BOND Subsidies for C.R.E.A.M. and AAVE

Summary
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.

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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.

Description
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.

Motivation
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.

Technical details
The moving parts associated with this proposal would involve

  1. Migration of an aggregate sum of BOND to the CommunityVault smart contract within our DAO architecture
  2. Deployment of smart contracts for each originator’s rewards pool
  3. 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.

Useful Links
For AAVE:

For C.R.E.A.M.:

Argumentation
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.

DAO Vote

This space will be updated with the SnapShot link once it goes live.

9 Likes

Great proposal. I don’t mind the inflation if it helps the protocol grow. 34k BOND rewards per week is 1.3 mil worth at current prices. I don’t expect to make it back in fees, which is fine.
In the end, SMART Yield needs to attract seniors at some point. I would suggest to evaluate in 2 months time; if the reward distribution hasn’t resulted in serious senior TVL… we need to downgrade the reward distribution. Yes, even for the Compound pool.

3 Likes

The details of the proposal is admittedly beyond my expertise. What I read is kind of an investment in the long run in order to lead BarnBridge where it is expected to go. I can’s see no reason to stand against that.

The whole project is building slowly with a long term perspective in sight. The proposed investment makes sense.

The element I’d like to point out is the absence of the word “marketing” in this proposal. Not a word that’s often used here (as it likely resonate more with retail investors that are not the main target for our products) but:

  • we’re about to free 1.3 out of 10 millions of BOND tokens
  • that’s obviously not a move that will happen often
  • maybe we could include some communication plan in the proposal in order to lead the way it should reach investor ears.

correct me if I’m wrong

1 Like

Does the core team believe offering rewards for a period less than 6 months would be a hindrance to juniors entering the pool? I am fine with investing our BOND over a 6 month period to bootstrap these originators, but I would prefer we structure it as two 3 month periods giving us a quarterly midpoint which forces us to re-evaluate how each pool is performing. This is beneficial because it provides clarity to junior investors rather than create uncertainty that a DAO vote could change their rewards at any point during the 6 month period.

Additionally, I would like to see us establish a set of metrics and goals which we will use to judge each originator’s performance by so we have an objective method to ensure our treasury BOND are being used efficiently (this would be valuable regardless of the use of a re-evaluation period).

Alternatively - if we don’t build in a re-evaluation period, I think it would be worthwhile to provide a disclosure to junior depositors that the originator incentivization is subject to change; however, they will have an opportunity to participate in that discussion through comment her and on discord as well as by voting their BOND tokens.

3 Likes

Monitoring of reward distribution and comparing it to the senior TVL is a good call.

As I previously mentioned doing a reevaluation after 2 months is a good call. The 2 3-months periods make sense as well. I really like and support your point for establishing “metrics” for the evaluation. This will provide better understanding of this proposal to all the investors of what we are trying to achieve with this.
It will also allow us to make a decision at the mid point, whether we approached it correctly and whether this move is accomplishing our goals.

Building a partnership (especially with AAVE) seems like a good move for further development/exposure. GO BB!

I think incentivize 35k bond weekly for 6 months is way enough (720k bond). How we will incentivize SE and SA and even Polygon? we will incentivize everything w more than 700k of bond? Im truly concerned how we spend our bond from treasury. We will not have anything in treasury soon if we will reward people so easily with bond although we are not in rush, we should not be. I like how aave incentivize after 2-3 years now, we should let some ammo in treasury. What about lower the number at half for 16k per week?

6 Likes

I agree with lowering rewards. Bond needs to be precious. I think rewards should be as lower as possible but perhaps for longer periods (12-36 month). As this is a long term project, why give away BOND so easily? Id say cut proposal rewards 4x times and extend time frame.

2 Likes

Well I’m also concerned about this setup of incentives for SY. I think that 7500 BOND every week is way to much. I understand the arguments but if we want incentives for every single stablecoin we should be more conservative about total BONDs alocated for this kind of incentives. (For example 5000 BOND for aUSDC, aUSDT, aDAI and even 5000 is a lot in my opinion)

If we will incentive all our products with this way our BOND will be gone from treasury in less than 9 months and I do not like this. I do not care about inflation but I would like to have some BONDs in treasury for a future. Or for investments like seeding of BOND/BNT BANCOR pool.

There is a rumor on discord about incentiving ETH/BOND pool. Will we have enought BOND for incentiving SE and SA, etc?

I also don’t see the point of using so much BOND tokens for junior incentives if we are not able to attract seniors. As we can see in the SY for cUSDC 10000 BOND is not enought to attract seniors and from what I understand seniors are what we need.

I need more complex information about future plans with our treasury so I could decide if I agree with this proposal or not.

My questions is:

  • What is the plan for attracting seniors?
  • What other BB products you want to incentive in the future? ( SY for IFY?, L2 SY?, SE?, SA?, ETH/BOND pool?)

Because if you don’t want to incentive other products 7500 is ok for me. But I belive there will be other products what we will want to incentive so we can’t throw away our BOND from treasury so easy!

I agree that we should establish a set of metrics and goals which we will use to judge each originator’s performance by so we have an objective method to ensure our treasury BOND are being used efficiently.

Also posted on the forum. Thank you for the hard work you are doing guys.

8 Likes

Am also for lowering the amount issued per week and extend it to a longer period of time. 1 year is fine with me.

2 Likes

I am probably not as expert as most of you are but as an investor I would mostly care about how BONDs are used, instead of looking at TVL growth vs inflation. Lots of people look at fully diluted valuation, considering inflation will come at some point no matter what… so I see it more as a proof of our commitment to grow TVL (vs other incentives), which is of course a very positive sign.

Slightly tangential, does the team foresee the need to incentivize the junior side of SE and SA pools?

On a sidenote I would to add:
If we ramp up inflation, our BOND token will stay at 40 USD and you have to keep rewarding aggressively.
If our token was 80 USD for example, we could have the same effect with half of the rewards. Therefore, price should be a consideration.
I really like that we think big however inflation works against increasing TVL if BOND price suffers. You need to add more and more rewards.

We should go easy on the rewards, our product is not ready for DeFi and TradFi onboarding takes more than 6 months. So using all the rewards now, doesn’t make sense. You can’t buy your way to the top. Treasury runs out by then.

If you think AAVE pools will attract seniors, it is better to cut Compound pool rewards in half and maybe even decrease the Uniswap LP rewards by like 25% and go all in on AAVE pools.

5 Likes

What about to use vesting lockup for 1 year like SNX do?

Maybe 3 months would be more reasonable with a possible extension of incentives.

1 Like

I agree. We are pushing a TradFi product into a DeFi world. It needs time, we are talking about months, even years. It doesn’t make sense spend the whole treasury in 9 monhts.
I think we should pivot towards marketing our product also ready for treasuries of other DeFi protocols. And all they want, like us, is governance influence in other protocols…
So why at least consider rewarding the senior side instead of the junior side?

Furthermore the focus should be on finding ways to make sure the senior and junior tokens are tradable. MPH has done this by creating a Sushi pool and incentivizing it. If you prefer Bancor, fine, but in the meantime we could set up a Sushi pool.
For the senior side we should fine a way to make the NFTs tradeable. MPH does this by having the option to mint a zero coupon bond. We could do something like that as well.

I know you guys are working hard and the product (contract) is great. It is just not complete and they should be a public road map on where we are going with it. DeFi consist of lego’s. If the senior side token can be tradable or used as collateral it will also attract DeFi customers.

2 Likes

I read whole thread and I have to say, that I agree with others at these points:

  1. If we distribute too much tokens in early, so we would run out our treasury pretty fast
  2. As @dirkava pointed in his post it will cost us more when the BOND price is 40$, than if we have price at for example 80$ per BOND. So if we distribute tokens for incentives right now it will cost us much more, than if we want to distribute same dollar amount of BONDs at 80$. It would be half of the BONDs amount with the same effect. So the question is do we really need to incentive right now or we can do incentives later?
  3. If we really want to do incentive right now, we should reduce the amount of BONDs that are allocated by at least half of the original amount proposed and extend the time for it.

My questions:

  1. How we can be assured that incentives help to attract seniors?
  2. as @RESISTANCE pointed almost same question, do we want to incentive other BB products in the future? If yes we need some BONDs in treasury, that we can do that.

At the end I want to say that I don’t mind the inflation, but important is to have some funds in the treasury for future plans. So if we lover the amount issued per week and extend the period for distribution it could be good solution.

4 Likes

I agree with @Dragon and @RESISTANCE. We all agree on that we should try to be aggressive and have (big) rewards for the pools. We also agree that there should be a metric in place and if it has not the desired result, the rewards should be cut/reconsidered.

I would like to add, as in my post above. That we should also be aware that this product is not yet finished and we still have to find a solution to make the senior and junior side tradable. Otherwise we are pushing aggressively half a product onto the market.

5 Likes

I’m a bit scared that when product will be ready and attractive for seniors we will run out of BOND what could be used for other incentives.

Right now I feel like we want to use a lot of BOND for junior incentives but seniors are not ready.

So is it right time for it right now? Tricky question.

On the other hand incentives will attract juniors, they will raise up BB TVL and it should hopefully attract seniors.

A few thoughts and responses to comments thus far:

1 More on the rationale for going big

Long term token value ultimately is determined by sustainable revenue. So far from the Compound integration we have seen that TVL on the jTokens has been sticky.

Rates on originator platforms fluctuate with the market leverage and deleveraging cycles. It would be wise to see a few of these cycles play out to see how the market responds to entering seniors.

It takes time for users to get comfortable with new products, many wait on the fence for bit to see how the code holds up.

We have had conversations with some TradFi users that have already deployed some sizeable capital into SY. They like what the see so far and showed some willingness to deploy more capital as our overall TVL rises.

So to some extent we are making a substantial push to attract TVL that we believe will not only be sticky but will also encourage capital already in to add more. In some ways TVL growth inspires increased confidence, no single entity want to be an outsized proportion of our overall TVL.

Growing our TVL will also begin to cement our position in the new vertical we pioneered. The TVL we attract with this push will be around to see and use Smart Exposure and Smart Alpha, and begin to understand the power of our products used in conjunction with each other - when people deploy capital to gain their attention. This is a long term customer acquisition strategy that we believe is well timed to coincide with a slew of product launches that we believe will grab attention and lead to further TVL retention.

This is not the time to be passive and wait for the market to come to us, we have to demand, convert, and retain attention.

2 Disproportionate AAVE rewards

AAVE is of key strategic importance to BarnBridge for a number of reasons:

  • They have the deepest reach across tradfi participants in DeFi. A few reviews of their governance calls, quality and source of engagement on their governance forums, and business dev/marketing strategy would make this readily apparent

  • We are developing product that are of value to AAVE users and we want to incentivize them to use our products and begin to see our distinct value first hand.

  • There will be follow-on opportunities to leverage a deep relationship with AAVE across other products and perhaps new products we could jointly collaborate on

  • The AAVE-Polygon launch has been wildly successful to say the least and has created a pathway for BarnBridge to launch on Layer-2 and expand our potential userbase. It would behoove us to stay close and leverage the trail AAVE is blazing

3 Secondary Markets

We are actively researching ideas and solutions for secondary markets. As @Ser_M stated up top :

In order for secondary market solutions to work you need liquidity. So growing TVL at an accelerate pace provide the necessary liquidity to migrate to these markets. There is no market without product and we need deep TVL to create a functioning secondary market.

Secondary markets will further make juniors and seniors more easily transferrable which would further incentivize more TVL to enter our pools knowing they can have markets to trade in and out of positions as needed without needing to wait for durations to complete.

We hope to have another instance of Pavlo’s loop manifest in this regard.

4 Marketing

Our approach to “marketing” thus far has been primarily focused on B2B business development and relationship management. @Ser_M @pabless and I have spent a lot of time engaging with TradFi onramps that are already deploying capital in DeFi.

We see them as the lowest hanging fruit, and are focused on understanding their strategies and approaches for deploying capital in the space, and getting feedback on some of our assumptions that we think will bring them or more of their capital in.

These conversations have been extremely valuable and have informed our approach to this subsidy plan.

We are still in the early/learning stage so we believe our current approach to “marketing” is prudent. We have recognized a need for specific expertise to build awareness across Asia/Pacific, hence the proposal to fund Leo’s exploits across Asia.

He will also be taking more of a Business Development / Events marketing approach to gradually push BarnBridge awareness and on the back of those learnings scale smartly over time into a broader push if need be.

5 Iteration / Flexibility

This is largely an informed experiment. The operations team spends most of our time trying to gather as much data as possible from current and potential users of Smart Yield and our other products in development.

We think this plan gives us a better than random chance at success. As a community we can and should change course if best laid plans do not work out as expected. We have the ability to reduce, increase, re-allocate, or completely shut off rewards after a reasonable amount of time if things are not working out.

I also anticipate we will land on and execute on a secondary market plan for jTokens that will allow us to at a minimum migrate jTokens and the incentives supporting them to a more ideal longer term solution. So there will be cause to revisit this plan at that juncture.

Its a top priority for us and there are a few option we are and have been looking into for a while. But non of these ideas would work without the TVL to support a successful execution.

8 Likes