trading.
A New Approach to MultiChain Yield
However, the industry has evolved, due to an increased focus on transparency, security, and sustainable growth to foster trust among investors. Much like how the expansion of artificial intelligence and nascent technology in the traditional financial service sector has led to increased democratization of powerful new tools that retail consumers have at their disposal as seen with firms like Wealthfront and Robinhood, a major transformation has also been taking place in Web3.
Founded in 2022 with the intent to help both extremely sophisticated and more novice traders efficiently deploy their capital, Bril Finance has shown impressive annual returns on BNB Chain. It will soon launch a unified UX that enables users to access native yield from liquidity provision on 22+ deployments across 16+ chains. Bril is a seamless yet sophisticated decentralized finance (DeFi) tool that actively optimizes and manages portfolio strategies in a secure, non-custodial manner.
The dApp allows users to deposit tokens into single-asset vaults, which drive yield based on automated liquidity strategies- giving anyone access to professional-grade tools that deliver high yields for risk-adjusted returns. Bril leverages an underlying liquidity provisions algorithm, which runs category-defining, automated rebalancing for high capital efficiency. When users deposit tokens into single asset vaults, they receive LP tokens representing their share in the liquidity pool. Single asset vaults remove the complexity of managing multiple assets in a liquidity pool. Bril deploys the deposited assets into concentrated liquidity AMMs across blockchain ecosystems via a premier cross-chain bridging partner. Positions are automatically adjusted based on market conditions, and users can then withdraw deposits and earnings at any time.
“Bril is designed to respond accordingly to drastic market changes by making necessary rebalancing adjustments in real time, in a way we have yet to see in the space,” explained CEO Connor O’Shea. “Bril monitors the differences between fast (5 min) and slow (60 min) TWAPs [time-weighted average price] as well as between spot price and fast TWAP. Based on the price differences, we recognize high volatility (depending on the pool, typically set at 6% difference) and extreme volatility (typically set at 25% difference) situations. During periods of high volatility, a user’s position will be dispersed across the price range, thereby limiting the significant sale of your preferred token due to price changes. In situations of extreme volatility, the vault gets locked, preventing further deposits. At this point, the strategy team evaluates the market conditions before making any rebalancing decisions,” he added.
Financial services sectors rely crucially on forecasting expected returns and losses to decide how to deploy capital, while simultaneously managing against idiosyncratic and systemic risk. Bril Finance builds on the approach taken in traditional finance by building better models to forecast returns and, equally as important, actively monitors them. “I think people would be surprised to learn just how much of a real-time human element is involved in risk management across the global financial system regardless of whether we’re talking web2 or web3,” shared O’Shea. “The fact of the matter is that great technology is crucial, and we have it; but highly qualified humans will always need to be a key part of the front line here. We’re extremely transparent about that and proud that our team marries both best-practices and expertise from serious TradFi experience, with what I think is superior technology, a fresh approach, and overall, less bad legacy banking baggage.”
Bril leverages blockchain technology in two important ways. First, since trades are executed on-chain, data is plentiful, transparent, and readily accessible. Second, there is less scope for human error or malicious behavior. While there are still individuals who can execute a trade and build models, the performance is publicly accessible, providing an inherent check and balance. “Risk management is fundamentally different in web3 because there is no government to bail anyone out,” said O’Shea. “We take that reality very seriously, as everyone should, and it informs our entire approach to that side of the business.”
Institutional Pedigree
The founding team at Bril Finance has a both a high traditional finance and institutional pedigree, on top of its requisite crypto native expertise. O’Shea has spent years advising some of the world’s biggest banks as they aim to scale up their own private blockchains, prior to pivoting headlong into a full-time commitment to DeFi. At Binance and BnB Chain, he directed corporate development efforts and forged strategic Web3 and Web2 partnerships. Prior to Binance, he supported corporate strategy and deal-making with JPMorgan Chase & Co. out of New York. At WPP Kantar, he developed advertising and marketing strategies for fintech, luxury goods, and CPG clients. Before joining WPP, he was a corporate strategy associate with Strategy& in their New York, Tokyo and London offices, specializing in Financial Services growth and M&A. Connor dropped out of high school in his freshman year and founded a San Francisco-based payments startup, CCKV.
“We are solving for those who are heavier traders and looking for a way to trade and avoid actively deployed capital. We connect the exchange with the liquidity provider, and that generates yield back to the user. The capital provider wants the holdings to appreciate in value, but also to put capital to work. We cannot control the global supply of Bitcoin, but we can help you earn yield on top. The vast majority of platforms do not have sustainable APY, and ultimately it comes down to the algorithm. It is very difficult to build your own yield product, so just like JPMorgan has their own teams that looks for yield, we are also attuned to new money coming into Web3 where we can help users seamlessly connect to realize these kinds of possibilities,” Oshea shared.
O’Shea and team believe that yield optimization in web3 has already come a long way thanks to the recent greater convergence of principles from both tradFi and DeFi worlds. As blockchain investing matures, yield optimization no longer has to feel like a gamble, but a strategic opportunity with serious products and companies offering much greater transparency, dependability, and a single point of accountability.
