Launched on Ethereum Mainnet in spring 2022, Spool Protocol is a decentralized middleware to create custom, diversified, and automated DeFi strategies. I commonly use the term “1-click DeFi” to describe Spool, given it offers vaults (aka spools) similar to the popular protocol Yearn Finance. In DeFi, we often require multiple transactions to execute even the simplest of strategies, but in order to truly democratize finance, DeFi developers have worked to further automate these strategies into vaults, which pool deposits and automate yield-earning strategies. One of the earliest and most popular Yearn vaults deposited stablecoins into Curve liquidity pools, staked the LP, and auto-harvested the CRV rewards, which were sold for more stablecoins and redeposited into the Curve pool.
Spool offers a custom vault creator which allows users to select multiple strategies from a list of supported protocols, with a risk model to assign risk scores, and then set their risk appetite on a scale ranging from 0 to 10. Spool Protocol then deploys a smart contract that represents the strategies the user has chosen. Spool Protocol regularly rebalances portfolios while adhering to individual terms to ensure each individual Spool is optimized at all times in terms of risk-adjusted yield.
On February 28, 2023, Spool expanded its support from Ethereum Mainnet to the popular DeFi L2, Arbitrum! Spool is expected to benefit from the lower transaction fees on Arbitrum, offering users easier access to Spool strategies.
Today, I’ll show how to enter a spool on Arbitrum to earn stablecoin yield.
How to Earn Stablecoin Real Yields Up to 9% APY with Spool on Arbitrum
Before we get started, please be aware of these risks.
- Smart contract risk in Spool Protocol
- Systemic risk in DeFi composability
- Stablecoins are capable of depegging
- Front-end spoof attack on the Spool app
- Admin key risk
- Governance attacks on SPOOL
Here’s how I get started!
1. First, I go to the Spool app, connect my wallet, and be sure Arbitrum is chosen from the dropdown menu for network. From here, I can go about ranking spools (aka vaults) by APY, TVR, Risk Model, Asset, and Risk Appetite. Because these strategies are currently based off real yield, not SPOOL rewards, I can assume for nearly all vaults that the yield should be more sustainable and not diluted as more participants deposit into the spool (the way an LP yield gets diluted in other yield farms).
2. I choose the Hawk Stable Spool because I am seeking a more risk-on strategy with maximum yield, which in this case only uses Abracadabra (which is a high-risk DeFi protocol given its history). The listing shows the stablecoin APY = 9.74% but it’s 8.67% APY after fees are deducted (1% Spool Creator Performance Fee + 10% Spool DAO Performance Fee).
3. Lastly, I follow the prompts to specify how much USDC to deposit and click Approve USDC + Deposit (2 transactions).
That’s it! I’m passively earning a more sustainable real yield with stablecoins on Arbitrum.
For more DeFi video tutorials, podcasts, and insights, follow me @DeFi_Dad on Twitter and subscribe to my YouTube channel, my new podcast The Edge, and The DeFi Podcast with DeFi Dad at defidad.com. If you’re a crypto builder raising…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
