Detailed Instructions

Begin by defining the strategy's core parameters. This includes the target asset (e.g., USDC, ETH), the desired risk-adjusted return, and the acceptable level of smart contract risk and impermanent loss. Determine the capital allocation size and the minimum acceptable yield differential that justifies a move, such as a 50 basis point (0.5%) spread after accounting for gas fees. Establish a clear rebalancing frequency (e.g., weekly, or triggered by a specific APY delta).

• Sub-step 1: Asset Selection: Choose a stable asset like USDC for lower volatility or a volatile asset like WETH for higher potential returns but greater risk.
• Sub-step 2: Risk Thresholds: Set maximum exposure limits per protocol (e.g., no more than 30% of capital in any single protocol) and define acceptable counterparties (e.g., Aave, Compound, Euler).
• Sub-step 3: Profitability Model: Create a simple model to calculate net profit, factoring in gas costs on the target network (e.g., 0.01 ETH on Ethereum mainnet).

Tip: Use a risk matrix to score protocols on criteria like TVL, audit history, and time-tested security.

Detailed Instructions

Implement a real-time data feed to monitor supply APY and borrow APY across selected protocols. This requires querying on-chain data via subgraphs or protocol APIs, and potentially using off-chain aggregators like DefiLlama. The key is to identify a positive yield spread where you can earn more by supplying to Protocol A than Protocol B. For example, if Aave offers 3.2% USDC supply APY and Compound offers 2.7%, the raw spread is 0.5%.

• Sub-step 1: Data Source Setup: Use a service like The Graph to query protocol metrics. Example query for Aave V3 USDC supply rate on Ethereum:

graphqlCopy
{
  reserve(id: "0xa0b86991c6218b36c1d19d4a2e9eb0ce3606eb48-0xa97684ead0e402dc232d5a977953df7ecbab3cdb") {
    symbol
    liquidityRate
  }
}

• Sub-step 2: Net Spread Calculation: Subtract gas cost (converted to an annualized percentage of your capital) from the raw yield spread to find the net actionable spread.
• Sub-step 3: Opportunity Alerting: Set up automated alerts when the net spread exceeds your predefined threshold (e.g., >0.3%).

Tip: Account for protocol-specific factors like reward tokens (e.g., COMP, AAVE) which can significantly impact the real yield.

Detailed Instructions

Execution involves a sequence of on-chain transactions. First, you must withdraw your assets from the current lending pool. Then, you deposit the assets into the new, higher-yielding pool. This must be done in a single atomic transaction or a tightly batched sequence to minimize price slippage and transaction risk. Use a smart contract wallet or a router contract for safety. Always verify the receipt token you receive (e.g., aUSDC, cUSDC).

• Sub-step 1: Withdraw Funds: Call the withdraw function on the current protocol. For Compound V2, the command is:

solidityCopy
CErc20(cTokenAddress).redeem(cTokenBalance);

• Sub-step 2: Approve New Protocol: Grant spending allowance to the new protocol's contract. For Aave V3 Pool:

solidityCopy
IERC20(USDC_ADDRESS).approve(POOL_ADDRESS, amount);

• Sub-step 3: Deposit Funds: Supply assets to the new pool. For Aave V3:

solidityCopy
IPool(POOL_ADDRESS).supply(USDC_ADDRESS, amount, YOUR_ADDRESS, 0);

Tip: Use a gas estimation tool and consider executing during periods of low network congestion to reduce costs.

Detailed Instructions

After execution, track key performance indicators (KPIs) to evaluate success. Calculate the actual net yield earned after all gas fees and compare it to the projected yield. Use a dashboard to monitor your positions' health across protocols, watching for utilization rate spikes or liquidity crunches that could affect withdrawals. Maintain a detailed log of all transactions, including hashes, timestamps, and gas used, for accounting and optimization.

• Sub-step 1: ROI Calculation: Compute return using the formula: (Interest Earned - Total Gas Costs) / Deployed Capital. Track this daily.
• Sub-step 2: Log Analysis: Regularly review transaction logs on Etherscan to confirm successful executions and identify any unexpected reverts or high gas costs.
• Sub-step 3: Parameter Refinement: Based on historical data, adjust your strategy. If gas fees are too high, you may need to increase your minimum yield threshold or explore Layer 2 solutions like Arbitrum or Optimism where protocols like Aave V3 are deployed.

Tip: Automate reporting using Dune Analytics dashboards or custom scripts to stream data into a spreadsheet or BI tool for trend analysis.

Detailed Instructions

Implement an off-chain data oracle or on-chain price feeds to track dynamic APYs. This involves querying the interest rate models of protocols like Aave, Compound, and Euler. The key is to calculate the net effective yield after accounting for gas costs and protocol-specific fees.

• Sub-step 1: Fetch Rates: Use a service like The Graph or direct contract calls to getReserveData() on Aave's LendingPool or getSupplyRate() on Compound's cToken contracts.
• Sub-step 2: Calculate Net Yield: Subtract estimated gas costs (e.g., 0.05 ETH for the full cycle) and any deposit/withdrawal fees (e.g., 0.1% on some platforms) from the gross APY.
• Sub-step 3: Trigger Condition: Set a yield threshold delta (e.g., 50 basis points) that must be exceeded to justify a reallocation transaction.

Tip: Use a keeper network or a scheduled task to run this discovery every block or at defined intervals to ensure rate data is fresh.

Detailed Instructions

Before moving funds, you must unwind your collateralized debt position (CDP) if applicable, or simply redeem your supplied tokens. This step requires interacting with the protocol's core smart contracts to convert interest-bearing tokens back to the underlying asset.

• Sub-step 1: Check Health Factor: If you have an open borrow position (e.g., on Aave), ensure your health factor is > 1 before initiating a withdrawal to avoid liquidation. You may need to repay debt first.
• Sub-step 2: Redeem Interest-Bearing Tokens: Call the redeem or withdraw function. For example, to withdraw USDC from Compound, you would call cUSDC.redeem(cUSDCBalance) where cUSDCBalance is the amount of cTokens you hold.
• Sub-step 3: Handle Accrued Interest: Ensure the contract call accounts for accrued interest since the last interaction, which is automatically calculated when you redeem.

Tip: Always perform a simulation (e.g., using Tenderly or a forked network) of the withdrawal transaction to verify the exact amount of underlying assets you will receive.

Detailed Instructions

Once you hold the base asset (e.g., USDC), you must move it and grant the new protocol's contracts permission to use it. This often involves a simple transfer, but may require a cross-chain bridge if protocols are on different Layer 1s or Layer 2s.

• Sub-step 1: Asset Transfer: If staying on the same chain, the asset is already in your wallet. For cross-chain moves, use a trusted bridge like Hop Protocol or a canonical bridge, invoking a function like sendToL2().
• Sub-step 2: Grant Token Approval: The new protocol's contract must be approved to pull your tokens. For example, to deposit into Aave's V3 on Ethereum, you must call USDC.approve(aaveV3PoolAddress, amount).
• Sub-step 3: Verify Allowance: Always check the existing allowance with USDC.allowance(yourAddress, protocolAddress) before sending an approval transaction to avoid unnecessary gas spend.

Tip: Use infinite approvals (e.g., type(uint256).max) for contracts you trust to save on gas for repeated operations, but be aware of the associated security trade-offs.

Detailed Instructions

The final step is to mint the new yield-bearing position on the higher-yielding protocol. This involves depositing the asset and, optionally, setting up a leveraged or collateralized position to maximize returns.

• Sub-step 1: Supply Assets: Call the deposit function on the new protocol. For Aave V3, this is supply(asset, amount, onBehalfOf, referralCode). Example: aavePool.supply(USDC_ADDRESS, 1000000000, yourAddress, 0) for 1000 USDC (with 6 decimals).
• Sub-step 2: Configure Collateral & Debt (Optional): If using leverage, enable the supplied asset as collateral via setUserUseReserveAsCollateral(), then borrow a different asset to re-deposit, creating a recursive lending loop.
• Sub-step 3: Set Up Automation: Register triggers for the next reallocation. This can be done by emitting an event that your keeper bot listens for, or setting a safety ceiling (e.g., a minimum health factor of 1.5) that triggers an unwind.

Tip: Always audit the reserve configuration (loan-to-value ratio, liquidation threshold) for your asset on the new protocol to understand the specific risks of your new position.