Introducing MERLIN, the DeFi Smart Wallet Powered by VALK
What VALK is looking into
In the last two years, we have noticed that digital assets are maturing and getting more recognition in the industry. Digital exchanges (with which we have integrated) will open soon giving our users extra reasons to be connected on the blockchain. Wider opportunities also lie on Ethereum and other Layer 1s in the decentralized finance (DeFi) market, which has a total value locked of $250bn.
The huge rise in the popularity of DeFi has resulted in many of our clients itching to get involved within the sphere, asking for solutions such as accessing the liquidity available from DeFi pools to finance their fund’s strategies, and proposing ideas to structure real financial products and finance them through DeFi liquidity. This trend is only the beginning of what is to come, and VALK aims to be at the forefront of bridging traditional finance (TradFi) with DeFi, not least for our clients’ wishes, but to enable a transparent environment to ensure access to innovative financial products for all. Moreover, we have secured a place in the prestigious FCA regulatory sandbox for 2021.
How will MERLIN will solve portfolio reporting challenges in DeFi?
One main obstacle that is preventing institutional access to DeFi is difficulty in managing portfolios across multiple protocols. Currently, when investing in DeFi protocols, a user finds it hard to track any profit/loss they make compared to their initial investment. Platforms like Aave only show the net worth of the user’s portfolio or a breakdown per currency and the value that is displayed is equivalent to their aToken. As for Compound when supplying a currency a cToken is received by the user and the price of this cToken increases with each new block. However, when the investment is made into a non-stablecoin, 2 variables come into play: the yield received in the token (e.g. ETH) that is invested and the token’s price compared to the USD.
For example, a user deposits 1 ETH into a lending protocol, with the ETH price at $3000 and yield at 1%. After a year the user should have an equivalent of 1.01 ETH, but if the price of ETH decreases to $2500 it would show as a loss in USD but gain in ETH.
In order to solve this tracking problem, VALK presents MERLIN, a DeFi smart wallet that allows investors to monitor their DeFi positions. Integrated with protocols such as Compound and Aave, the user connects their wallet using Metamask or just by pasting their address.
MERLIN extracts all the transactions related to one wallet, retrieves the position of each digital asset deployed across DeFi protocols and calculates the positions (vs USD or other currency) plus yield generated. Other information from DeFi protocols such as assets held, yield earned (daily) and portfolio value will also be provided. MERLIN’s calculation engine will spot the date on which the user deposited the crypto, the price of the Token at the time of deposit and the current price of the Token. This will show the portfolio balance as well as the gain/loss (gas fees are also included into the calculation).
The user is able to view their holdings, as well as their current PNL (total and daily). As can be shown below, the dashboard presents an easy to digest description of the investor’s performance, displaying total holdings (in USD and asset value), as well as total profit/loss.
There is also a clear breakdown of individual assets and positions held on each asset, and further analysis on a transaction by transaction basis.
This form of reporting is rare in DeFi and yet essential for many investors that require information such as NAV, daily profit/loss, total borrowed and more on a daily basis.