AMA Highlights: APYSwap

By Gabriel Tan, Analyst.
March 26, 2021–10 min read.

On Tuesday 23 March, we welcomed Andriy Velykyy from APYSwap into the Hillrise Capital Telegram Chat for a conversation about the unique concept of tokenizing yield.

APYSwap introduces a new framework for the trustless trading of tokenized yields and furthers the DeFi ecosystem through its layered product suite.

While layer-2 implementation is in the pipeline the project is already developing for Binance Smart Chain, Huobi ECO Chain and Polkadot.

The native token of the product ecosystem is called APYS. The token is planned to be used for governance, fee reduction (on withdrawal from Vaults), and for staking (to add new DeFi-assets to the ecosystem).

In this post, we have compiled key questions and answers from the event.

Daniel Dal Bello
Hi Andriy and welcome. It’s great to have you here today so we can shine some light on what you are working on with APYSwap.

Could you start us off with an introduction to yourself and likewise to APYSwap?

Andriy Velykyy
Hi. Thank you very much for inviting me, it’s my pleasure to be here.

I’m Andriy from APYSwap. A few words about myself: I have been working in IT since 2002, mostly building data centers, specializing in networking. I used to be Cisco Certified Network Professional.

In, 2006/2007 I finished Warwick Business School in the UK and switched from engineering to business development. I came into cryptocurrency in 2015 and started building mining farms. I also got some BTC and ETH which were really cheap back then. Unfortunately, most of my ETH was sold at $30.

I moved on to working on integrating crypto payments via point-of-sale devices, cybersecurity and non-custodial multi-chain crypto-wallets.

In 2020, I began work on APYSwap.

Daniel Dal Bello
So what motivated you to begin working on APYSwap then? Beginning in 2020, the DeFi Summer was in full swing by that point.

Andriy Velykyy
I started working on APYSwap because I personally needed a project like that. I thought that this was the best way to get product-market fit. While researching various DeFi projects and allocating my personal liquidity to them, I realized that there was no simple way to bring crowd intelligence to designing specific portfolios.

I’d love to have an opportunity to benefit people who put their time and effort into creating the most efficient portfolio available, following which I’d be able to buy a share of it. Essentially, I would be happy to have a portfolio of portfolios that maximize rewards and minimizes risks. My vision is that the APYSwap marketplace will allow users to do just that.

In essence, APYSwap is a protocol for decentralized cross-chain exchange of shares of Tokenized Vaults. It implements a delegation function for user assets and provides a marketplace for financial assets trading. APYSwap allows users on multiple blockchains (initially Ethereum, Heco and Binance Smart Chain) to create and control their native blockchain vaults and transfer the ownership to third parties. Users may also benefit from passive income without actively managing their portfolio.

The Alpha version is already available and the beta is coming in the next 10–14 days. I’m very careful about not mentioning the exact date because the vault contracts are currently being audited and the exact completion date is unknown.

Daniel Dal Bello
Can you explain how the tokenization will work with reference to the multi-chain component?

Andriy Velykyy
The underlying assets are first linked to the corresponding on-chain address. Let’s take Ethereum for example. Those assets are transferred to users by what we call a delegate address — an address that is tokenized and shared — so that the users can receive the appropriate percentage of the assets linked to it based on the shares they own.

Now, creating a marketplace for this is next to impossible on Ethereum due to costs and congestion. So what we are building right after we launch the beta is a platform that will operate on a sort of layer-2. The representation of those combined assets will be traded, yet be anchored to the original chains.

From a tech perspective on where this marketplace could operate, we’re first considering Polkadot’s Moonbeam parachain as the most cost effective way to run the Ethereum Virtual Machine (EVM). We are also looking into Solana right now. We’re having second thoughts on Polkadot as we’re unsure if they will even launch this year — and we do want to launch this year, hopefully by the 3rd quarter.

Furthermore, my partner, co-founder and CTO, works closely with the Solana core team and is very well familiar with this tech stack.

Daniel Dal Bello
I suppose you could think about Solana in the short-medium and Polkadot when it’s a feasible alternative?

Andriy Velykyy
Yes. I think that we will see Kusama’s testnet over the summer or autumn. There is indeed a chance that Polkadot launches this year, but to my knowledge, it’s pretty slim. Maybe you know something about that. If so, please share!

Before that, we will probably build on Solana. I don’t want my users to wait for almost a year before we launch.

Daniel Dal Bello
Continuing on with vaults, we imagine a scenario where there will be countless tokenized vaults created on the platform across a variety of risk/reward levels.

What do you envision for the user experience or user journey? How will UX be architected to draw in users, reduce churn and minimize any erroneous actions or mistakes on the user side?

Andriy Velykyy
The new UI is coming up real soon with the beta — hopefully, that’s coming this month. We’re really trying to make it user-friendly and will no doubt also get feedback from users for the design of the marketplace. Just like the feedback we got for the beta, we would make changes as needed before deployment.

In my opinion, the best way to provide good UI is to listen to the community.

Daniel Dal Bello
You mentioned some of the different networks for tokenization.

With those integrations across multiple layer-1 and layer-2 protocols scheduled, completing the development process must be extremely demanding. At the same time, each of these networks continue to evolve on their own.

How are you approaching such varied complexity and ongoing maintenance?

How big is your internal team and what is your strategy to keep up with the demands of Binance Smart Chain, Huobi Ecochain, Polkadot etc.?

Andriy Velykyy
Maintaining Ethereum, Heco and Binance Smart Chain should not really be a problem. From a tech perspective, they’re all pretty much the same. It gets trickier when we do Polkadot, Solana or even Tezos (my close friends work with Tezos and they are constantly asking me to build the bridge).

We are currently actively hiring developers. On top of that, we are working closely with the corresponding teams to keep up. We have 7 developers working on the project right now and I hope to increase that real soon.

Daniel Dal Bello
In a bull or bear market and with the long-term in mind, yields across DeFi protocols will no doubt begin to subside as incentive emissions begin to run out or protocols fall out of favor.

How do you think this will impact APYSwap’s growth and push to become a timeless DeFi ‘money lego’?

Andriy Velykyy
Some DeFi projects will obviously lose users over time, but some will gain. I don’t think DeFi is going anywhere now, just the business model will change. And I think that our advantage at APYSwap is that we aim to give our users complete freedom in terms of what assets they add to their portfolios. This is very different compared to the approach of something like Set Protocol, which acts as an index fund and is bound by its nature to the index structure.

Daniel Dal Bello
Governance follows an “Activity & Time Weighted Proof of Importance” model to determine the value of a vote. Firstly, can you explain this model?

Governance componentry has become the new hot “utility” over the past 6–8 months. What are the obvious benefits and also flaws of this model?

Last, have you seen any examples of this approach being successful in other projects?

Andriy Velykyy
I want my users and token holders to be really involved in the life of the platform. In this way, I can make sure that they are motivated and rewarded. Other than the usual use cases such as allowing users to determine the platform’s commissions, I have this whitelisting concept in mind which I would like to discuss now.

Portfolio managers are motivated to create the most efficient portfolios which they can sell at a premium price on the platform. This also means that they will inevitably look for new, higher-risk projects they would want to add to the portfolio. Of course, I cannot limit which projects are bound to a delegate address. That is simply not how the blockchain works.

What I can do instead, is determine which projects have been correctly evaluated on the platform. You can add what you want. However, to show the value of the portfolio before trading, you need to be whitelisted. How do you get whitelisted? By voting. Token holders are motivated to get the best possible and non-scam projects on the platform.

In short, this is the true governance that I’m speaking about. The users determine which projects are good for the platform and they use the platform’s governance tokens to share their opinion.

Daniel Dal Bello
When we talk about governance, we get into the territory of the token utility and reasons to be looking at APYS.

At the moment what are the direct value-accrual mechanisms for APYS token holders? Does the withdrawal fee accrue to token holders?

What other mechanisms can we expect for the future as reasons to be an APYS holder?

Andriy Velykyy
The first example is what I’ve just spoken about regarding governance. The second way is what I call a “used card case”. Let me explain. What happens when a trade is being processed on the platform? What is the price of the trade for the portfolio and how can we make sure that this price is valid. In my opinion, there are 3 ways to determine it:

  1. There is a free market where the seller is selecting the price to sell and the buyer decides whether this price is fair or not.
  2. Our platform itself would provide a valuation price for the portfolio based on its assets (has to be whitelisted).
  3. The buyer can ask a designated oracle within our platform to provide a third-party opinion on the current vault. That is what I personally call “buying a used car example”. The seller wants to sell you the car for the highest price possible and you typically don’t have the expertise to determine whether it is fair. This requires you to consult an expert and pay for his opinion. The same thing happens here (in APYSwap). For the designated oracle’s services, the buyer needs to stake APYS and the oracle receives them as remuneration for their services.

Daniel Dal Bello
So for the third option, what is the plan for that? How can a buyer query an oracle within the platform? Also, which oracle provider(s)?

Andriy Velykyy
Among the token holders, those who qualify and stake the most tokens will be selected and offered the option to become an oracle. More details on that will follow later. But I want to describe the concept in general.

  1. Why I say “those who hold the most”. This is based on the Proof of Stake concept, the more you hold, the more you stake. The more you stake, the more you are motivated to provide services that help the platform over harming it.
  2. When an oracle receives a request for review, he can accept or decline. If he accepts, he evaluates the portfolio and its underlying assets through research, following which he places a valuation on the portfolio. For that, he gets rewarded and the buyer gets a qualified, third-party opinion on the portfolio.

Daniel Dal Bello
What will the reward be and where will that come from?

Andriy Velykyy
We have reserves for social and liquidity mining. It only seems fair to me that users who provide the value to the platform benefit from that by earning more tokens. And in order to not put too much pressure on the token economy, users who need oracle resources would be required to stake their tokens.

You may ask, why don’t users simply pay with tokens for that and why does the whole process rely on staking instead of spending? It's simple: legal reasons.

Rowan Zwiers
Hi Andriy, you’ve forked MetaMask to create APYMask. This is an extremely unique and efficient move as compared to developing your own wallets. How will existing MetaMask users be impacted by this having to run both widgets?

Also, as MetaMask is continually updated by its core team with new features and vulnerabilities are patched, will APYSwap also be mirroring these updates on APYMask?

Andriy Velykyy
This is something we are currently discussing within our team now. Supporting such a fork is not an easy task in terms of allocating internal resources. We also don’t think that every user will need to use that.

My current vision is that we design the UI in a way that APYMask would only be needed in the process of portfolio creation. Regular users will have no need for it. In this manner, we can provide the functionality to create a delegated address, add assets there, relinquish control and tokenize it for further share distribution. Do note that all of this is still up for discussion.

Rowan Zwiers
You’ve got a few things on your roadmap leading towards Q4 this year. Is there anything new on your roadmap that you have yet to announce? What are you most excited about releasing this year product-wise?

Andriy Velykyy
For the roadmap.

  1. Late March/early April: beta, liquidity mining and new UI.
  2. Mid-April: fractional ownership of NFTs tech concept demo (while this was not originally part of the roadmap, I added it due to the possibility to use our tokenized vaults for that purpose and to capitalize on the growing interest in DeFi).
  3. Late April: marketplace design and UI.
  4. Mid-summer (hopefully): marketplace Alpha with a release toward autumn/winter.

Daniel Dal Bello
Last question. As APYSwap launches its product fully and begins to gain traction, competitors are sure to popup. What sort of moat do you envision APYSwap building and how will that be done?

Andriy Velykyy
Generally speaking, I think competition is good. If you have no competitors, your project is probably not needed. We have a unique vision on how to proceed and we are following it. We are differentiating ourselves from the current competitors.

If we see copycats in the future, we will still have a strong team, community and first-mover advantage. Furthermore, while competitors are copying our existing features, we are working on the new ones!

Hillrise Capital is an independent research and advisory firm exclusively focused on blockchain startups and crypto-assets.

APYSwap introduces a new framework for the trustless trading of tokenized yields and furthers the DeFi ecosystem through its layered product suite.

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We’re an independent research and advisory firm focused on blockchain startups and crypto-assets.

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