The BarnBridge core team is recommending two updates to the current SMART Yield platform. The purpose of these changes is to introduce new avenues for TVL and attract new users to the protocol. The proposal will be put up for a vote in the DAO unless there is a strong indication from the community against it.
We are proposing the following:
- Raise max maturity parameter for SMART Yield senior tranches to one year
- Launch a 10,000 $BOND / week Junior Tokens incentivization program for an initial period of 6 months
- Raising the max maturity parameter: Currently, SMART Yield senior tranches are capped at a maximum duration of 30 days. Given that these tranches would be locked in somewhere between 5-8% annualized APR, the likely expected yield on any senior SMART Yield tranche issued would amount to 0.4-0.7% (monthly number not annualized). For this to make sense considering the gas costs associated with minting and redeeming, a user would need to be depositing a principal well over $1,000,000 for the decision to make sense.
Extending the maximum maturity to a year would reduce the implied burden of gas costs, as well as attract risk-conscious entities who would be enticed by the idea of the first truly annualized product in the DeFi ecosystem. The risk of not moving to do so is that the protocol would face a dearth of senior tranche SMART Yield TVL, limiting the amount of risk available for sale to junior tranches.
- Weekly 10,000 $BOND Incentive for Junior SMART Yield Stablecoin Tranches: While senior tranches compete against relatively few other alternatives for fixed income products in DeFi, junior tranches must compete against the entire universe of other variable rate products in DeFi. Subsidization of junior tranches will attract TVL away from those other opportunities, raising the ceiling for potential senior tranche TVL with the captured liquidity. It would also provide new entrants to the BarnBridge ecosystem a way to earn voting power in the protocol. As we are planning to add a new Compound DAI pool soon, bb_cUSDC and bb_cDAI originated juniors would be eligible for deposit.
Both the raising of the maximum maturity for senior SMART Yield tranches and setting up the junior SMART Yield tranche incentivization program can be executed within one DAO proposal. For the junior tokens incentivization program we would deploy pools using our already audited contracts.
The primary items that could be up for debate, as we view it, are:
- What is the risk of rolling out one-year maturities today?
- Is 240,000 $BOND over six months the right sum and duration for incentivizing SMART Yield juniors?
- Do we need to further incentivize seniors?
As a reminder, it takes twelve days for a proposal to go from initiation to implementation through the DAO.