DeFi Explained: BarnBridge (BOND)
BarnBridge is the latest DeFi Ethereum project making its rounds in the “Crypto Twitter world”. This project aims to mature the DeFi lending and index markets by creating “bond-like” products that divide risk into tranches, allowing investors to specifically choose their risk profile.
BarnBridge is a derivative protocol that combines existing lending rates and yield products into “bonds”. Said bonds are offered to DeFi investors at different levels of returns, and the risk is dampened by each product’s risk/yield balance.
A real-world example of this process is mortgage-backed bonds, in which the safest “AAA” bonds can be combined with less secure “BBB” bonds to increase the yield. The new combined bond is then hedged between two different classes of investors who choose their possible returns according to their risk appetite.
BarnBridge’s seed investors include Ethereum DeFi heavyweights like Kain Warwick, founder, and CEO of Synthetix, the leading synthetic asset protocol, and Stani Kulechov, founder and CEO of Aave, one of the largest lending money markets in the ecosystem.
Value Proposition
Currently, BarnBridge is set to offer two products that will launch in the coming months. Both offerings will introduce traditional investors to the DeFi world by giving them a safer alternative to what is currently available.
Smart Yield Bonds
Smart Yield Bonds will aggregate stablecoin deposits from 3 classes of investors with different risk appetites and deposit the funds into Compound and Aave stablecoin interest accounts.
The estimated returns are then fixed by splitting the risk profiles between the investors. For example, the “safe” investor is guaranteed 3%, while the more risky investor is guaranteed any additional return above that percentage.
In the event that a catastrophic bug impacts the smart contract, the “safe” investor is over-collateralized by the “risky” investor’s funds. Alternatively, any additional interest generated from the “safe” investor’s funds is diverted into the “risky” investor’s yield.
Smart Alpha Bonds
Smart Alpha Bonds will create “index-like” products that are protected with decentralized options to dampen the volatility of the underlying asset.
An example strategy involves offering a derivative of the Ethereum token (ETH) that is divided into risk profiles, in which the high-risk investors’ returns can be subsidized by the safe investors’ deposits.
Alternatively, if the asset provides a negative return, the safe investor’s funds are covered by the high-risk investor’s funds.
Both of these products are dependent on the robustness of the DeFi ecosystem. They rely on the existence of mature lending and decentralized exchanges, where smart contracts can be programmed to follow these set rules according to the risk profiles determined by the application developers and proposed data models.
$BOND Token Use Case
BarnBridge also features the $BOND ERC20 token, which will function as the protocol’s governance medium. The token will be used for staking in the DAO system to propose and vote on changes to the protocol.
In the BarnBridge medium post titled “DAO First: A new governance model”, the team expressed their interest in a token model similar to that of Synthetic and Aave, where the staked tokens provide an insurance-like backstop for any protocol failures. Stakers should then be rewarded with protocol fees for providing this service.
The team has indicated that the final “tokenomics” implemented into BarnBridge will be determined by the community and team through a collective active discourse.
BarnBridge Tokenomics
Total amount of $BOND tokens: 10,000,000
- Community: 60%
- Yield Farming: 8%
- DAO Treasury: 10%
- Founders, Seed Investors, & Advisors: 22%
Founder, Seed Investors, & Advisors vesting schedule:
- Length of vesting: 100 weeks
- Release schedule: 1 week
- Amount of $BOND tokens released each week: 22,000
- Percent of $BOND tokens released each week: 0.22%
This token release schedule for the community — involving token distribution through rewards, founders, and investors — is similar to the schedule used by Curve.
Depending on the token price and the community and founders’ commitment to the project, “HOLDING” the token can have a negative impact on the market by creating an unsustainable inflation rate for the first 2 years of the project’s life.
The team raised a total of $1M from seed investors, with 7.5% of the tokens allocated to the sale. In effect, this gives $BOND a starting price of $1.33 with a $13.3M fully-diluted market cap.
Current Traction
The program is set to run for 25 weeks; therefore, a set amount of 32,000 BOND tokens will be distributed weekly through this program.
The $BOND yield farming program quickly attracted over $200M in deposits to the protocol’s USDC/DAI/sUSD pools.
After this first week, the launch of the Uniswap liquidity pools will commence, as there will be a circulating supply of $BOND tokens from the yield farming rewards program.
A liquidity pool incentivization program will then reward 20% of the total token supply to Uniswap liquidity providers over a period of 100 weeks (20,000 $BOND tokens will be distributed weekly through this program).
Final Thoughts
BarnBridge is an interesting project that follows the ethos of the “money lego” narrative, combining the most popular “money protocols” into new products that can attract traditional investors to the growing world of DeFi.
While the project’s yield farming and liquidity mining programs have cultivated a large audience, only time will tell if these individuals will become permanent users after the rewards run out.
