Qi Capital
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Qi Capital

BarnBridge — $BOND

A DeFi protocol for every risk appetite

In my vision of the future of DeFi over the next five years, I mentioned a few times that due to the permissionless concept everyone can invest in everything. This also means that the power held by big banks and financial intermediaries vanishes and shifts the responsibility back to the investor: i.e “Do your own due diligence”.

BarnBridge offers the possibility of investing in a DeFi protocol that works like a CDO (collateralised debt obligation). Its history in a nutshell: CDOs were one of the products that triggered the GFC (great financial crisis) of 2008. Only professional investors were allowed/able to invest in those products (and most of them did not understand what they were investing in).

Now, this is coming to the DeFi space (actually it is already there and you have some products in which you can invest), and everybody who has a MetaMask wallet and a few stablecoins on it can invest in it. To me, this is crazy, but at the same time also fascinating.

In short, this is how it works (I have taken most of the info from their webpage: www.barnbridge.com).

Currently, they have two products:
“Smart Yield Pool”
“Smart Alpha Pool”

The Smart Yield product is the one that is very close to a CDO. The protocol takes the pooled funds from different investors and exchanges them into various assets and different lending protocols (see image below). As per their risk definition, those transactions get bundled (different colours), which then makes them tradable as an individual tranche. They mention that those tranches are like CLOs (collateralised loan obligations). Below you can see how the tradable CLO tranches could look like.

With the Smart Alpha product, you do not invest in yield (interest rates), but in tokens (e.g. ETH, SNX, CRV, etc.). This means that you are exposed to market price risk and you can choose (by selecting the respective tranche) how much you are willing to take (of that market price risk).

I’m happy to discuss your comments, remarks, and questions.

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Patrick Heusser

Patrick Heusser

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