Incentivizing Smart Yield Pools

We recently opened up the cDAI originator for SMART Yield, and will be enabling originators for aUSDC, aDAI, aSUSD, and aUSDT by the end of April. As demonstrated by the cUSDC pool, subsidizing the junior tranche plays a powerful role in attracting liquidity. This post is intended to initiate a conversation on how to best use DAO resources for further SMART Yield TVL incentivization.

There are essentially three possible routes at the moment:

Incentivize one originator per platform
Reasoning: Not all stable coins are viewed equally by the market, and BOND rewards should be reserved for creating a critical mass of TVL in one originator rather being spread thin across multiple.

Implementation: 10,000 BOND weekly for both cUSDC and aUSDT

Argument For: USDC and USDT are the regional heavyweights for the US and EMEA, respectively. Senior tranche purchasers are more likely to have compliance mandates, and so non-USD backed stable coins (e.g., DAI, SUSD) may see less senior demand.

Argument Against: DAI is similarly sized with USDC on Compound; USDC is bigger than USDT on AAVE v2.

Determine uneven weights for each originator per platform

Reasoning: All SMART Yield originators require BOND rewards in order to be competitive against the rest of DeFi, but there are certain leaders worth prioritizing.

Implementation: 10,000 weekly for both Compound and AAVE, split unevenly in favor of USDC on Compound and USDT on AAVE.

Argument For: Attracts enough liquidity to smaller pools such that there are no severe outliers in terms of relative TVL

Argument Against: Spreads BOND rewards thin, unclear whether demand for senior tranches will be similar across different stable coins.

Assign equal weights for each originator per platform

Reasoning: Overall TVL secured might not be that different if smaller pools get an outsized shared of BOND rewards and attract new DeFi participants.

Implementation: 10,000 weekly for both Compound and AAVE, split evenly across all originators.

Argument For: Smaller originator pools would see outsized yields that could attract new users.

Argument Against: Unclear whether users would stick around once the rewards and abnormal yields ended.

There is no associated Snapshot vote on this topic at the moment. The core team is looking forward to this forum conversation and will take it into consideration when AAVE pools are live and we move to put up a DAO vote for the staking rewards.


I’m down for Assign equal weights for each originator per platform

It is ideal number of BOND tokens for junior liquidity in general imho. Not so high inflation.

My first thought is to incentivize one originator per platform so long as there isn’t overlap with new platforms until USDC, DAI and USDT are covered. Focusing on a single originator should support greater liquidity to incentivize seniors instead of diluting liquidity among all originators. Additionally, by not supporting all originators we could gain insight into pool behavior without incentives.

I do have concerns with incentivizing USDT on Aave because it’s not allowed as collateral. I’d assume our USDT seniors wouldn’t be allowed either.


I would like to see the incentives spread more evenly between products going forward. By this I don’t mean have 10,000 per week Bond dished out on every product. It could be less. I would work out how many products you need to incentivize in the next 12-18 months, so that you dont end up dishing out too much Bond to early products. I would make the rewards more equal than not, with not too much difference (where one needs, eg juniors) - on any new launches going forward. It would be shame if people visiting Barnbridge see uneven interest - because it will look like the only reason to invest is for incentives and not the actual products. If things are more evenly spread the Barnbridge system looks more organic.

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My top priority is creating sufficient liquidity to get the virtuous circle set into motion.

As such I am against the assignment of equal weights since that will most likely create a situation of fractured liquidity across the platform. We could have a high TVL in aggregate, but there still might not be sufficient liquidity at the protocol/originator level to allow senior investors to take a position that is worthwhile to them.

I was listening to Robert Leshner talk about the balance of using incentives to create high TVL to support the liquidity needs of their large users vs. inflation concerns and he had some very interesting points about prioritizing liquidity (at least at first). My takeaway was that if it is a good protocol it will work with or without incentives, but it you have to create an opportunity for larger users to use it by incentivizing pockets of highly concentrated TVL. Downside to this is that you will have some people who receive rewards rewards and will immediately sell, but ultimately this is just furthering our decentralization which is a good thing at the end of the day. I suggest we could counteract this effect by initially using protocol fees to buy back BOND to offset inflation concerns.

A few questions for @Ser_M as I think about whether it would be better to incentivize one originator per platform or determine uneven weights for each originator per platform:

  1. Have we been able to ask the groups we would be targeting to take senior positions what their ideal investment size would be so we can figure out the required level of liquidity to accommodate that?

  2. Have we asked potential seniors what their originator asset preference is?

  3. @Mike987 brings up a really good point about USDT collateral restrictions. It certainly has a very attractive yield and a decent TVL on Aave, but if it would be restricted from being used as collateral that would probably be a deal breaker for me. Do we have any indication from Aave about their position on this?


I think there is a good way to solve this problem. That is not at the same time inspire the same promoter.
In fact, USDT, USDC, DAI all have good markets and use cases, and we can’t ignore any of them.
But we cannot motivate both aUSDC and cUSDC at the same time.

As BB develops and prices rise, APR will increase and there is no need to allocate too much quantity to begin with

This will lead to unnecessary fragmentation of liquidity. We should think about long-term development. Equal incentives for each sponsor is certainly the worst option.
So I have an idea that supports three different asset sponsors on average, such as cUSDC, aUSDTand cDAI,7k each?(or some other distribution)
This should be the better way for now

Do it at least three advantages:

  1. will not be ignore any market
  2. don’t make a single promoter illiquid assets
  3. reduce the incentive of excessive concentration of inflation
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As BB develops and prices rise, APR will increase and there is no need to allocate too much quantity to begin with

This is a fair point and it begs the question, at what point do we believe that we will have the attention of seniors who are comfortable and ready to take a position. No point incentivizing and having significant junior liquidity if seniors still aren’t ready to take the leap.

Stealing a point from one of our early discussions on here about variable rewards, there is nothing that says we have to make the incentive term run for 6 months like we agreed to for cUSDC. We could set it at 10k (or another number) each for 6 or 8 weeks and then re-evaluate halfway through to determine if we need to heat it up because we have seniors who want to take a position, but need liquidity or cool it off if the virtuous circle is already in motion.

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Yes, I agree with this idea a little. It is not appropriate to extend the period, increase the quantity and increase more sunk costs. We can adjust in real time according to market changes。Once passed, the increase is controllable, but the decrease will not be controllable on the original basis

Indeed, I think there are diminishing returns associated with allocating higher and higher quantities of BOND to incentivize juniors, as the inflation will drive price down which then reduces the contribution of each BOND to APR. As well, stable/healthy price action for BOND will encourage holding/staking the token, helping to maintain the value of the incentives, while at the same time naturally attracting eyes of various wallet sizes to the platform. So I’d support a more measured approach to incentivization over one disregarding price action.

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  1. We definitely have to find out if USDT would be restricted by Aave from being used as a collateral. Incentivize that would be pointless.

  2. Aave’s cooperation with Maker intends to use more DAI in order to provide the lowest borrowing rates on the markets. That means lower APY even for DAI lenders, but could attract more people since the rates will tend to be more stable. Theoretically could be more attractive in the future for big fish.

  3. We should talk to potential seniors about the stablecoins they wanna use. I can imagine that as right now they would rather use stablecoins backed by real $ than stablecoins backed by crypto because of regulatory reasons etc…

  4. Thinking about mid-term outlook and again asking seniors which platform they prefer now and which platform they might prefer in the future as the Aave seems pretty strong fundamentally and could attract more and more TVL in the future. I am sure we do not want to do any bets who is gonna be better but we must consider these points. As i am pretty sure some big boys are gonna entry the SY on the protocol they see attractive themselves in order to prevent any potential risk, lack of liquidity etc.

  5. The future features with the integrated protocols should be considered too. Is Compound going to add seniors as a collateral? Are they gonna implement BB products into their UI to entry SY/SA from their interface? Are they willing to cooperate with BB and use our unused stablecoins in our Treassury? Is Yearn gonna offer much higher APY than others? Is it not gonna be too risky for seniors?

Those questions came up while i was thinking through the response to the topic. If anyone can help me answer them, that would be much appreciated.


The rates are already appealing to seniors. They aren’t prepared to invest in this space without insurance. IMHO, insurance comes before anything, including further junior incentives.

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Maybe we need a simple informal survey with senior liquidity providers within Defi Alliance.

  • Preferred Token/Protocol
  • Approximate Volume
  • Insurance Requirements
  • Accepted as Collateral
  • Secondary Market Requirements

This is a great point, Mike. We need to know more about our Customers from a quantitative perspective. I’m sure there is anecdotal evidence from many conversations, but these are small n’s. How many are aware of crypto, how many are aware of defi, how many have interacted with any defi protocol, how many are considering making a move, how many have 1 barrier, how many have 2, what are those barriers? At the very least, you need a baseline understanding to look back and see where there is improvement or if stagnant. At the most, it provides data-oriented direction on how to prioritize.

I agree that we need to an incentive for early adopters. I also agree that the product should work without it.

Why isn’t there an option 4 which is:
Put all the junior tokens in one pool. They are all stable coins so the share should be similar.
So if there is 40k cUSDC and 15k aUSDT. Have them all in one pool to yield BOND. So the pool is in this example 65k ‘c_a_stable_junior_pool’ and everyone is paid out according to stake in it. Since it is a stable coin 65k cUSDC equals 65k and 15k aUSDT equals 15k stake.
So we just assume a 1-1 peg.
In that case everyone is free to choose which pool to invest in and we only have to worry about ‘how much BOND to allocate’ to the total junior side.

Is this technically possible?

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Ok my last idea my be technically difficult. So I propose a new ELEGANT solution.
Why not determine a total reward for the junior side. Lets say 20k BOND per week.
And then, every day or every week rebalance according to TVL per pool.

So day 1:

  • 40k cDAI → 40% of BOND rewards
  • 60k aUSDC → 60% of BOND rewards

Day 2:

  • 70k cDAI → 70% of BOND rewards
  • 15k aUSDC → 15% of BOND rewards
  • 15k aDAI → 15% of BOND rewards

So we re-balance the distribution based upon TVL share of each pool.

In this way, we have sort of ‘one pool’ incentive program. Not perfect but if we can balance daily or so, nearly perfect!

This should be technically possible right?

Edit: start off with base incentive per pool. For example, 6 pools, base incentive of 2,000 BOND per pool. So 12,000 BOND total. Lets say we allocate 25,000 BOND to junior incentive. This means 13,000 BOND rebalancing per pool depending on TVL (daily/weekly).


The more I think about USDT Aave collateral issues, the less concern I have providing incentives. Users who hold USDT are already exposed to collateral restrictions with Aave.

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After i read the whole thread am for

From my point of view, since we are at the beginning we should focus more on those biggest markets to attract more people and therefore more TVL.


Instead of looking at TVL at the originator level, I think our consideration should only be what is our desired senior customer’s token of choice. My thought being that the TVL per originator doesn’t matter because Smart Yield is a means of creating an efficient market when used to the fullest extent (and no subsidies exist to make certain originator rates higher). Also I don’t get the impression we are at the point where an Aave depositor is going to withdraw their Tether and redeposit with us.

That said - I think I’m still ending up at the answer of one originator per platform with aUSDT getting our incentives, but with the caveat of a shorter reward period giving us the ability to re-evaluate in 6-8 weeks. This would work nicely because I believe the Dai yVault is a solid choice on Yearn. I also think we need to answer a number of the questions in my first post / Mike’s post above before we move forward with adding any new incentives.

Facts. Insurance would attract new players and allow existing LPs like myself to multiply their deposits. Let’s make it a key focus