The DeFi landscape is rapidly becoming more complex, and in terms of products and structure is becoming similar to the TradFi ecosystem, only built on fundamentally different rails: transparency, control of your funds, and privacy (yeah, recent OG Politicians’ actions suck).

However, the DeFi ecosystem is still at the very early stages (like a 4-year-old kid) and some parts are still missing. One of these missing (or rather say, almost missing) parts is the analytical tools for DeFi space. Ofc you can say there is Dune and Nansen which is obviously can be used as BI solutions and Gauntlet for stress tests and simulations. But these tools can’t fill all the needs in DeFi analytics. Modeling and testing strategies are one of those places where analytic tools can be very useful.

Here at Mellow, we are building a platform that we hope can address this need and enable the creation of economically viable and validated asset management strategies. We already use this tool ourselves to research market structure and look for highly profitable strategies. But Web3 is about open solutions. So today we want to present you the Mellow SDK – an open-source (now!) solution for developing asset management strategies in DeFi. This SDK will allow to weigh the risk of strategies and their potential returns and, ultimately, allow for the creation of more structured products. And everyone will benefit from this – strategists, liquidity providers, and the entire market.

New Challenges

Blockchain systems are at the intersection of technology and finance. While we believe that blockchain technology opens up a new paradigm shift in the way people interact, we also believe that it creates a new set of challenges not found in traditional finance:

• Transaction costs (despite the fact that gas prices in 2022 fell compared to 2021, it is imperative to take into account gas costs and other losses when making transactions).
• In distributed and open networks, the behavior of the system and the experience of using the software is determined not only by the strategist. There are a lot of different effects that should be taken into account while building a strategy: other participants’ actions, hacker attacks, and market manipulations (JIT attacks, flash loan attacks, etc.)
• It is necessary to reproduce invariants and other algorithm parts that are often used in existing DeFi protocols (with the growth of Uniswap seems everyone knows x*y=k)

We at Mellow want to develop new standards that respond to these challenges and can form the basis for creating new and better strategies in DeFi.

Mellow SDK

Mellow SDK is an analytical tool that allows you to evaluate the profitability and risks of strategies based on historical data. The main focus of the Mellow SDK is functionality for working with DeFi tools, but it can also work with CeFi crypto services.

Using the Mellow SDK you can create your own algorithmic strategy for managing a portfolio that includes UniV3 positions, currency pairs, and deposits. The analysis tools implemented in the SDK allow you to calculate the performance metrics of your strategy and visualize them (for example, APY, impermanent loss, collected fees, portfolio value, etc.). Note that the framework is flexible for customization, you can add your own metric to the calculation.

The Mellow SDK allows you to use real UniswapV3 pool data from Mellow Open Data storage, generate synthetic data based on Geometric Brownian Motion, or use your Binance API to download data from Binance.

Use cases

In this section, we will consider 3 strategies that allow you to evaluate the capabilities of the platform:

• LP-ing to Uniswap V2
• Passive LP-ing to Uniswap V3
• Active LP-ing to Uniswap V3