Bittensor Subnet 10: Sturdy

The Sturdy Subnet facilitates the development of decentralized, self-governing yield optimizers. These optimizers, governed by smart contracts, aim to maximize user returns by distributing assets across various strategies. Each yield optimizer within the Sturdy Subnet operates with a fixed selection of strategies, also known as “pools,” each offering its unique interest rate curve. Miners strive to devise algorithms that efficiently allocate assets among these pools to achieve optimal yields, while validators assess miners based on the returns generated by their allocations.

The subnet’s outcomes will be utilized by external applications to execute transactions involving real assets on the Ethereum network. The inaugural application utilizing the Sturdy Subnet is the Sturdy protocol, with additional applications anticipated in the future. Sturdy revolutionizes pooled lending with a decentralized approach, employing an innovative two-tier system. Here’s a breakdown of how it operates:

Tier 1: Segregated Lending Pairs

At the core of Sturdy’s system are siloed lending pairs, which function as individual lending markets. Each pair comprises a lending asset and a collateral asset, forming a closed ecosystem. For instance, one siloed lending pair might exclusively facilitate the lending and borrowing of USDC, with ETH designated as the sole collateral asset.

These siloed pairs operate independently, ensuring that users engaging with one pair remain insulated from the activities of others. They are straightforward, immutable, and open for creation without requiring permissions, akin to Fraxlend. While the concept of silos is not groundbreaking and exists in current isolated lending protocols, Sturdy V2 introduces a novel approach to prevent liquidity fragmentation, which is addressed through the aggregation layer.

Tier 2: Aggregators

The second tier of Sturdy V2 comprises aggregators responsible for orchestrating fund movements across siloed lending pairs. Users lend their assets to a Yearn V3 lending optimizer, which then allocates these assets to approved siloed lending pairs. Each aggregator automatically distributes lent assets among these pairs to maximize yield, leveraging Sturdy’s Bittensor subnet to determine the optimal allocation strategy. By lending to the aggregator, users remain exposed solely to the collateral types they have chosen, with no risk exposure to other pairs or collateral assets.

Sovereign risk management

Traditional lending protocols typically offer a single set of assets for lending, borrowing, or collateralizing, resulting in a uniform risk and yield for all users. However, DeFi users exhibit diverse risk tolerances, with many preferring either higher risk for greater rewards or vice versa. Until now, accommodating multiple risk profiles within a single lending protocol has been unfeasible.

Sturdy disrupts this paradigm by empowering users to select aggregators that align with their risk-reward preferences and choose which lending silos they feel comfortable participating in. Should an aggregator fitting their risk-reward profile be unavailable, users have the option to create one themselves.

Permissionless and adaptable

In contrast to other lending protocols, which require assets to undergo DAO governance for support, Sturdy offers a permissionless deployment process for any asset pair. This eliminates the lengthy and restrictive governance process, allowing users to engage with a broader range of assets beyond the largest and most recognized ones. Additionally, Sturdy sets no stringent requirements for asset consideration, such as needing a Chainlink oracle.

Isolated lending without liquidity fragmentation

While some projects have attempted to address the inflexibility of permissioned pooled lending by segregating risk through separate pools, this approach has drawbacks. Users must actively manage their positions to optimize yield as pool rates fluctuate, and bootstrapping new pools faces challenges with low initial liquidity. Sturdy V2’s aggregators resolve these issues by facilitating the easy establishment of liquidity for new silos through whitelisting within existing aggregators. This ensures immediate deep liquidity upon silo deployment and greatly enhances the lender experience, allowing users to deposit with an aggregator instead of managing multiple positions separately.

Decentralized and automated

Sturdy’s aggregators utilize the Sturdy Bittensor subnet to calculate allocations among whitelisted lending pairs. This eliminates the need for active position management or reliance on centralized entities, as Sturdy’s subnet incentivizes miners to discover allocations that yield optimal returns.

Role of Validators in Strategy Selection

Validators play a crucial role in selecting feasible strategies for aggregators, organizing both synthetic and organic queries to maintain a manageable and risk-controlled environment. The validation process creates a balanced selection by limiting the number of potential investments and focusing on profitable and sustainable opportunities.

Validators oversee the dissemination of pool lists, which include essential parameters such as the base interest rate, base interest rate slope, minimum borrow amount, etc. Additionally, validators set a maximum token balance that miners can allocate to pools.

Validators have the option to operate an API server and monetize their bandwidth by allowing external users to send their own pool configurations to the subnet. Upon receiving these pool configurations from validators, miners are tasked with allocating the total assets across the specified pools, aiming to maximize their yield.

After generating allocations, miners submit their outputs to validators for scoring. Validators conduct simulations to simulate borrowing behavior over a set number of timesteps. Miner scores are determined based on their relative aggregate yields over these simulated timesteps and their response latency. The scoring algorithm places 80% weight on yield performance and 20% weight on latency.

Mining Impact and Synthetic Queries

Miners get to witness the real impact of their mining activities when they see transactions involving millions of dollars, creating a sense of accomplishment and importance. Synthetic queries serve as a tool to ensure miners maintain high scores by simulating scenarios for effective algorithm validation. The goal is to refine miners’ algorithms, ensuring a robust system for handling both synthetic and organic queries efficiently.

Subnet Participation and Registration Cost

The subnet has experienced high registration costs since its launch, indicating significant demand even during low emissions. Despite the challenges in securing a slot due to high demand, the subnet has seen a positive response from miners, with expectations of increased participation as more applications join.