[INVESTMENT] Castle Vault Deployment

Hello,

We are the team from Castle Finance and we would like to propose deploying 100,000 USDC to our newly launched DeFi savings account, Vault.

About Castle Finance

Castle is building the next generation of crypto-native products that enable organizations to deploy their assets in a risk-conscious manner. We empower protocols, companies, and DAOs with the financial tools they need to function at their highest capacity and execute on their visions. The Castle ecosystem of products addresses the full array of treasury assets and core financial functions. We work closely with prominent DAOs to create tailored solutions, simplifying treasury management and freeing up bandwidth so web3 builders can focus on development and growth.

About Vault

Vault is a risk-managed, low-maintenance investment product for stablecoins that safely earns yield across a diversified set of DeFi protocols. Vault automates the active management of stablecoins, eliminating the need for DAOs to spend valuable resources doing so. Vault optimizes for maximal, predictable yield while minimizing risk and the likelihood of principal loss. DAOs utilize Vault for various goals, from funding operating expenditures to growing corporate savings accounts and protocol insurance funds.

Strategy

When stablecoins are deposited into Vault, they are forwarded to a diversified set of lending markets. Every minute, the contract rebalances between sources to optimize the yield earned.

Vault is built on top of the most reputable lending primitives in the Solana ecosystem. We source yield from the following protocols:

  • Solend
  • Port Finance
  • Jet Protocol

Additional integrations are currently under development!

Investment Thesis

In order to minimize the likelihood of principal loss and always ensure liquidity, Vault implements the following risk management measures:

  • Overexposure Control: Vault limits exposure to any single underlying protocol (risk-weighted concentration limits).
  • Underlying Liquidity: Vault ensures that there is liquidity at all times by never lending funds to money markets near a 100% utilization rate.
  • Protocol Security: Underlying protocols are open-source, audited, have verifiable builds, and have decentralized deployment keys.
  • Audit: Bramah Systems, an expert in distributed ledger security, has conducted a full audit of our protocol’s codebase and found no unresolved issues. As we develop additional features, future builds will be reviewed in the same manner.
  • Emergency Brake: Castle’s team will be able to “emergency brake”, which immediately withdraws all funds from underlying protocols into Vault’s reserves. This will only be used in extraordinary circumstances such as Solana network congestion.

Timeframe

A deployment from Vault can be made immediately as we are currently live on mainnet. We suggest starting with a 100,000 USDC pilot and periodically reviewing performance. The Castle team is currently working on a comprehensive analytics dashboard that will allow the metaCollective community the ability to monitor the performance of their allocations with ease.

Additional Resources

Please check out our blog where we post insights and research: blog.castle.finance

More information can be found on the Castle Finance website and documentation.

Why Castle and Vault: Emphasis on Security and Risk Management

At Castle, we are building DeFi products with a strong emphasis on risk management in order to minimize any chance of principal loss. We prioritize prudent management over possible returns. This starts with identifying DeFi’s unique risks, implementing mitigation strategies, and THEN optimizing yield earned within our risk-management frameworks. We are collaborating with ecosystem participants to research systemic risk, define best practices, and create innovative solutions to DeFi’s most common problems.

The Castle team consists of individuals who are passionate about supporting projects building an open, fair, and decentralized future. We are assembling a diverse team with backgrounds from machine learning, software product development, and traditional finance and research.

In short, we believe that Vault is an ideal product for earning stablecoin yield for the following reasons:

  • Only built on top of audited and open source protocols with strong track records
  • Instant liquidity - users can always withdraw their funds with no lock up
  • Security First - we like to think of ourselves as the most risk-conscious team in Solana DeFi. Along with being successfully audited by Bramah systems, members of the Castle team possess the expertise to identify security flaws in code, bringing potential bugs to the attention of several teams in the Solana ecosystem
  • Risk Managed - we use the principles of diversification and overcollateralization, prioritizing principal protection before absolute returns
  • Automated Active Management - within our risk management constraints, we periodically optimize and rebalance across our integrations to ensure you’re earning the maximal, safest yield. This frees up bandwidth for communities to focus on what they do best
  • Realms Integration - metaCollective will be able to manage allocations through their multisig wallet on the Realms/SPL Governance interface that they have used for over 65 community proposals to date.

We welcome any feedback/questions the community may have!

2 Likes

Hello @tahathinks ,

really love the idea and the strong focus on security that you guys are placing on building Castle Finance. We share the vision that better risk-management tools are needed and in that we support you and can help in multiple ways.

In terms of deploying capital, by depositing 100’000 USDC we would be around 10% of the TVL. Following the CASH hack we internally discussed an internal framework for which we can not be such a large percentage of your TVL, as such I would propose a lower amount (TBD).

Also, can you share more details on the ‘emergency brake’, how would that work and how is it triggered? Thanks

1 Like

Hey @Crypto_notte, Charlie here from the Castle team, thanks for your reply!

Totally makes sense re: smaller amount for now. We’re actively onboarding customers and hope to have much higher TVL within the next month. Let us know what you feel comfortable with.

The emergency brake pulls all funds out of the underlying markets and back into the smart contract token account where they are available to be withdrawn by users as normal. We are able to trigger this both manually and automatically. We use an algorithm over the Solana TPS data to predict when the network may be too congested for liquidations to occur, which would risk lending defaults.

1 Like

Thank you for sharing.

A few more questions:

  • Are you monitoring the chain for suspicious transactions (possible pen-testing) interacting with Castle?
  • Are tokens reward from liquidity mining accrued to users?
  • How do you find and adjust the current split among the different protocols? Is it TVL based? rate based? Can you share some more info on this point.

EDIT

I made a text tx and had a very quick look on chain, it seems Castle currently has:

576k on Solend
397k on Jet
<30k on Port (Port USDC has slight higher yield compared to Jet, but only if we take liquidity mining reward into account)

Is this breakdown correct? If not, is there quick and dirty way to track the Castle allocation breakdown?

Thanks

1 Like
  1. Not automatically, but I inspect TXs manually every night.
  2. We’re working on that change now, expect it to ship in the next 2 weeks.
  3. We’re writing up a longer explanation of this, but in short, we do a constrained optimization on the expected return of the underlyings. ER = R - EL where R is return (derived from the interest rate curve of each underlying) and EL is expected loss. EL is the sum of ELs per risk factor which we break down into Smart Contract Risk, Liquidation Default Risk, and Oracle Default Risk. Each EL is the product of LGD (loss given default) and PD (probability of default), which we estimate using a combo of quant and quali factors (secret sauce :slightly_smiling_face:).

You can see the optimization math here (doesn’t include the expected loss piece): optimizer_math/optimizer_math.ipynb at master · castle-finance/optimizer_math · GitHub

We are shipping a new UI in the next few days that will include the allocaiton breakdown along with a few other metrics. You can preview it here in our staging env: Castle | Treasury Management

1 Like

Thanks for detailed answer, will be digging more in depth on the math details of risk metrics during the week.

I think right now the best for the DAO is to start small by deploying 10’000 USDC, then scale up the position when we re-assess risk-returns and when Castle TVL increases.

Proposal can be made here (you will need 10’000 vMETA to initiate an investment proposal). For your convenience I’m writing below how the proposal could look like.

Title: [INVESTMENT] USDC deployment - Castle Finance

Body: Deploy 10’000 USDC on Caste Finance as per forum: https://forum.meta-collective.digital/t/investment-castle-vault-deployment/

No need to buy vMETA for this, happy to submit the proposal myself

@Crypto_notte That totally makes sense, let’s do it! And LMK if you have any Qs on the risk math.

@heremitas That would be great, thanks!

Proposal in now live:

https://governance.meta-collective.digital/dao/META/proposal/H87wstJirGZ5BK5FoYVEtG4LTop2cCAxVc6wWbhxkwJb

2 Likes

Hello @charlieyou @tahathinks - do you have in roadmap the release of SOL vaults as well or other type of products?

Given the low APY, I would remove it and stake it entirely directly into Solend

agreed, we can even keep in wallet for now

1 Like