Announcing Barnbridge v2: sustainable fixed interest in DeFi made easy.
One thing is certain, DeFi moves at warp speed. For a year and change, BarnBridge existed, we launched products that some say were ahead of their time.
With new entrants coming into the market and improving on what we started, we had to ask ourselves: what’s next for BarnBridge? What are the learnings that will lead us to find optimal product-market fit?
Small incremental improvements are good but not enough. Our moat has always been building elegant solutions that are exponential improvements to real-world challenges.
So we listened to feedback from users, the community, our partners, and prospective funds looking to deploy capital.
And one thing was crystal clear.
Fixed income products in DeFi were complicated and siloed.
Furthermore, we felt it was a huge ask for the users to deposit their capital for long periods of time, three months to six months, in an industry that moves at warp speed to earn yield (fixed and variable).
So, we set out to eliminate these challenges one by one and make fixed-income in DeFi more practical, lucrative, and flexible for our users.
After several months of research, ideation, validating hypotheses, writing specs, and hiring two new development teams, it’s time for a major overhaul and to continue being on the cutting edge.
It’s time for fixed income to made easy. It’s time for BarnBridge v2.
- Barnbridge v2 (BB v2) is a massive improvement that addresses gaps with both the current Smart Yield and other alternatives in the fixed income segment.
- BB v2 brings true fixed rates that are sustainable.
- BB v2 fixed positions are borrowable on Aave and FIAT DAO (on mainnet), so you can get secondary liquidity and leverage your position.
- The BarnBridge DAO will take LP positions to turbocharge the offered yield on BB v2.
Fixed income markets
Fixed income has a total addressable market of $119T worldwide and $46T in the US. It is, by far, one of the largest market segments in existence.
Looking at the opportunity at hand and gaps in current offerings, we believe BarnBridge should naturally find the market fit.
Learnings from SMART Yield v1 (The first fixed-income protocol built by BarnBridge):
- Current SMART Yield positions can’t be borrowed against.
- New entrants to the segment have launched protocol-incentivized fixed income products, which makes our fixed APYs less attractive in comparison.
- SMART Yield Senior positions are represented as NFTs (ERC-721). While the reasoning for going this route made sense at the time, it creates limitations as DeFi money legos still cater more to ERC-20 assets.
- Most fixed yield APYs in DeFi are neither sustainable nor stable in the long run. The key pillar to this segment is having consistency so you can do better cash flow planning and forecasting.
Enter BarnBridge v2: Sustainable and Leverageable Fixed Income
With Barnbridge v2, we have reimagined the approach to fixed income in DeFi. It doesn’t have to be complex, obscure, less attractive in terms of offered APYs, or built on a Ponzi tokenomics.
The primary goal with v2 is to offer attractive fixed rates in a more sustainable way than is currently available and to be able to borrow against those yielding positions. Users shouldn’t need to be incentivized to use our product. They also should not have to meet each other on the yield curve at every moment in time.
There are still two sides to each pool, but they operate a bit differently:
- Fixed yield position (that users deposit into).
- LP position.
The LP position is taken by the BarnBridge DAO and is there to simply power the fixed yield and create higher APYs. The BB DAO doesn’t earn any yield from its deposits outside of a “funding rate” set by the DAO to only power the LP side.
Bird’s eye view of BarnBridge v2 working mechanism
Pools: Every pool in Barnbridge v2 navigates through three different phases, Deposit, Withdrawal, and Epoch running.
Deposit: A pool first enters the Deposit period after being deployed. In this phase, a pool accepts deposits from users, which later earns them a fixed yield.
A pool stays in the Deposit period until the Withdrawal period starts.
Each new deposit that’s added to the pool lowers the fixed APR rate, so if at some point users are no more comfortable with the rate they are getting, they can also withdraw their deposits during the Deposit period.
Withdrawal: The withdrawal period is sandwiched between the Deposit period and the Epoch Running period. During this period, new deposits are halted, and users are allowed to withdraw their funds from the pool in case they are not comfortable with the final APR, causing the advertised fixed yield to go up for others who remain in the pool.
Epoch running: A pool is labeled as epoch running once it has started to earn yields on its deposits. During this period, no deposits or withdrawals are possible to/from this pool. However, users can pre-deposit into a pool undergoing Deposit period by signaling a rollover of their active pool positions if they choose to do so.
During the current period, the pool also accepts deposits into the following epoch. So, for instance, if the current epoch running is #3, the users are able to deposit into epoch #4.
After the epoch running ends, users can withdraw their deposits and gains.
At the launch, an epoch in BarnBridge v2 extends for 30 days.
Proof of liquidity
When you make a deposit, you receive ERC-20 pool tokens that represent your share of the active pool. These tokens are freely transferable and can be sold on the secondary market if you ever need to exit your position prior to the maturity date.
At maturity, you redeem the pool tokens for your initial deposit and share of the earned yield. The BarnBridge DAO votes to determine a funding rate that is deducted from the deposits.
Fixed means FIXED
Earned yield is the mechanism that allows us to offer true fixed rates. It is the cumulative yield earned during the prior epoch for the pool. This essentially guarantees the fixed rate (unless there is a smart contract exploit/hack at the originator) that is being offered since the return that is to be paid at maturity has already been earned in the prior epoch.
Fixed rates are tedious. Not anymore!
BarnBridge v2 employs a straightforward approach to fixed income. You don’t have to spend hours figuring out the actual APY on offer, or sign up for maturities with longer durations (typically 3–9 months) even when you don’t want to, or get overwhelmed by protocol’s complex yield generating mechanism like zero coupon bonds.
Leverage your yielding position
BarnBridge v2 allows you to leverage your open positions. To do so, you can borrow from Aave during the Deposit period (prior to the 1d withdrawal), redeposit the borrowed amount, and repeat the loop to gain a max 4x leverage.
No more opportunity costs
With BarnBridge v2, it’s time to bid adieu to opportunity costs arising as a result of a lack of liquidity. Barnbridge allows you to get secondary liquid capital without having to exit your yield-generating position by borrowing against your proof of liquidity tokens can on Aave and FIAT DAO.
Higher APYs, not GAS
The BarnBridge v2 will launch on the leading Ethereum scaling network, Optimism. This layer 2 offers lower gas fees, lower latency, greater throughput, and a world-class user experience making it the perfect ground to deploy BarnBridge v2.
BarnBridge v2 has already been launched on the Ethereum mainnet and is currently offering a sweet 43.62% on DAI. The first epoch starts on Sep 8 at 9 pm EST.
Secure your spot here: https://app.barnbridge.com/fixed-yield/pools/
In the coming days and weeks, we’ll post further explainer articles elaborating on the BarnBridge v2 protocol design as well as build out our documentation.