Bao Finance 2023 Q2 Update
As each quarter passes, we want to recap what we achieved during the last months and where we stand toward our roadmap. This article is also a good way to be up-to-date with what’s happening in the DAO.
What has been achieved in 2023 Q2
The Bao Finance guardians and contributors hit several objectives from our annual roadmap this spring. Here are a few milestones reached and deployed that you may have missed!
Launch of our basket of ETH staked tokens bETH
bETH is a new token representing diversified exposure to liquid staked Ethereum tokens, beginning with rETH and stETH from Rocketpool and Lido respectively. The underlying assets are voted on by veBAO holders minimizing the need for users to manage and rebalance their LSD portfolio. With its focus on the industry’s safest and most decentralized LSD tokens present an attractive option for users seeking low-risk exposure to the Ethereum ecosystem as well as being ideal collateral to back our baoUSD and baoETH synthetic tokens.
Anyone can easily mint bETH tokens by depositing ETH, which is subsequently exchanged for the underlying LSD tokens. In return, bETH tokens are issued to the depositor’s wallet, representing their proportion of the underlying assets. bETH tokens can be redeemed at any time by any wallet holding them.
Launch of our second synthetic token baoETH
baoETH is an overcollateralized ETH-pegged synthetic token created by depositing ETH, bETH, or bSTBL as collateral into Bao Vaults to borrow baoETH. Revenue from borrowing is distributed to veBAO holders. Since the supply of baoETH is uncapped, it means the variable interest rate paid by borrowers is not correlated with the staking yield on ETH like other lending markets relying on ETH depositors.
As you can see below, the ETH borrow rate on AAVE is the same as the yield earned from ETH staking.
baoETH allows users to unlock the value inside their bETH tokens with minimal liquidation risk while retaining access to staking rewards. This feature is especially beneficial for users looking to leverage their staking rewards or take profits from crypto without losing access to their yield.
Entering the liquidity incentives game
As part of our annual roadmap, the different galaxies were tasked to analyze and incentivize the liquidity of baoUSD over the most secure protocols on Ethereum.
There are already incentives on the Bao platform for baoUSD liquidity providers, but to attract more liquidity, we need incentives from seasoned protocols to reduce reliance on BAO emissions.
We chose to focus our attention on the Balancer ecosystem to start with because of the flexibility they offer with their liquidity pools, suiting our base pool concept perfectly. With Balancer we can pair any token easily with a base pool as well as concentrate liquidity for tokens that are not pegged (but still correlated) like bETH/ETH. In recent weeks rewards for the baoUSD/LUSD base pool have been activated on Balancer, Aura and Stakedao and at the time of writing a vote for baoETH/ETH incentives to start too on the Balancer platform just passed.
By partaking in governance votes around liquidity gauges of some of the most renowned protocols, we can encourage the adoption of baoUSD, bringing more eyes, market share and consciousness to what we are building!
StakeDAO Collaboration
As such, we analyzed the markets, monitoring the most efficient ways to maximize capital and reward efficiency per protocols.
We found soon enough that the market is evolving at a fast pace and that we should partner with those who are working in that field daily.
It was only natural to start discussions with StakeDAO, a non-custodial platform that enables anyone to grow their crypto portfolio easily. It is built on top of decentralized blockchain protocols, offering a seamless way for people to grow, track, and control assets right from their wallets. They aim to allow anyone with any level of knowledge of crypto to have easy access to the market’s most competitive products and strategies.
Using their liquid locker, DAO’s can increase their voting power into different protocols like Curve, Angle, Frax or Balancer. This is to increase their rewards during gauges weights or their lobbying into the DeFi space.
We gained over the last weeks a lot of insights about maximizing our voting power and strategies around our BaoUSD liquidity gauges, including the release of our baoUSD Basepool which will be the foundation of baoUSD liquidity aligned with the best-decentralized stablecoin LUSD from Liquity.
Besides advisory upsides, our relationship with StakeDAO let us purchase their liquid locked tokens (sdBAL) and SDT governance token, which boosted voting rights on the Balancer platform and boosted yield on StakeDAO gauges.
StakeDAO will help us to create and vote for gauges on Balancer, Curve or Frax by working on the proposals with us and supporting them through the governance process, optimizing the size of the bribes we pay to voters and the liquidity seeded. This will help us maximize the governance power we earn and the best way to use it, from bribing more voters to increasing our vote power or a combination of both.
Initial tests have been positive, with $1 of bribes returning more than $1 of emissions to our pools. This combined with seeding liquidity from the treasury means we can grow our liquidity with zero cost and no additional BAO emissions.
Basepools on Balancer
BaoUSD already has a pool on Curve, paired with the3CRV base pool which is composed of USDC, USDT and DAI. This is good for exposure and aligning baoUSD with commonly used stables on the market.
The Blackswan event of this year showed how easily confidence in stablecoins can be shattered when we saw USDC and the crypto assets reliant on USDC fall down below .90 cents. A few protocols remained strong; among them, the decentralized protocol Liquity stood out. Their LUSD stable token proved resilient to such scenarios due to its decentralized nature and focus on only the most pristine collateral, ETH. These features resonate well with the goals the Bao community has for baoUSD
As we want to spread the usage of baoUSD across many protocols and deepen the liquidity of baoUSD, we decided to create a base pool composed of baoUSD and LUSD on Balancer. Using the Bao base pools, any project can pair any token with USD liquidity that will not collapse if USDC or any other centralized stablecoins do. Projects seeking a safe haven from centralization risks can apply for a gauge on the Bao platform or Balancer to easily and efficiently incentivize decentralized USD liquidity.
This base pool is incentivized on Balancer, Aura, StakeDao and Bao to bring awareness to our product offering and be the cornerstone of pairing other crypto tokens with baoUSD.
Evolving Governance
Core to the success of any DAO is its governance structure, and Bao Finance is deeply committed to this principle. As we strive towards greater decentralization, we plan to integrate governance contracts such as Governor Bravo, Charlie, or OpenZeppelin. These adaptations have considerable benefits: they permit users to arrange entire transactions within the governor contract and empower DAO members to execute specific calls within a proposal. This means less need for centralized control and decreased dependence on administrative roles.
Our move towards this form of governance symbolizes an evolutionary step away from conventional, centralized frameworks, embodying the true spirit of decentralization promised by blockchain technology. Voting will occur directly on-chain, bolstering transparency and accountability in our processes.
An update on Saddle Finance gauge proposal (BIP-33)
The DAO approved BIP-33 in February of this year. It was proposed that each protocol will create a gauge on its own platform for the new baoUSD/FRAXBP pool on Saddle Finance
In addition, 1m SDL tokens have been swapped for 1m BAOv2 tokens, which have an approximately similar market value at the time of writing (around $6k). The tokens will be max locked for four years on our respective platforms.
The swap was done a couple of months ago between the two DAOs. The Bao guardians have already implemented the gauges on our side, and we are waiting for the Saddle team to finish implementing the technical aspects on their side.
We expect a positive outcome anytime soon.
We are eager to make this gauge live as it will drive liquidity for baoUSD and make our synthetic aligned and exposed to one of the rising stablecoins in DeFi: Frax.
BAO Branding Revamp
Bao Finance’s branding, logos and colour scheme date from our yield farming era, almost three years ago. It was time for a refresh that better reflects who we are today. We hired BabyGiant, a top brand consultant from the UK to create a powerful new logo and brand.
Guardians and contributors worked with a focus group composed of DAO members to guide BabyGiant and help ensure we can refresh our image while remaining true to our roots. A hard feat we think we have achieved — We are excited to reveal the outcome in the next few weeks.
The revamping of our graphical visuals will be implemented on the Bao landing page as well as our Web3 App.
B.Protocol Collaboration
For the last couple of months, Bao guardians have been in discussions with B.protocol to provide a liquidity backstop for baoUSD and baoETH.
B.Protocols liquidity backstop detaches lending platforms from their dependency on 3rd party flash loan bot operators and DEX liquidity, letting their communities secure the platforms they use while gaining from clearing risky positions and avoiding bad debt.
The Backstop AMM (B.AMM) enables users to deposit funds into backstop pools, and this liquidity is used to execute liquidations on integrated platforms. Once a liquidation occurs, the smart contract pulls the needed funds from the backstop to facilitate the liquidation and automatically puts the seized collateral for sale. Once sold, the return is deposited back to the backstop pool, and profits are accrued. In addition, while baoUSD and baoETH funds are idle, they can be deposited into a yield-bearing strategy, such as depositing into a lending market.
Once integrated (expected Q4 2023) we will have legitimate real yield for baoUSD and baoETH depositors who can earn a passive yield from lending and from capturing liquidation proceeds instead of passing them on to MEV searchers.
The flow chart above shows how b.protocol works. Instead of DAI, our backstops will use baoUSD and baoETH deposits.
What’s next?
Many milestones are in the planning or conceptualization phase. We will work on many things to improve our protocol and harden our decentralization stance.
- Baskets, baoUSD and baoETH decentralization hardening
- Governor contract implementation for on-chain governance
- baoUSD and baoETH growth
- bSTBL integration outside of Bao Finance
- Explore omni-chain synths
