Following community conversation as well as discussion with the AAVE and C.R.E.A.M teams, the BarnBridge core team is considering the following distribution of weekly BOND rewards for upcoming SMART Yield integrations.
These subsidies would be voted in through two separate DAO votes, one following the deployment of the CREAM originator contracts, and the other following the deployment of the AAVE v2 contracts. Please note, development is still underway for AAVE Polygon; we are hopeful for a June deployment on that front.
The DAO vote for these aggregate sums of BOND will accommodate six months worth of distribution. However, this does not mean that the pools will necessarily run for that long. We are actively looking into how secondary markets for juniors could be bootstrapped, and it would be the case that these legacy staking pools and their rewards get rolled into that future mechanism; alternatively, the DAO can also vote to recalibrate rewards as deemed necessary.
This forum post will be up for 48 hours, at which point a SnapShot vote will be held to assess community sentiment for this distribution. Please share your concerns in this thread, and reach out to myself (Max Fiege in the Discord) as needed, prior to the SnapShot vote going live.
Successful passage of the two implied DAO votes would result in the creation of BOND reward pools for the junior tranches associated with aUSDC, aDAI, aUSDT, aGUSD, crUSDC, crDAI, and crUSDT. The reward sums described above, in addition to the existing 10,000 weekly subsidy for the junior cUSDC tranche, would amount to a combined 34,000 BOND per week. The weekly rewards associated with these pools can be adjusted at any point in the future at the DAO’s discretion.
Subsidizing junior SMART Yield tranches provides initial liquidity for senior tranches to be minted for each originator. Over time, originators can be weaned off of these junior subsidies as the fixed TVL in senior tranches essentially provides a floor for junior yields. This concept has drawn $80M in TVL to the cUSDC junior side, despite adverse market conditions for the underlying interest rate.
AAVE and CREAM present natural expansion opportunities for BarnBridge. AAVE is second only to MakerDAO among DeFi protocols in total TVL, has the leading Ethereum layer two lending platform on Polygon Network, and is making significant inroads with traditional financial institutions (see: FCA license). CREAM, while smaller than either Compound or AAVE, provides a source of idiosyncratic rates for stablecoins and recently had its smart contracts audited; moreover, rewards could aid in BOND receiving a collateral factor on their platform.
The moving parts associated with this proposal would involve
- Migration of an aggregate sum of BOND to the CommunityVault smart contract within our DAO architecture
- Deployment of smart contracts for each originator’s rewards pool
- Appropriate seeding of each rewards pool
As stated previously, these BOND tokens are liquid and can be recalled or augmented by the DAO via future votes as needed.
We’ve provided responses to potential concerns below:
Is the TVL gained worth the increased inflation? At 34,000 BOND per week, SMART Yield rewards alone would be contributing roughly 1.25 - 1.5% to circulating supply over the coming months. As community member Wyvern1980 pointed out, the math in question here becomes whether TVL growth outpaces this inflation. Assuming that these new originators present an opportunity to grow TVL multiples beyond where it is today, generating millions in fee revenue along the way, the cost of inflation appears to be worth the positive implications it has for BarnBridge fundamentals. Moreover, it’s worth noting that a) liquidity for BOND will be higher going forward versus where it was in previous months, and b) we stand to benefit indirectly from the AAVE liquidity mining rewards while they are still being issued. Looking ahead, these rewards can be recalibrated on account of weak senior tranche traction for a specific originator, or excessive yields due to BOND token price volatility, as needed. Lastly, given the nature of BarnBridge TVL (very sticky in the case of seniors, somewhat sticky in the case of juniors), any TVL acquired through a particularly expansive period in circulating supply will be more than just mercenary capital upon the conclusion of such a program.
Why would we have disproportionate rewards across AAVE originators? The three main AAVE originators all vary in their liquidity and yield profiles. We do not know how each market will respond to BOND rewards in practice. Will bb_aUSDT attract more users as there is no collateral factor presenting an opportunity cost? Will bb_aDAI struggle to draw attention from existing DAI yield options? Is there a universe of market participants who prefer aUSDC over cUSDC that we want to cater to? Given the possibility for recalibration, it behooves us to see how these subsidies play out.
Wasn’t C.R.E.A.M previously exploited? BarnBridge is a risk tokenization protocol, not a risk-avoidance protocol. Our internal view is that users ultimately bear the burden of determining whether or not a given platform aligns with their risk profile. Additionally, we are currently working on a modified SMART Yield UX that will provide users with the resources they need to make such decisions, including DeFi Safety Ratings, DeFi Pulse rankings, and existing audits. We’re excited to integrate with C.R.E.A.M and are interested to see how BarnBridge can bring more liquidity to their platform.
Do we want to go beyond the 32,000 BOND Pool 1 precedent? This is a question we’re still mulling over internally and would appreciate community feedback on. We’re interested to see what pushback there is to the “TVL Landgrab” thesis.
This space will be updated with the SnapShot link once it goes live.