Tempus x Sherlock: Comprehensive Coverage for Fixed-Rate Yield Optimization

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February 14th, 2022

Sherlock is excited to announce its latest $10M partnership with Tempus to provide smart contract coverage for all Tempus users, regardless of when a user has deposited funds.

Sherlock has been working closely with the team at Tempus to provide a comprehensive solution which will allow users to more safely interact with its platform, while their core team continues to provide innovative solutions to the fixed-rate space.

Tempus prioritizes the security of their users' funds, and as a result has purchased coverage through Sherlock. In addition to $10M of smart contract coverage, Tempus received a vulnerability assessment from Sherlock’s team of security experts, focused on identifying any critical exploits in the Tempus smart contracts.

Driven by Sherlock’s view that bug bounties are a critical component to a comprehensive security solution, Sherlock will also implement a $1M bug bounty on Tempus contracts through Immunefi. As Tempus expands its reach with users, Sherlock is committed to growing the size of its smart contract coverage and bug bounty in tandem.

Sherlock is an all-in-one security solution for protocol teams to securely launch decentralized apps, helping teams get back to building and allowing users to sleep easier knowing there is recourse in the event of a hack.

Tempus is a DeFi multi-chain fixed income protocol. Tempus integrates with lending protocols, staking protocols, and yield aggregators, and lets users fix or speculate on the yield generated by them.

Tempus’ Security Practices

Sherlock’s partnership with Tempus is exciting because Tempus is committed to prioritizing the approaches to security that Sherlock looks for when deciding to cover protocols. The Tempus team diligently worked with its auditors and Sherlock’s security experts to identify modifications to improve its security posture, and Sherlock is confident in Tempus’ roadmap to deliver valuable products to its users in a safe manner. This is the ideal setup for Sherlock to grow a sustainable partnership with their team for years to come.

The steps taken to secure Tempus include:

  • Audits from Coinspect, Code4rena, and Sherlock’s security team
  • $1M Immunefi bug bounty provided by Sherlock
  • Development best practices in test coverage, peer reviews, code complexity, and oracle composability
  • Close collaboration with Sherlock ahead of new integrations to ensure each rollout has been properly reviewed
  • $10M in smart contract coverage at launch, with room to grow with Tempus’ TVL

While Sherlock is excited about the security approach taken by the Tempus team, we’re even more excited about what the Tempus AMM seeks to deliver.

Capital-efficient fixed-rate yields

In financial markets, interest rates are composed of fixed rates and variable rates. Given the oscillations in crypto markets, having the ability to optimize your exposure based on your outlook and risk tolerance through fixed yields is an important innovation for DeFi users.

For example, lenders and stakers in various protocols may hedge themselves from the risk of falling interest rates and staking rewards through the use of fixed yield products. Conversely though, yield seeking investors may be willing to trade some portion of certainty in their principal asset for higher exposure to the underlying yield in the asset class. Consequently, having a system for users to evaluate their risk and build a related strategy is valuable to the future of DeFi.

Tempus has designed a process for users to deposit their yield-bearing tokens (e.g. Lido staked ETH, aTokens, or cTokens), and split them into an equal amount of two new primitives, Capitals and Yields. This process allows users to trade those primitives against each other to optimize their risk profile, all while never locking your tokens. This allows users to withdraw their yield-bearing tokens before the maturity of the contracts.

Tempus’ new approach to optimize a user’s existing exposure to variable yield typically takes three forms:

  1. Allow users to earn a fixed yield on yield-bearing tokens - primarily through swapping Yields for Capitals
  2. Enable users to earn yield by depositing their yield-bearing tokens and contributing to the various liquidity pools that are available on the platform
  3. Provide a mechanism for users to speculate and leverage up on future yield - primarily through swapping Capitals for Yields

An AMM for Yield Optimization

In order to provide the best fixed-rate user experience, Tempus built a custom AMM to simplify the process and take into account the unique properties associated with the new Capital and Yield primitives.

The AMM is designed to optimize for two key properties:

  1. If far from maturity, the market should drive the price between Capitals and Yields.
  2. If a market is approaching the Maturity Date, trades should be less sensitive of balances in the pool and closer to the actual yield being accrued.

To solve this, Tempus identified a specific parameter to adjust over time to change the price curve and provide users with the ability to get a fixed yield through the click of a button. This parameter is amplification - if it has a small value, the AMM will trade like a constant product market maker, while a bigger value, closer to or at 100, will drive the AMM to trade more like a constant sum market maker.

These highlights are just the start of Tempus’ innovative approach to the fixed-rate market. Sherlock couldn’t be more excited to be closely partnered with the Tempus team on this journey to lead in this market, all while developing securely.

Keep up with Tempus:

Keep up with Sherlock:

  • Follow along and get involved on Twitter and Discord
  • See how Sherlock works
  • Keep an eye out for the V2 early this year!
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