Babylon’s Litepaper
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Last week we announced our Settler’s Beta program. Today, we are releasing our Litepaper to gather feedback in advance of our Beta launch next month.
The Litepaper covers the protocol in detail but here you can find a TL;DR with the five high-level principles below.
- Babylon.finance is an asset management protocol that enables communities (Gardens 🌴) to actively invest in DeFi together.
- Hammurabi’s Code 📜. The protocol is designed to align incentives and prevent the transmission of fragility from the people that know to the ones that don’t.
- The protocol is designed for capital efficiency 🏦. It minimizes the amount of idle capital. Your capital is at work 24/7.
- Amidst rising Ethereum prices and gas costs, Babylon allows users to split the gas fees between all the members of a garden⛽.
- Flexible & Codeless. The protocol allows members 🧠 to create investment strategies composed of different DeFi operations through the UI.
🌴 DeFi Together
Last fall, I wanted to share the opportunities, mission, and ‘alpha’ available in the crypto ecosystem with my friends and family. I set up a smart contract and telegram channel and we coordinated on the best way to allocate the group’s capital. During the experiment, I quickly realized that many other people are facing the same problem.
On one side, you have users that are new to the space and are looking for a way in through someone they trust. On the other side, the ‘crypto experts’ in every group are getting overwhelmed with questions around how to get started in the space, which assets to purchase or when to buy and sell.
The experiment was a huge success. The next logical step was to expand these opportunities beyond my network.
With Babylon, you can create a “Garden” 🌴 for your friends or community and find the best opportunities in DeFi together. You can read more about how Babylon works at a high level here.
📜 Hammurabi’s Code
We live in a world where people that possess knowledge can transfer the hidden risks and fragility to people that lack the same knowledge.
In 2008, we saw how Wall Street packaged risky mortgage loans into CDOs, stole a free call option from society, and transmitted the risk to the mortgage buyers and bailout taxpayers. Wall Street bankers enjoyed optionality at the expense of others.
In ancient Babylon, they understood the concepts of risk management and skin in the game. Hammurabi’s code is a primer on risk, accountability, and incentive alignment. For example, see here how it aligned the incentives of a house builder and the buyer:
“If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death.
Although these practices may seem barbaric by today's standards, they contain wisdom. If an individual is offering a service to others, in order to earn the right to profits he/she needs to be exposed to downside risk.
If you have a lot more knowledge about the domain than others, you shouldn’t be able to hide your mistakes in technicalities or bureaucracy.
As Nicholas Taleb puts it:
A hero is a person that is taking downside risk from others.
A half-man is someone who doesn’t take risk for his opinions.
On Babylon.finance, incentives are aligned through $BABL rewards, slashing, and staking mechanics.
🧠 Strategists can create and suggest strategies to their garden and earn 10% of the profits and $BABL rewards. There is no free lunch. Strategists need to spend ETH (gas cost) to create the strategy and earn the right to receive profits and $BABL rewards.
Strategists and members are now aligned on the incentives. Strategists are flying the plane but they are aboard. If the strategy doesn’t perform well, the strategist will get penalized further and part of his deposit will be split amongst the members.
The same principles apply to the voting mechanics and the relationship between Stewards and the Garden.
You can read more about the different participants and the incentives here.
🏦 Capital Efficient
Every single dollar saved is a treasure 💎. Every dollar you make today can be put to work for the rest of your life.
Compounding interest is the 8th wonder of the world.
A dollar you invest today will multiply, generating many dollar “children”. Then, they themselves can generate even more offspring for you. In The Richest Man in Babylon, Arkad talks about investing in the following way:
“Learn to make your treasure work for you. Make it your slave.
Make its children and its children’s children work for you”
Babylon embraces Arkad’s wisdom. It is created from the ground up to have the capital working for you every single second.
- Members can deposit at any time. Gardens operate similarly to a rolling fund in this aspect.
- As new capital comes in, it automatically gets allocated in chunks to the active strategies of the garden. No need for the strategists or gardeners to rebalance.
- Incentivizes long-term deposits. Members can either wait until strategies finalize or take an early withdrawal penalty (15%) to compensate the other members of the community for the partial liquidation.
- Automatic compounding. Profits from a strategy get automatically reinvested into new strategies.
⛽ Sharing the gas costs
Ethereum gas prices have been rising steadily for the last two years.
The increase in gas costs paired with the rise in ETH is effectively pricing out retail consumers from DeFi. Users with a small amount of capital cannot afford the gas costs required to operate in DeFi.
In Babylon, the gardens are designed to socialize the gas costs across all the members. The more members there are in a garden, the cheaper the costs for every participant. It is also worth noting that we use OpenZeppelin relayers to ensure that the transactions are mined at a low gas price.
For example, with a gas price of 120 gwei/gas and $3780 per ETH:
- Execute a strategy: $760. For a garden that has 20 members, that’s $38 each. If a garden has 40 members, that’s $19 each.
- Finalize a strategy: $998. For a garden that has 20 members, that’s $50 each. If a garden has 40 members, that’s $25 each.
The most expensive individual costs are paid by the Gardener and the Strategist when creating a Garden or a Strategy.
- Creating a Garden: $710.
- Creating a Strategy: $445.
They have skin in the game. They must pay these fixed costs in order to earn the right to enjoy the bonuses and rewards they receive from the garden. Their rewards are also tied to the overall performance of the Garden so they cannot hide the risks and exit the community.
The team has also optimized the operations that are universal — deposit and withdrawal — to be as cheap as possible.
- Deposit into a Garden: $250.
- Withdraw from a Garden: $200.
Finally, in order to promote participation and prevent voter apathy, voting in a Garden is free for the individual. Voting is done through off-chain signatures.
🧩 Codeless Composability
DeFi is disrupting traditional finance. Characterized by its open-source ethos, DeFi protocols offer developers “money legos” or financial primitives. A developer can connect with any DeFi protocol deployed to the mainnet and start developing a new application on top of it.
However, if you are not a developer, your options to connect with this open financial system are greatly limited.
Babylon.finance creates a layer of abstraction on top of DeFi to help communities mix and match different DeFi protocols to create strategies and portfolios that best match their group preferences. Best of all, absolutely no code is required.
Using the Babylon.finance UI, you can create strategies that:
- Deposit money into a lending protocol to earn interest.
- Provide liquidity to AMMs like Uniswap, Sushiswap, or Balancer.
- Yield Farm through Yearn or Harvest.
- Buy a Non-Fungible Token (NFT) and start an English Auction until expiration.
- Buy/Sell any asset that has sufficient liquidity on Uniswap V3.
- That’s not all, you can combine many of these operations into one single strategy. For example, you can deposit ETH into Compound, borrow USDC and use that USDC to provide liquidity in the ETH/USDC pool in Uniswap.
We plan to support more operations and primitives including insurance, options, and synthetic assets soon. We even have a custom integration option in the works. A garden would be able to engage in custom or riskier operations through it.
🏰 Next Steps
That concludes the five guiding principles of the protocol. If you want to dig deeper, please head over to the documentation, where you can read the full Litepaper.
If you have any thoughts, questions, or ideas on the Litepaper, consider joining our Discord. Introduce yourself and let us know your thoughts!
If you’re interested in participating in our upcoming private beta, please sign up for the beta waitlist on our website. We won’t be able to invite everyone so we’ll prioritize sending invites to people who also contribute in Discord.
🌴 Sign up for beta waitlist: http://babylon.finance
🌴 Join us on Discord: https://discord.gg/ZqUrdYvt5e
Legal Disclaimers
This announcement has been written and published by Babylon Finance, Inc. (“Babylon Finance Inc”). The directors and officers of Babylon Finance, Inc owe fiduciary and contractual duties solely to Babylon Finance Inc’ investors.
BABL confer no information, voting, economic, fiduciary, contract, or other rights against or with respect to the assets or personnel of Babylon Finance Inc. The interests of Babylon Finance Inc and its directors, officers, and investors may differ materially from the interests of BABL holders, protocol users, and other active protocol participants.
Babylon Finance Inc provides no guarantee, commitment, or undertaking to utilize any of its assets, funds, properties or personnel, BABL users, or other Babylon protocol participants. Babylon Finance Inc does not owe and does not intend to assume, any duties or obligations to BABL holders, users, and other protocol participants, other than duties or obligations arising under laws of general application, such as non-waivable torts. Moreover, Babylon Finance Inc has various legal, fiduciary, and contractual obligations that could conflict with the interests of BABL holders, Babylon users, and other Babylon protocol participants.
To the maximum extent permitted by applicable law, all software relating to the Babylon protocol is being provided on an as-is, where-is basis, with no representations or warranties being made to BABL holders, protocol users, or other Babylon protocol participants and with no liability to Babylon Finance Inc or any other person involved in the development of the Babylon protocol. The statements set forth in this announcement also are not intended to be representations, warranties, guarantees, or assumptions of duty or liability of any kind, and Babylon Finance Inc hereby disclaims the foregoing and will not be liable for any damages arising from the use of the Babylon protocol or BABL.
In the event of any conflict or inconsistency between this announcement or any other communication and the terms of any software license involved in the Babylon protocol, the terms of the software license shall govern to the exclusion of this announcement and such other communications.
The forward-looking statements in this announcement are subject to numerous assumptions, risks, and uncertainties that are subject to change over time. Such assumptions, risks, and uncertainties could cause actual results or developments to differ materially from the results and developments anticipated by us. Even if our anticipated results and developments are realized, such results and developments may nevertheless fail to achieve any or all of the expected benefits anticipated by this announcement.
We reserve the right to change the plans, expectations and intentions stated and implied herein at any time and for any reason or no reason, in our sole and absolute discretion, and we undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
This announcement is for information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any interests in Babylon Finance Inc, any Gardens or any other securities.This announcement is not intended to provide legal, financial or investment, or other advice and we recommend that you do not rely on, and do not make any financial or other decision based, on this announcement.
