Introduction

Seven Seas is proposing the first Sommelier Cellar: The Aave Stablecoin Cellar.

What are Cellars?

Sommelier cellars provide the functionality to execute strategies more sophisticated and complex than was previously possible in DeFi. At a high level, a strategy is executed through the Sommelier protocol using two “entities”: a strategy provider and a cellar contract.

The strategy provider sends action-recommendations through Sommelier’s validator set to be executed on the cellar contract. The strategy provider has the freedom to leverage any type of off-chain computation to arrive at these strategy recommendations. The only constraint is that the recommended actions are within the parameters of what the cellar contract allows.

Cellar design is itself an art - too much functionality opens the door to security vulnerabilities (e.g. strategy providers misbehaving), and too little functionality limits the flexibility of the type of strategies that can be run on the cellar.

The goal of this blog post is two-fold:

1. Provide a technical overview of the Aave stablecoin strategy that Sommelier will be launching as the first Cellar.
2. Provide relevant details to accompany the Aave Cellar proposal (while hopefully establishing a set of precedents for future cellar proposals to follow)

What does a Cellar Proposal consist of?

One focus of this blog post is to describe baseline standards that the community should expect regarding new strategy / cellar proposals. We will discuss the various components that a prospective strategy provider should consider before making a governance proposal proposing a new strategy, and we demonstrate these considerations concretely using the Aave Stablecoin Cellar.

The first question a cellar proposal should answer is: why is this strategy worth running? While this is a holistic question, there are several ways to answer quantitatively. In particular, we can leverage historical data to assess the performance of the proposed cellar. We refer to this process - of using historical data to assess a strategy - as “backtesting.”

Roughly, a cellar proposal should detail two distinct but related aspects of the strategy:

1. The strategy itself - this is the off-chain decision making engine that strategy providers are running.
2. The cellar contract - this is the on-chain code that executes actions that on behalf of the strategy provider.

Some questions that we considered in devising the Aave strategy are the following: