Sommelier: Introducing the Dream of DeFi

Decentralized finance (DeFi) has exploded recently, and Sommelier wants to give everyone easy access to emerging financial crypto products and services. Investors often look to make returns on DeFi products, but high gas fees make it extremely difficult to turn a profit when trading with a low amount. This, coupled with a lackluster user experience and a steep learning curve, means many potential users who like cryptocurrency stay away from DeFi services.

Sommelier seeks to become the easy-to-use and profitable DeFi solution that allows users to generate maximum yield without worrying about the complexities of AMMs and decentralized finance applications. Using the Cosmos ecosystem, Sommelier has built a coprocessor for the Ethereum Blockchain, thus making it possible to build automated asset trading systems that execute complex trading strategies across multiple blockchains.

By removing the complexity in the DeFi space, Sommelier is changing how we interact with DeFi. It is one of the few projects focusing on decentralized, automated DeFi trading, which we desperately need right now.

Let’s take a deep dive into the Sommelier ecosystem.

What Is the Sommelier Blockchain?

Co-founded by Zaki Manian, Sommelier is a reimagined gateway into interchain DeFi. It is a DeFi blockchain protocol built on the Cosmos SDK and a bi-directional Ethereum bridge. The bridge connects the Cosmos-based platform to Ethereum and Sommelier networks, and by doing so, Sommelier allows retail investors to execute DeFi investment strategies across multiple blockchains. 

Crucially, Sommelier enables users to execute dynamic investment strategy vehicles called Cellars. A Cellar utilizes machine learning to move assets dynamically between several stablecoin lending positions, allowing users to trade the same token across blockchains simultaneously. 

Cellars are community-governed, meaning community members will have control over significant features of the investment strategy. Members will vote for the launch of Cellars and major modifications to Cellars, such as adding new investment positions or replacing a data provider for a Cellar.

The first Cellar to debut on the Sommelier platform is based on Aave. The Aave Cellar optimizes a lending position on Aave to earn interest for users based on factors such as the best-performing stablecoin, the highest interest rates, the highest liquidity mining incentives, and others. 

Cellars and Roles on Sommelier

Cellars are DeFi investment strategies powered by machine learning algorithms to manage and execute user portfolio instructions. They are built to execute strategies based on various inputs—a unique advantage that existing static vaults cannot offer investors. 

Since Cellar is an actively managed crypto asset portfolio, users only need to add liquidity to a Cellar of their choice to commence trading. However, if you’re unsure how to use a smart contract to provide liquidity, Sommelier has made it simpler to access the Cellar investment strategies. All you have to do is hold a token (Strategy Tokens). These tokens can be obtained on the most popular decentralized exchanges like Uniswap. You can also buy Strategy Tokens from the platform by depositing liquidity to strategies via Cellars. 

These are two different options:

• You can provide liquidity directly into a Сellar manually (you don’t need strategy tokens then).
• You can go to Uniswap and buy Strategy Tokens from a Cellar of your choice.

Those two options are equal and interchangeable, so when you’re ready to exit, all you have to do is sell the tokens. Sommelier users have different roles and opportunities to earn within the network:

• Cellar Liquidity Providers: Users deposit funds into Cellars to earn a profit. Liquidity providers don’t need to have any connection with the Sommelier chain. They are simply users with an Ethereum wallet who want to deposit a stablecoin in a Cellar strategy to gain profit.
• Cellar Creators: Anyone with an investment strategy that they believe can generate better returns for Sommelier users can apply for consideration through their website. If successful, the Cellar will be accepted by governance and integrated into the Sommelier chain. In return, the Cellar creators earn a management or performance fee they set for the Cellar. 
• Validators: Validators operate the Cosmos SDK-based nodes required to process Sommelier transactions. More importantly, validators must connect directly to strategy providers to process cross-chain transactions. Validators earn a percentage of staking rewards.
• Stakers: Stakers delegate their SOMM tokens to validators to secure the network. Stakers receive staking rewards proportional to their delegation. Staking SOMM tokens also allow you to participate in governance, including voting on any changes in Cellars.
• Strategy Providers: This role is normally left to finance and data science teams. Strategy providers are responsible for providing instructions for a Cellar to execute. They submit the commands to validators, who execute a strategy for a particular Cellar. Strategy providers earn a management fee for their services.

What Are the Sommelier Benefits and Features?

• Sommelier’s main advantage is streamlining the trading process for retail investors, providing an automated DeFi portfolio management tool for executing trades across blockchains. Moreover, automated DeFi trading enables maximum yield generation and high liquidity momentum since it rebalances the portfolio and prevents impermanent loss.
• Sommelier’s unique architecture allows it to input data from off-chain models. Not only does this keep the strategy private, but it also allows a Cellar to be fed data from different data models that large CeFi hedge funds use to deliver investment strategies. 
• Ethereum transactions are managed by a bridge optimized to extend Ethereum features for users.
• Using the Cosmos SDK, Sommelier can offer a modular and robust protocol with Tendermint Consensus, a world-class, tested protocol layer. Using Cosmos allows fewer transactions to be performed on Ethereum, which keeps gas costs low. Also, it will support Polygon-based exchanges like Sushiswap.
• Sommelier is entirely secure since validators manage transactions through decentralized governance. As such, Sommelier cannot steal user funds, the network function is entirely responsive to user preferences, and the protocol remains censorship-resistant.

The Core Sommelier Features

Now let’s look at the core features that drive the Sommelier ecosystem.

The Cosmos SDK and Tendermint

The Cosmos SDK is a modular framework for building secure blockchain applications. The Cosmos SDK allows anyone to create and quickly deploy a module for Sommelier while the Tendermint BFT handles the networking and the consensus layers. 

Gravity Bridge

Sommelier also implements Gravity Bridge to broadcast the transactions to the Ethereum network and extends more features that are useful. Gravity Bridge passes only strategy instructions, not assets. 

The Internet of Blockchains (IBC)

The IBC protocol connects the different custom blockchains in the Cosmos ecosystem. It allows token transfers between any other chains running the IBC module. The IBC protocol enables Sommelier to communicate with other Cosmos SDK blockchains, including the Cosmos Hub, the Osmosis Zone, Terra Networks, and others, to source liquidity. 

Liquidity Oracle Data Feeds

Sommelier relies on validators to validate transactions and vote on data feeds that provide for rebalancing and reinvesting data for Cellars. Anyone may provide a data feed to any Sommelier Cellar, but it has to be approved by the governance community for inclusion on the platform. Sommelier is currently the sole provider of liquidity oracles to validators. The feeds are created based on machine learning analysis of top-performing pools on Uniswap V3. 

The Sommelier Allocation Module

Lastly, the allocation module enables collaboration between validator sets to evolve data models and cellar strategies without fault tolerance. The data science providers publish a new tick at regular intervals, to which the Cellar will rebalance and manage reinvestment of all fees. Once done, the validator sets will use those Sommelier oracle data feeds to vote and validate the rebalancing. A rebalance transaction will only occur if two-thirds plus one of all validators vote. 

Other important Sommelier features include:

• Each strategy portfolio (Cellar) is held in a non-custodial smart contract allowing users to add or remove capital they’ve deployed in Cellars at will. 
• Openness: It is relatively easy to launch as a Cellar in the Sommelier ecosystem (though you need a governance vote for your strategy to be listed on the platform).
• Staking: Sommelier uses revenue generated from Cellars to reward delegators. SOMM stakers can also participate in governance.