🫀The Heart of Babylon — Reloaded

Ramon Recuero
Babylon.finance
Published in
10 min readJun 7, 2022

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Babylon is a community-led asset management protocol that enables users to create investment clubs (we call them gardens) and invest in DeFi together. It’s built on the Ethereum network and it’s non-custodial, transparent, permission-less, and governed by the community. BABL is the governance token behind it.

TLDR: We are proposing a switch to a more sustainable model with just one infinite epoch. Babylon needs time to mature and we want to reward the people that share our long-term conviction. The longer you lock your BABL, the greater your rewards and voting power.

Earlier this year, we launched The Heart of Babylon, a staking mechanic on steroids that aims to deliver value to BABL holders while ensuring the long-term sustainability of the protocol.

Since launch, the Heart has completed two epochs of two months each with great success. The Heart capacity has been increased consistently from 20k to 100k while returning over 165% APR.

Today, we are going to analyze the past performance, discuss the shortcomings of the current model, and propose a few changes that will result in a more sustainable model for the next few years.

⏲ Tweaking the Engine

First of all, let’s analyze the Heart’s performance, global parameters, and discuss potential tweaks to improve it.

🚀 APR: 57.89% in 4 months -> 173% ✅

Perhaps, the most important metric is APR. The Heart has met and overdelivered on its 150% initial APR. That APR means more than 20K BABL have been generated in profits through the combination of yield from different DeFi strategies, mining rewards and the initial subsidy.

However, as the capacity grows, that APR is unsustainable without taking unreasonable amounts of risk. Therefore, we are going to drop the baseline APR to a more sustainable target of 30%. To help achieve this APR, Heart Strategies are going to receive 2x the mining rewards vs normal garden strategies.

Suggested Change: ⬇️ Baseline APR to 30%.

📈BABL Price: From $48 to $30. 38% drop. Given the bear market, ✅

One of the implicit goals of the heart is to provide constant support, stability and demand for BABL by collecting protocol fees and using these fees to execute buybacks, distribute dividends to other gardens and increase the liquidity of the token.

Although the token has suffered a 38% drop during this period, it has fared considerably well comparing it with other DeFi protocols, the overall crypto market and even ETH itself.

Holding vs ETH

🛄 Capacity: 20k -> 80K ✅

The great demand forced us to increase capacity 5 times. From an initial target of 20K to ~80k. This means that 25% of the circulating supply of BABL is locked.

*Seed round unlocks. In July, our seed investors unlock 1/3 of their seed tokens or 65K BABL. We have talked one by one with all of our investors and 93% of them plan to either stake or lend their BABL tokens. We are going to work with the few that want to sell to provide them with OTC arrangements so they don’t affect the TWAP price.

Suggestion: ⬆️ Capacity to 150k to save enough space for unlocks.

🔒 Locking Period: 2 months

We opted for a brief locking period because we wanted to give as much optionality for users as possible. During a bull market, we still believe this is ideal for users because there are so many opportunities to utilize your capital. The market has changed quite a bit since then.

In retrospect, having a short lock period has added a lot of overhead to the core team. Furthermore, this forces the heart to close and recreate all strategies every two months, increasing the gas costs considerably, reducing capital efficiency and breaking the compounding loop. Having a longer lock period will allow the heart to increase the APR at scale while keeping a low risk profile.

We want to reward the users that are with Babylon for the long term. Tourists get scared when the bears get out of the lair while long-term holders welcome the winter to strengthen and build. We want to let users choose their individual lock period based on their conviction. The longer they lock, the higher APR they will receive along with greater voting power. Similar to how veCRV works.

6 months: No bonus. Baseline voting power.

1 year: 2% extra hBABL when depositing. 2x voting power per hBABL.

2 years: 4.5% extra hBABL when depositing. 4x voting power per hBABL.

4 years: 10% extra hBABL when depositing. 8x voting power per hBABL.

These extra hBABL rewards will only be active until July 15th. Voting boosts will always be applied.

Suggested Change: Locking period from 6 months to 4 years.

🎟 Bonding Program: Up to 5% discount. ⚠️

In April, we introduced Heart Bonds. These bonds allow users to provide the protocol with assets it desires and receive extra staked BABL in return. The initiative has worked well, however only a few users have taken advantage of it. We believe that part of that is because these wanted assets require entering liquidity in Gamma and Fuse Pool respectively.

We propose adding a simple bond that gives a 10% discount for using DAI to stake in the heart. That way, the protocol can start replenishing its treasury directly with stables and the depositor gets 10% extra hBABL upon deposit.

This bond program will only be available through July 15th.

Suggest Change: Add DAI bond with 10% discount.

🧮 Splitting the fees

Babylon has already generated more than $300K in protocol fees, which translates to an ARR of more than $700K. The future of the protocol depends on utilizing the fee inflows wisely.

Let’s look into the current fee distribution and assess their effectiveness:

💰 BABL Buybacks: $210K allocated. 7K BABL purchased. ⚠️

Buybacks have been a relative success. Half of these buybacks have been delivered as rewards to the heart holders and the other half were allocated to the treasury. We believe that we should reduce the % of the buybacks. Given that we are in a bear market that may last years, the main goal of the protocol should be to expand the treasury and reinvest into growth and R&D.

Suggested Change: ⬇️ buybacks from 30% to 10%.

💹 BABL-ETH Liquidity: $37K allocated ⚠️

ETH has crashed 70% since the pool was created. This has greatly affected the liquidity of our pool. However, the heart has been successful in maintaining adequate level of liquidity to protect BABL from TWAP manipulations. $286M are currently needed to move the price 20% according to Euler estimates.

Given that we are in a decent position and we believe the market is closer to the bottom of the cycle, we propose reducing the % allocated to this iniative.

Suggested Change: ⬇️ BABL-ETH from 25% to 10%.

🌴 Garden Investments: $22.2K allocated ⚠️

Heart stakers can direct a % of the fees to the gardens they prefer. The Fountain of ETH, the fountain of BTC and Arkad’s garden have been the main beneficiaries of this mechanic.

We believe that this mechanic has been underutilised and we propose to increase its percentage to make the voting power more valuable and encourage people to lock their BABL to be able to direct their votes.

Suggested Change: ⬆️ Garden Investments from 10% to 20%.

⚙️ Fuse Pool: Lent $27k in DAI to the Fuse pool. ⚠️

The Babylon lending market on Fuse Pool has worked relatively well. As we saw above, the Heart lends BABL, borrows stables and uses these stables to generate yield.

Leaving the Rari hack aside, the market grew to a total of $9M in TVL thanks to its lending APR and the BABL rewards. Once the reimbursement is issued, we propose reducing the fee allocation but increase the rewards.

Suggested Change: ⬇️ % from 20% to 10%.

🏛 Treasury: $14.8k were sent to the Treasury. ❌

The treasury has received $14.8k in fees from the heart during the last four months. Given that the treasury is mostly comprised of BABL at the moment, increasing Protocol Controlled Value (PCV) should be the highest priority to survive the 🐻. Our allocation to the treasury was really small and we suggest increasing it considerably to rebuild our PCV.

Suggested change: ⬆️ % from 10% to 45%

🛡Shield: 30k spent on coverage. Coverage up to 1250 ETH ✅

Two weeks ago, we introduced a proposal to create the Babylon Shield. Our goal is to help people build wealth together through opportunities available on DeFi.

DeFi and crypto gives us many benefits when compared with TradFi like 10x efficiency, reduced middle-men, permissionless, trustless and non-custodial.

However, the weekly hacks paired with situations like the Terra collapse throw all the benefits out of the window. Users don’t care about any of this if they are exposed to massive losses.

In order to protect our protocol, we proposed dedicating 5% of the Heart weekly fees to create the Babylon Shield. The Babylon Shield is a pool for incidentals that tops up our smart contract coverage and will later be used for other risk mitigation initiatives. The protocol has already purchased cover up to 1250 ETH for a year.

Suggested change: ⬆️ 5% to the Babylon Shield

🐻 Surviving the bear

The number one mission of the protocol is to survive the bear market. As we mentioned, the protocol currently collects around $700k per year in fees based on $20–30M TVL. That means that the protocol would be “ramen-profitable” once the protocol reaches $60M in TVL.

Two consequences:

  • Focus on initiatives that can increase TVL during the bear market.
  • Reduce expenses to give us more time to get there.

To get there, we need your help. We need time to realize the vision of the protocol. We cannot survive without your support. We are extremely grateful for all your support during the first few months of the protocol and we are convinced that if we march together, we’ll come out this stronger together.

Going back to the heart fees and bringing it all together, here is what we suggest.

Global Parameters

💰 15k BABL will be allocated from the treasury to satisfy discounts and bonds. Any amount not used will be returned to the treasury on July 15th.

🚀 APR: Baseline Target APR of 30%. Use safer strategies. Mining Reward program will give twice the rewards to Heart strategies.

🛄 Capacity: 150k. ⬆️ to 150k.

🔒 Lock Period: ⬆️ 6 months — 4 years. Up to 10% reward + 8x voting boost.

🎟 Bond Program: Add DAI bond with 10% Discount.

Fee split

💰 BABL Buybacks: ⬇️ to 10%

💹 BABL-ETH Liquidity: ⬇️ to 10%

🌴 Garden Investments: ⬆️ to 20%

⚙️ Fuse Pool: ⬇️ to 10%

🏛 Treasury: ⬆️ to 45%

🛡Shield: ⬆️ to 5%

🫀 How to participate

If you want to participate in the Heart of Babylon, here is how to think about your participation.

  • Existing Heart Members: if you want to lock your existing deposit for 6 months you do not need to do anything. If you want to stake for longer and receive the bonuses, you need to withdraw and deposit again. Deposit will be free.
  • New Members: first of all, you need to decide if you want to deposit using BABL or you want to take advantage of any of the bonds available, DAI being the best available bond that gives you an immediate 10% bonus.

Starting on June 10th at 3pm PST, existing members will be able to withdraw and/or deposit. New members will be able to take advantage of all the new programs starting on that same date and time.

https://babylon.finance/heart

📲 Calculating the numbers

If you want to get the maximum discount, you would bond DAI and select to lock it for 4 years.

For example:

If you deposit $3,000 DAI assuming a price of $30 per BABL and let’s assume the heart share price is 1.5 BABL.

3000 DAI -> 100 BABL -> 67 hBABL

+10% bond bonus+ 10% lock bonus-> 80 hBABL

30% APR for each year for 4 years -> Total BABL after 4 years: 300 BABL.

Total ROI: 300% in BABL. APR: 72.5%

You can play with the variables in this spreadsheet model:

If you want to calculate the performance in $ terms, you will need then to multiply the potential outperformance/undefperformance of BABL vs the dollar during these 4 years.

🌴 Join Babylon

Visit Babylon by clicking this link👇

https://babylon.finance/explore

We are building Babylon to help people access the best opportunities in crypto through native DeFi investment clubs or gardens. You can now invest along with others, save on gas, speed up your learning and minimize your transactions all at once.

Here are some of the top-performing gardens in Babylon:

⛲️ The Fountain of ETH. Deposit ETH and grow it using staking and lending strategies.

💲The Stable Garden. Deposit and grow your DAI with yield farming strategies.

🫀The Heart of Babylon. Stake your BABL, reinvest protocol fees and vote on governance for free.

You can visit Babylon here.

Join our Discord to become part of Babylon.

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Ramon Recuero
Babylon.finance

Cofounder at Kinto. Previously at Babylon Finance, Y Combinator, Zynga, Google and OpenZeppelin.