Introducing Beverage Finance

12 min readNov 12, 2021

Decentralized leverage tokens with $DRINK tokenomics

Introduction 🧃

Today, we are excited to introduce Beverage Finance!

In the past year, we’ve seen an explosion in DeFi structured products such as LPing in AMMs, options selling from Ribbon, and indices and leverage tokens from Index Coop. More recently, the DeFi 2.0 trend has created an environment for anons, frogs and super coders to experiment and create interesting money legos that build on top of DeFi 1.0 projects.

With that, we have built Beverage Finance, a fair launched, community, developer and innovation first project aiming to expand the DeFi structured products space starting with leverage tokens. All initial products are built on Set Protocol’s battle tested infrastructure (secures >$500M TVL).

We’ve built additional features on top of Index Coop’s leverage token contracts to increase decentralization, streamline development of new strategies, and enable the community / DRINK token stakers to earn fees distributed from the products.

We are aiming for a Sushi fair launch + Yearn developer culture + Set Protocol battle tested infrastructure (+ SPELL multichain soon TM)

Why Leverage Tokens 🤔

Leverage is one of the biggest use cases of DeFi today. DeFi power users open Maker, Aave, Compound, Abracadabra positions to add leverage to their existing exposure or maximize farming yields.

However, to the average user, there are many obstacles to overcome before they are able to use the platforms available to them.

Complexity in needing to send multiple transactions to achieve leverage (e.g. deposit ETH in Aave, borrow USDC, trade USDC for ETH on Sushi, deposit ETH again)
Risk of liquidation if the position is not properly managed
High fees on L1 when needing to interact with Maker or Aave. Users are pretty much limited to trading on AMMs as the most affordable option

Leverage tokens solve these problems in DeFi, where users can enact their own view of the market with a better UX by buying an ERC20 token that is exchange tradeable, no liquidation risk and 10x cheaper in gas than manual execution.

Introducing Spread Tokens 📈

At Beverage Finance, we take leverage tokens a step further via spread trading leverage tokens. The spread or relative value trade is when you buy one asset and simultaneously short another asset. For example, if you believe in the flippening and ETH will outperform BTC in bull or bear markets, you want to be long ETH and short BTC. This way, if the market tanks but ETH still outperforms BTC, you will make a profit on your position.

Typically, only professionals and large funds will trade these types of strategies to hedge their broader market exposure. As crypto is typically correlated, finding the winning relative value trade is considered alpha! 👀

One advantage of spread trading leverage tokens over normal leverage tokens is significantly lower volatility decay and rebalance slippage (imagine changes in ETH/BTC vs ETH/USDC prices) which allow these tokens to become longer term holds compared to regular leverage tokens.

Want to bet on the Flippening, Death of ETH Party, DegenSpartan death of MKR against ETH? No problem, we have you covered.

Initial products 🎁

Initially we will be launching five spread trading leverage products with a liquidity mining program. More details on LM in the Fair Launch section below.

All five initial products will use a leverage token methodology similar to Binance’s, where leverage will float between bounds (e.g. 1.5x — 2.5x) with no rebalancing schedule. As a result, there will be 0 volatility decay within the predefined bounds and lower risk of front-running in rebalances. This is in contrast to Index Coop’s ETH and BTC leverage tokens which rebalance daily which result in rebalance slippage daily for holders.

There will be a 1.95% annual management fee and 0.1% mint / redeem fee with 80% distributed back to Beverage Token ($DRINK) stakers, and 20% perpetually to the developers of the strategy as an incentive to contribute. This helps the developer cover deployment and rebalance gas costs.

As we — the project launch team — are developers of the initial 5 strategies, we collect the initial 20% developer fee to help us cover deployment and rebalance costs.

With that, here are the initial set of products available:

ETHBTC 2x Long Token (RATIOMOON): The cheapest way on Ethereum to bet on ETH outperforming BTC and the ratio flippening
ETHBTC 1x Short Token (RATIODOOM): For BTC believers who want to bet on BTC’s dominance continuing and outperforming ETH.
LINKETH 2x Long Token (LINKETHMOON): For those who think LINK is due for a massive rally but want to be hedged by shorting ETH in case markets are shaky in general.
MKRETH 1x Short Token (MKRETHDOOM): The DegenSpartan trade. An outright bet on MKR underperforming ETH.
Tether 3x Short Token (TETHERDOOM): Think Tether is going to implode? Buy this token to bet on Tether going to $0. And if it doesn’t, you earn leveraged deposit interest on USDC on Aave.

More products are coming soon! In addition to deployment on multiple chains.

Fair launch 🍣

Token Distribution

Beverage is fair-launched with 0 premine. At every block, 100 DRINK tokens will be created. To ensure sustainability, 10% of every DRINK token emitted will accrue to the community treasury, which then can be managed by token holders through governance.

However, For the first 14 days, the amount of DRINK tokens produced will be 10x, resulting in 1000 DRINK tokens being minted per block to distribute tokens to the early community and users of these products.

Liquidity mining will start November 14 at 6 AM UTC

These tokens will be equally distributed to the stakers of Sushiswap liquidity pools on Ethereum for the 5 products above. These pools are:

DRINK / ETH will receive 2x rewards and start 24 hours after initial liquidity mining for the 5 leverage tokens. Below is a chart of estimated emission: (Note: There is no max supply at the start, but the community may make a proposal to set a max supply and update emission schedules over time after the initial 2 week bonus in Discord)

Tokenomics and Rewards Distribution

We have adopted the yearn model where 80% of the fees collected on Beverage products will be redistributed to $DRINK stakers, with the other 20% to creators of leverage strategies.

The fees will be periodically sold into more $DRINK using the BeverageMaker contract, and distributed to xDRINK stakers. This is the same mechanism as xSUSHI and will create buy pressure for the DRINK tokens backed by revenue.

If Beverage products generate $10M in fees in year, and $20M of DRINK is staked in xDRINK, staking APY backed by real fees is 50% (10M/20M * 100% = 50%)

Community Treasury

Initially, the community treasury will be a 2 of 3 Gnosis multisig controlled by members of the project launch team with a 48 hour timelock as the admin of the farming contracts and products. The timelock will be activated upon the start of the DRINK / WETH liquidity mining program.

Our intention is to expand the list of multisig signers by onboarding reputable members of the community and minimize the launch team’s control over the project. Eventually, governance can be moved to on-chain token voting similar to Compound or Aave.

The multisig will have the ability to update product parameters (exchange used, max rebalance sizes), update liquidity mining parameters (DRINK emissions, adding new pools, setting staking reinvestment flows), and updating the Timelock owner subject to community approval.

Governance will likely begin on Discord or forums for formal discussion and then to Snapshot for token holder voting. For now, the multi-sig will implement changes that reach majority consensus.

No VCs and Developer First 👩‍💻

As a 0 VC and 0 premine project, we want to create an environment where developers can create interesting financial structured products and be rewarded with low friction in governance.

Therefore, creators of strategies will receive 20% of product fees in perpetuity and upon community approval can access DRINK liquidity mining rewards to supercharge growth. With a $10M TVL product and 2% management fee, that is $200K to strategists (not accounting for mint/redeem fees).

We will be releasing guides on how to get started deploying new leverage tokens soon. It is as simple as deploying our template of smart contracts with a few parameter changes, setting the fee split recipient and requesting liquidity mining from the community.

View our deployments Github repo here.

Smart Contracts 📝

Beverage Finance utilizes only the most secure and combat tested smart contracts in DeFi (Set, Aave, Index Coop, Sushiswap) which have been audited by top firms. Deployed addresses can be found here.

Token contracts are forked 1:1 from Sushiswap

MasterChef (fork of Sushiswap MasterChef)— Emits $DRINK to various staking pools
BeverageMaker (fork of SushiMaker) — Converts fees into more $DRINK
xDRINK (fork of xSUSHI) — Governance token for Beverage Finance
DRINK (fork of SushiToken) — Emitted rewards that can be staked into xDRINK for governance and additional APY

Beverage leverage tokens are built on battle hardened Set Protocol V2 contracts (audited by Open Zeppelin with >$600M TVL) and use similar contracts to Index Coop FLI tokens.

AaveLeverageStrategyExtension (5 deployments) — Rebalances the leverage token
BeverageFeeSplitExtension — Collects fees for initial 5 products and forwards to the BeverageMaker contract
BeverageBaseManager — Registry that manages the extensions above

To verify for yourself, check out YieldFarming.info’s contract diffchecker.

Risks ⚠️

Like all tasty drinks, these smart contracts are not entirely risk free. Here are some risks you should be aware of.

Liquidation risk — Although the leverage token mechanism is sound and designed to prevent liquidations, there is always the chance of a black swan event. Index Coop’s FLI tokens have successfully prevented liquidations during the May 2020 crash, and Beverage utilizes the same infrastructure.
Smart Contract risk — Set Protocol, Sushiswap and Aave are battle tested and audited, however, there is always a nonzero chance of failure.
Oracle risk — failure of Chainlink oracles in Set Protocol or Aave may cause loss of funds.

We recommend buying coverage on Nexus Mutual or another insurance platform to cover some of the risks above.

What’s Next 🔮

That is on you, the community and strategists! The launch team will continue to build and launch strategies. Some beverages we think that are going to be tasty:

A token that trades the DeFi ETH ratio, using the DeFi Pulse Index as a proxy for DeFi
A token that leverages both ETH and BTC 2x at the same time
Tokens on Polygon using Set and Aave deployments there
Strategies that leverages multiple collateral assets and shorts multiple debt assets
Tokens using other lending protocols (Rari anyone?)

Get Started 👨‍🌾

You can start earning DRINK by minting Beverage tokens on TokenSets or buying on Sushiswap. Check out the products listed on Beverage. If you are not a whale, we recommend buying on Sushiswap to minimize gas cost.
Then you can pool these tokens with USDC on Sushiswap and stake the LP token them in the liquidity mining page
Stake your earned DRINK into xDRINK and watch your DRINK compound from those juicy fees from Beverage leverage tokens
Liquidity mining will start approximately November 14, 6 AM UTC and will have 10x DRINK bonus rewards for the first 2 weeks
Double rewards for the DRINK / ETH pool will start November 15, 6 AM UTC, approximately 24 hours after initial liquidity mining
Grab a drink and join the community here
UI credit goes to Index Coop

Cheers 🍻

Frequently Asked Questions❓

How do I acquire a Beverage leverage token?

You can acquire a Beverage token either by buying on a DEX or minting directly. Buying directly uses the least gas and is equivalent to trading any other token on a DEX. Minting on TokenSets involves depositing the amount of collateral and getting returned the debt and leverage token. This costs 4–6x more gas than trading on a DEX, and is best for large positions.

Note: before the liquidity mining program starts, we expect most of the acquisition to occur through minting, as DEX slippage could be high.

How can I mint on TokenSets?

Ensure you have the collateral asset that is being leverage long or short. E.g. you will need ETH for ETHBTC 2x Long Token and WBTC for ETHBTC 1x Short Token.
Navigate to Aave and select the V2 market on Ethereum. Deposit the collateral asset into Aave to receive the aToken in return.
Navigate to Beverage Finance, and choose the product you want to mint from the dropdown. Click on the “Mint on TokenSets” link
Click the dropdown on the right side of the TokenSets page and click issue. Approve the aToken and specify the amount you want to mint. Note: due to how TokenSets slippage free minting works, you will approximately need to input 2x the value of the aToken to mint 1x the equivalent value of the leverage token. You will also receive 1x the value of the debt asset back (e.g. WBTC for RATIOMOON). You can do anything with the debt asset you receive back. 2x aToken = 1x leverage token + 1x debt

If you are having issues minting via the TokenSets UI, contact us on Discord.

Additionally, you may choose to follow the steps above to mint through Etherscan directly by calling the issue function here.

Where can I find the contract addresses?

You can find them in the Beverage docs repository here.

What is the Net Asset Value (NAV)?

Net asset value or NAV refers the inherent value of the leverage token with the collateral value subtracted by the borrow value. For example, the NAV for the RATIOMOON token is equivalent to the value of Aave WETH minus WBTC debt. This may differ from the market price of where the leverage token is traded. Typically, arbitrage bots will keep NAV in line with market price. Be sure to check these 2 prices when acquiring our products.

How do rebalances work?

The unique methodology that the initial 5 Beverage tokens use eliminate any unnecessary rebalances and execution slippage for users, similar to Binance’s leverage tokens. The rebalances are open for anyone to participate, by calling the “rebalance()” function in the leverage strategy contracts for each of the products. This way the entire DRINK community can participate in keeping all Beverage products safe!

These are the strategy contracts for the initial 5 products:

How does xDRINK compound your staked $DRINK?

Periodically, anyone can call the “convert” function in the BeverageMaker contract. This automatically accrues fees on the product, sells 80% of the fees into $DRINK using Sushiswap, and sends the DRINK to the xDRINK contract. This is the same mechanism as xSUSHI — simply stake your DRINK and watch number go up!

Are the contracts audited?

All Beverage contracts are built on or forked from Sushi, Index Coop, Aave and Set Protocol. All 4 projects have gone through multiple audits. You can check the differences in contracts using a tool such as Yield Farming Info

What admin controls are there?

Currently, the treasury is owned by a 2 of 3 Gnosis multisig. The multisig also has control in updating the leverage token strategy parameters, and liquidity mining programs. This will be moved to a 48 Timelock contract upon launch of the DRINK/WETH LM program.

How can I launch a product with Beverage as a developer?

Beverage Finance is designed to be developer first. This means any strategies can be created and added to the list of products offered. A governance vote will only be required to onboard the product into the liquidity mining program.

To launch a Beverage product as a developer, you must deploy instances of contracts that are audited (e.g. Set Protocol Sets, Index Coop strategies), set 80% of the fee split to go to the BeverageMaker contract (assuming it is listed on Sushiswap) and provide gas for rebalances (to minimize creating unnecessarily expensive strategies on L1).

Check out the deployments repo README here.

How can I contribute to the community?

We can together make Beverage one of the biggest projects in DeFi 2.0, and always need contributors in marketing, BD, community management, and developing new strategies!