> ## Documentation Index
> Fetch the complete documentation index at: https://docs.sproutfi.xyz/llms.txt
> Use this file to discover all available pages before exploring further.

# Protocols & Yield Sources

> Where yields come from and how we select protocols

Sprout allocates your funds across vetted DeFi protocols to generate risk-adjusted yields.

## Current Protocol Partners

### Resolv RLP

* **Type**: Stablecoin yield protocol
* **Network**: Multiple chains
* **Strategy**: Delta-neutral strategies for stable returns
* **Risk Profile**: Conservative to Moderate

### Edgex eLP

* **Type**: Liquidity provision
* **Network**: Multiple chains
* **Strategy**: Perpetual protocol liquidity provision
* **Risk Profile**: Moderate to Opportunistic
* **Note**: 3-day lock period on initial deposit

### Hyperliquid HLP

* **Type**: Liquidity provision
* **Network**: Hyperliquid L1
* **Strategy**: DEX liquidity provision earning fees
* **Risk Profile**: Moderate to Opportunistic
* **Note**: 3-day lock period on initial deposit

### Gauntlet USD Alpha (Base)

* **Type**: Optimized lending strategy
* **Network**: Base
* **Strategy**: Algorithmic yield optimization across lending markets
* **Risk Profile**: Conservative to Moderate

### Aave

* **Type**: Lending protocol
* **Network**: Multiple chains
* **Strategy**: Supply stablecoins to earn lending interest
* **Risk Profile**: Conservative

### Morpho

* **Type**: Optimized lending
* **Network**: Ethereum, Base
* **Strategy**: Peer-to-peer lending with improved rates
* **Risk Profile**: Conservative to Moderate

### Jupiter Lend

* **Type**: Lending protocol
* **Network**: Solana
* **Strategy**: Supply stablecoins for lending yield
* **Risk Profile**: Conservative to Moderate

### Kamino

* **Type**: Automated liquidity management
* **Network**: Solana
* **Strategy**: Concentrated liquidity optimization
* **Risk Profile**: Moderate

### Ethereal Delta Neutral

* Type: Delta-neutral perpetual futures strategy
* Network: Ethereal L3
* Strategy: Hedged positions capturing USDe trading rewards
* Risk Profile: Moderate-High

## How Sprout Selects Protocols

We don't chase the highest APY. We prioritize safety, sustainability, and risk-adjusted returns.

### Due Diligence Process

Every protocol undergoes comprehensive evaluation:

#### 1. Business Perspective

* **Team Track Record**: Proven founders and builders
* **Financial Health**: Protocol revenue, TVL trends, sustainability
* **Governance**: Decentralization, upgrade processes
* **Reputation**: Community standing, past incidents

#### 2. Technical Perspective

* **Smart Contract Audits**: Multiple audits from reputable firms
* **Code Quality**: Open source, well-documented, maintained
* **Security History**: Past exploits, response to incidents
* **Upgrade Mechanisms**: Timelock controls, multisig requirements

#### 3. On-Chain Monitoring

* **Liquidity Depth**: Sufficient liquidity for allocations and exits
* **Activity Levels**: Consistent usage and volume
* **Collateralization**: Over-collateralization ratios for lending
* **Market Conditions**: Real-time risk signals

### Continuous Monitoring

Protocol selection isn't a one-time decision. We continuously monitor:

* **Daily**: On-chain liquidity, smart contract activity
* **Weekly**: Performance metrics, risk indicators
* **Monthly**: Business fundamentals, competitive landscape
* **Ongoing**: Security alerts, governance changes

### When We Remove Protocols

We immediately rebalance away from protocols if:

* Security vulnerabilities discovered
* Significant liquidity drainage
* Governance concerns emerge
* Risk parameters deteriorate
* Better alternatives become available

## How Yields Are Generated

### Lending Yields

Protocols like Aave, Morpho, and Jupiter generate yields by:

1. You supply USDC to the protocol
2. Borrowers pay interest to borrow your USDC
3. Interest is distributed to suppliers (you)
4. Rates fluctuate based on supply/demand

**Typical APY**: 5-15%

### Liquidity Provision

Protocols like Hyperliquid, Edgex, and Kamino generate yields by:

1. You provide liquidity to trading pools
2. Traders pay fees when they trade
3. Fees are distributed to liquidity providers (you)
4. Some pools include additional incentives

**Typical APY**: 10-25%

### Delta-Neutral Strategies

Protocols like Resolv and Gauntlet generate yields by:

1. Complex strategies that earn funding rates
2. Hedged positions to minimize market exposure
3. Automated rebalancing to maintain neutrality
4. Consistent returns regardless of market direction

**Typical APY**: 8-18%

## Protocol Allocation Strategy

### How We Allocate Across Profiles

**Steady Profile (0-40)**:

* **70-80%**: Conservative lending (Aave, Morpho)
* **20-30%**: Stable delta-neutral (Resolv, Gauntlet)
* **0-10%**: Opportunistic (only during low-volatility periods)

**Balanced Profile (40-75)**:

* **40-50%**: Conservative lending
* **30-40%**: Delta-neutral strategies
* **20-30%**: Liquidity provision (Hyperliquid, Edgex, Kamino)

**Opportunistic Profile (75-100)**:

* **20-30%**: Conservative lending (stability base)
* **30-40%**: Delta-neutral strategies
* **40-50%**: Liquidity provision (maximum yield optimization)

<Note>
  These allocations adjust dynamically based on market conditions.
</Note>

## Multi-Chain Diversification

Sprout diversifies across multiple blockchains to reduce risk:

**Current Chains**:

* **Base**: Primary network for deposits, Gauntlet, Aave, Morpho
* **Ethereum**: Morpho, Aave
* **Solana**: Jupiter, Kamino
* **Hyperliquid L1**: Hyperliquid HLP
* **Additional L2s**: Edgex, Resolv, Ethereal

**Why multi-chain**:

* Reduces single-chain risk
* Access to best yields across ecosystems
* Portfolio resilience during network issues

## Risk Disclosures

### Protocol Risks

Even with thorough due diligence, DeFi protocols carry inherent risks:

**Smart Contract Risk**: Bugs or exploits could affect protocol funds\
**Depeg Risk**: Stablecoins could temporarily or permanently lose peg\
**Liquidity Risk**: Extreme market conditions could affect withdrawals\
**Governance Risk**: Protocol changes could negatively impact yields\
**Oracle Risk**: Price feed manipulation could affect lending protocols

### How Sprout Mitigates Risk

* **Diversification**: Never allocate >30% to any single protocol
* **Real-time Monitoring**: Automated alerts for risk signals
* **Emergency Response**: Immediate rebalancing capabilities
* **Conservative Approach**: Prioritize safety over maximum APY
* **Continuous Due Diligence**: Ongoing evaluation and monitoring