DeFi Strategies Get a Multichain Boost From Sommelier and Axelar

In the culinary world, a sommelier is a trained and knowledgeable professional, adept in food and wine pairing. In the interchain landscape, asset management protocol Sommelier mixes and matches DeFi yield opportunities selected by independent strategists.

The Cosmos-based chain launched its first “intelligent DeFi vaults” on Ethereum mainnet in January, and has since grown its total value locked (TVL) from about $1.4 million to $16.7 million. 

Now, thanks to Axelar’s implementation of general message passing (GMP), Sommelier is expanding to additional EVM-compatible chains, starting with layer-2 rollup, Arbitrum One.

Sommelier took two years to build, co-founder Zaki Manian told Blockworks in an interview. But with the advent of Axelar, if they were starting from scratch today, it could be done in 60 days, Manian said.

“The combination of the two is immensely powerful,” Manian said. “What Axelar has done is establish a transport system.” It brings the same level of composability as found natively in the Cosmos tech stack to other EVM-based layer-1 chains and rollups.

Axelar’s GMP for Cosmos recently went live on mainnet, and this will be its first production use once Sommelier’s Arbitrum vault launches.

“I think the [layer-1] war is going to start coming to an end soon,” said Manian. When decentralized application layers all fit together, “we’re gonna build amazing user experiences that are really able to onboard at a mass scale,” he said.

For instance, the protocol’s two main vault strategies — Real Yield USD and Real Yield ETH, which account for 97% of its TVL — couldn’t exist without the mechanisms of the Cosmos SDK. Non-custodial depositors on Ethereum mainnet are able to deploy capital into vaults managed by Sommelier’s strategists, approved by holders of its native token SOMM on its Cosmos chain.

But Ethereum mainnet — due to gas costs and performance constraints — lacks financial primitives, such as derivatives, that are enabled by other chains, including Arbitrum. The Axelar tie-up gives strategies access to Arbitrum dapps, while offloading the cross-chain infrastructure requirements to Axelar’s validators.

“Everything you can build with the Cosmos SDK is now going to be a lot more interoperable with Ethereum and other layer-1s that have EVM-support,” Axelar’s co-founder and engineering lead Sergey Gorbunov told Blockworks.

Previously, Sommelier would have had to run nodes, not only on Ethereum, but on any additional chains where it wants to offer its vaults. But now Axelar becomes a single point of contact for its future expansion.

“The Axelar network has been designed to support that type of activity on the economic side, on the incentive side,” Gorbunov said.

What are the risks?

Sommelier vaults on Arbitrum naturally will introduce some new trust assumptions and commensurate risks.

As before, users of its DeFi strategies have to trust SOMM validators to behave correctly, but now must trust the design of Axelar’s GMP and its validators as well. However, Manian said, “we have designed our smart contracts on Sommelier to make it so it would be difficult for validators to steal funds, even if Sommelier or Axelar is compromised.

There are also inherent risks of transacting on EVM alternatives, such as Arbitrum, including the need to trust its centralized sequencer. These scaling solutions are still comparatively new, and there could be flaws or bugs yet to be revealed, Manian said.

“There is a reason why 95% of the Defi TVL is on Ethereum, but there’s so many exciting applications being built on L-2s like derivatives that are very exciting for strategies that it’s impossible for us to ignore the possibilities,” he said.

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