A new leveraged-yield strategy, powered by Compound Blue and Morpho, has been introduced in the DeFi scene using Apollo Credit Fund’s tokenized feeder fund ACRED.
Tokenized Apollo Credit Fund Makes DeFi Debut With Levered-Yield Strategy
The Apollo Diversified Credit Securitize Fund (ACRED), a tokenized feeder fund that debuted in January, is being used as the basis for a new leveraged-yield strategy. This strategy will be offered on Compound Blue, a lending protocol powered by Morpho.
The Power of Tokenization in DeFi
Tokenization firms like Securitize and decentralized finance specialists like Gauntlet are increasingly using tokenized assets in crypto-native applications. This is a notable step in embedding real-world assets into the crypto ecosystem. By doing so, they aim to make securities ‘plug and play’ competitive with stablecoin strategies writ large.
Leveraged RWA Strategy: A New DeFi Yield Approach
The introduction of the leveraged RWA strategy comes as tokenized RWAs — funds, bonds, credit products — gain traction among traditional finance giants. BlackRock, HSBC, and Franklin Templeton are among the firms exploring blockchain-based asset issuance and settlement.
This new strategy employs a DeFi-native yield-optimization technique called ‘looping’. In this approach, ACRED tokens deposited into a vault are used as collateral to borrow USDC, which is then used to purchase more ACRED. The process repeats recursively to enhance yield, with exposure adjusted dynamically based on real-time borrowing and lending rates.
DeFi-native yield optimization refers to the use of decentralized finance protocols and tools to maximize returns on investments.
This involves leveraging yield-boosting strategies, such as liquidity provision and yield farming, within DeFi ecosystems like Uniswap and Curve.
According to a report by DeFi Pulse, the total value locked in DeFi protocols has grown significantly since 2020, reaching $23 billion in April 2021.
By understanding how to optimize yields in DeFi, investors can tap into the vast potential of decentralized finance.
Automation and Risk Management
All trades in the strategy are automated using smart contracts, reducing the need for manual oversight. Risk is actively managed by Gauntlet‘s risk engine, which monitors leverage ratios and can unwind positions in volatile market conditions to protect users.
The vault is also one of the first uses of Securitize‘s new sToken tool, which allows accredited token holders to maintain compliance and investor protections within decentralized networks. In this case, ACRED investors first mint sACRED that they can use for broader DeFi strategies without breaking regulatory rules.
Institutional-Grade DeFi
The introduction of the leveraged RWA strategy is expected to deliver institutional-grade DeFi that meets the industry’s promise of accessible and compelling crypto-native investment options. By enabling investors in funds like ACRED to access financial composability, DeFi enables a unique use case for tokenized assets.
‘This is a strong example of the institutional-grade DeFi we’ve been working to build: making tokenized securities not only accessible, but compelling to crypto-native investors seeking strategies that objectively outpace their traditional counterparts,” Securitize CEO Carlos Domingo said in a statement.
