AI quant in DeFi: aarnâ's âfi 802 vault

Digital assets and decentralized finance (DeFi) have always held the potential of delivering compelling yields and innovative financial products However, the path to consistent alpha in DeFi is often fraught with challenges. The nascent nature of this asset class means that information and expertise are scattered and disorganized, making it difficult for even seasoned investors to navigate the complexities of the market. Even degens keep getting singed all the time! Additionally, the sheer number of protocols, strategies, and tokens can be overwhelming, leading to analysis paralysis or impulsive decisions driven by the fear of missing out (FOMO).

aarnâ's âfi 802 vault aims to change that. By leveraging an AI quant ledd approach with the alpha 30/7 deep learning model, âfi 802, offers a hands off and intelligent solution for autonomously discovering and accessing alpha in crypto and digital assets, via a DeFi native approach,  whilst mitigating downside risk in this volatile asset class. We had a fantastic launch at Token2049 to wide interest and appreciation! And here’s a pic and a snippet from the launch!

algorithms and AI have long augmented financial market analysis. In the traditional financial world, AI-powered algorithms have demonstrated their effectiveness, particularly in firms like Renaissance Technologies, Two Sigma, and Citadel. These firms leverage  quant approaches and AI to drive multiple strategies from long, long-short, and high-frequency trading strategies, whilst also optimizing risk management. Their sophisticated tools can process vast amounts of data in real time, formulating data-driven market strategies.

AI frameworks can bring much improved efficiency and decision-making to DeFi, but user experiences have yet to fully harness these advancements. There are of course quant trading firms in crypto, but these are all centralized entities, with basic copy-paste business models from Tradfi, which remain centralized and introduce counterparty risk. 

However, in DeFi, applications of AI in on-chain structured products are absent. For example crypto OG platforms like Yearn focus on passive yield. Whilst on-chain vault providers such as Enzyme, Velvet, and Sommelier offer permissionless vault services for  tokenized structured products. Aave focuses on lending via liquidity pools, and Uniswap is purely an automated market maker or a decentralized exchange. None deliver a fully autonomous approach for AI integrated portfolio management. This is where aarnâ’s approach of converging a deep learning framework for alpha discovery with tokenization for on-chain execution via smart contracts brings in an advanced approach for DeFi asset management.

aarnâ’s alpha 30/7 DL model is designed to consistently generate alpha using a data-driven deep learning framework while mitigating the downside risk via dynamic algorithmic filter mechanisms.

âfi 802 is aarnâ’s flagship vault designed for investors seeking consistent alpha in the crypto market while limiting downside risk. Utilizing the alpha 30/7 AI deep learning model, âfi 802 predicts high-potential tokens and autonomously rebalances its diversified portfolio weekly through smart contracts. The vault ensures real-time transparency with on-chain NAV updates, and all assets remain in users’ custody, eliminating counterparty risk. 

At the core of âfi 802's alpha-generating capabilities is the alpha 30/7 DL model. This sophisticated AI model is designed to sift through the noise of the crypto market and identify short-medium term alpha opportunities in digital assets. Also, to mitigate downside risk in volatile markets, âfi 802 uses dynamic risk filters that calculate lower limit thresholds based on the previous day’s BTC returns. If the current returns drop below this threshold, the assets are automatically converted into stablecoins to secure the investment. Similarly, upper limit thresholds capture gains by locking in profits when returns rise and then begin to decline, ensuring optimal alpha capture in unpredictable markets. This adaptive approach protects capital while optimizing performance in both bearish and bullish conditions. 

It achieves this by analyzing a vast array of data points, including on-chain metrics (like transaction volume and liquidity), technical indicators (such as moving averages and volatility), and even social sentiment from platforms like Twitter and crypto publications. The model analyzes as many as 93 unique features across the top tokens by market capitalization and liquidity on Uniswap v3 on Ethereum, ensuring that the assets are both economically relevant and active.

Rigorous backtesting results are impressive: the model consistently outperformed both Bitcoin and the CCI30 index (which tracks the top 30 cryptocurrencies), demonstrating its ability to capture alpha even during periods of high volatility. Over a 12-month period, the model achieved a return of over 350%, significantly surpassing the performance of both Bitcoin and the CCI30. This is an outlier, but also has to be seen in the context of digital assets, where Bitcoin itself delivered only over 100% in the same period.

tokenization and self-executing vaults

âfi 802 is built using aarnâ’s âfi tokenization platform,  designed to operate seamlessly on both Ethereum and Arbitrum. The platform consists of eight smart contracts on Ethereum and nine on Arbitrum, all rigorously audited by CertiK to ensure security and reliability. The platform’s audit reports and scores are publicly accessible on CertiK’s Skynet, providing transparency and assurance for investors.   

When investors participate in âfi 802, their stablecoins are used to mint âfi tokens, which represent their share of the vault’s assets. These âfi tokens are ERC-20 tokens that can be freely exchanged or staked within the aarnâ ecosystem.

The vault itself is a self-executing smart contract that automatically rebalances its holdings based on the alpha 30/7 DL model’s predictions. This means that the investment is constantly optimized for maximum potential returns without requiring any manual intervention. 

weekly rebalancing and risk management

âfi 802's weekly rebalancing mechanism ensures that the user portfolio remains aligned with the latest market trends, minimizing the risk of missing out on emerging opportunities. Additionally, the vault incorporates a risk management component that assesses the probability of the AI's predictions. Using dynamic risk filters that seamlessly adapt to market fluctuations helps safeguard user-deployed capital during the period of uncertainty.

The âfi 802 vault is ideal for investors who are comfortable with a moderate to high-risk profile and prefer a hands-off, data-driven approach to crypto investing. By leveraging the power of AI, âfi 802 aims to democratize access to alpha, making it easier for investors of all levels to participate in the exciting world of DeFi and potentially achieve their financial goals.

âfi 802 is now live, giving users the chance to harness the power of AI-driven alpha generation. Dive in and experience the innovation firsthand—getting started is simple and seamless:

1. connect the wallet: users should begin by connecting their preferred web3 wallet to the aarnâ dApp, allowing interaction with the platform and management of investments.

2. select âfi 802: navigate to the âfi vaults section of the dApp and choose the âfi 802 vault.

3. deploy stablecoins: investors can deposit stablecoins (USDC, USDT, or DAI) into the vault with a minimum investment of $100.

4. receive âfi tokens: upon depositing stablecoins, investors receive âfi tokens, representing their share of the vault’s assets, based on the prevailing Net Asset Value (NAV).

5. stake âfi for rewards: as an added benefit, âfi tokens can be staked to earn additional rewards through the platform’s timelock mechanism.

Early users will have the chance to test the platform, provide valuable feedback, and potentially earn rewards.

fees and early adopter rewards

aarnâ has a transparent fee structure for the âfi 802 vault. There are no annual management fees, just a one-time deposit fee of 1% and a 10% performance fee, when the user makes a redemption and makes a profit. 

Early adopters of âfi 802 can participate in the âfi Timelock program, which rewards users for locking âfi tokens for specified periods. The APY increases with the lock-up duration, reaching up to 25%.

The reward structure includes a 2% cap (2 million $AARNA) for the initial 3-month launch period to incentivize early participation, and a 10% cap (10 million $AARNA) for the following 24 months to encourage long-term commitment. This program is designed to boost protocol liquidity and support its long-term development and is already live from 21st September 2024. Learn more about the program here.

As DeFi evolves, finding consistent opportunities while managing risk is a growing challenge for users and investors. The âfi 802 vault, driven by the alpha 30/7 deep learning model, offers a refined approach to capturing alpha in the crypto markets. Free from emotional bias and speculation, it equips investors with data-driven insights to pursue stable returns. Enhanced by the âfi Timelock Rewards Program, this strategy provides investors with the means to optimize their gains, fully embracing a sophisticated and innovative path to DeFi investing.

aarnâ has built the next generation decentralized asset management stack to help high va,ue users manage theor digital asstes lifecycle. âfi802 is aarnâ’s first offering and is DeFi’s first AI quant tokenized structured product. This vault is capped at $10mn and is completely designed on a DeFi architecture and is decentralized with even participative governance via all depositors. This is the route that DeFi asset management will evolve further on with the convergence of AI and tokenization in a decentralized framework.

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Gain an edge in DeFi alpha with aarnâ’s AI-driven insights and DeFi vaults. Join the âfi waitlist for exclusive early access.