A Look At The BNPL Pay Econometrics
Please be aware that this is just a personal analysis based on public information about BNPL Pay. There is no guarantee that the described strategy would play out as described and this article is certainly no recommendation to buy any token. Please also check the disclaimer at the end of the article.
After the initial BNPL IDO a few weeks ago, the BNPL Team is now only a month or so away from releasing the next generation of Decentralized Finance (DeFi), as the team scales decentralized lending products beyond the current boundaries of collateralized lending and tapping into a new frontier of multi-trillion-dollar credit markets — the uncollateralized loans sector.
Like all things in the DeFi ecosystem, this is an experiment. An unsecured lending model based fully on game theory and incentive structures. This is a model where yields are paid to lenders of capital in the form of stable coins and BNPL tokens. In the BNPL Pay protocol, Banking Nodes compete for capital from Lenders, security from Stakers, and yield from Borrowers.
For a more detailed understanding of how this innovative unsecured loans protocol works by merging CeDeFi, please check out the earlier published article and podcast by Qi Capital.
BNPL Token value drivers
The token value of BNPL is driven by supply/demand economics as in all sustainable business models, free of external controls. There are three main demand drivers in the BNPL Pay protocol:
Bonding: To set up a Banking Node, an individual or entity must stake and lock 5M BNPL tokens. Node operators accrue 10% of the interest portion of payments made by borrowers of their pool, as well as a share of staking rewards.
Staking: Anyone that holds BNPL tokens and wishes to delegate them towards a Banking Node can do so. This functions as a soft vouch for a pool operator, in return for 10% of the interest income. Stakers receive their rewards in BNPL tokens, where the interest accrued is automatically converted into BNPL through market buying.
Liquidity Mining: Anyone that holds BNPL tokens can pair it with the equivalent value in ETH and provide liquidity on the Sushiswap BNPL-ETH pool. Liquidity providers collect trading fees from Sushiswap trading activity. Furthermore, users can stake their Sushiswap LP tokens on the BNPL Pay app and receive a share of approximately 100 million BNPL tokens earmarked for liquidity providers.
Governance: A further incentive to lock tokens up via Bonding or Staking is to have a vote in the overall direction of the BNPL Pay protocol. This does not provide a direct economic incentive, but it does provide decision-making in the governance of the BNPL DAO (more details to come). Important parameters for the protocol, such a fee splits, will be set entirely by this DAO.
BNPL Pay Incentive Model:
*A visual representation of the flow of value and incentive structure of the BNPL Pay protocol.
The fundamentals of BNPL are driven by the total value locked in the BNPL Protocol (TVL). TVL is the number of digital assets in the form of stable coins Lenders provide to the Banking Nodes. Let’s dig into an example of how this works.
Supply/Demand-Driven Tokenomics
Above is a simple system with three Banking Nodes, each node with $100m stable coins staked, for a TVL of $300 million. Each node has a different risk profile and as a result, pays out a different interest rate to Lenders. Remember, Stakers share in the slashing penalty under default conditions (and are subject to loss of capital), so depending on the chance of default they will demand higher yields to take on increasing risk.
Under each Banking node, with the assumption of a staker’s expectation in terms of yield’, assuming BNPL price of $0.15 and the bonded tokens are set at 5,ooo,ooo to bond a Banking Node. Now depending on the risk category and the associated staker expectation, a higher TVL is required to attract the same amount of stakers as the risk associated with a given Banking Node’s Borrowers increases.
As the TVL on any node rises, and more capital is available to be lent, more borrowers can be accommodated, generating higher monthly repayments, increasing the overall yield paid to stakers. The growing share of yield available for stakers will mean existing stakers start earning higher returns, incentivizing outsiders to purchase and stake more BNPL to capture some of the growing yield pie.
In this simple mixed model, $300m of TVL would result in approximately 250m BNPL tokens staked and bonded at a fixed price of $0.15. These conservative model assumptions do not incorporate BNPL tokens used for Liquidity Provision or held in external wallets for other reasons.
So as can be seen from above, while Liquidity Mining and bonding are both expected to increase the demand for BNPL tokens, the true driver of value will be the Stakers, who are in turn incentivized by Lenders. Therefore 32.5% of the token supply is set to reward Lenders in the protocol. As Lenders increase, realizing the high sustainable yields, we expect the Stakers to also increase (who either need to hold or purchase BNPL tokens to stake and receive 10% of the yield payable by Borrowers to Lenders). This in turn creates more demand for a fixed supply.
About BNPL
BNPL (Buy Now, Pay Later) is a decentralized lending protocol that puts credit in the hands of those who need it the most: users without capital. BNPL tackles the problems presented by uncollateralized borrowing through a unique design in which a decentralized network of banking nodes services the needs of the industry. With BNPL protocol, anyone can become a lender, and anyone can apply for a loan.
More Information
BNPL Twitter: https://twitter.com/bnplpay
BNPL Telegram: https://t.me/bnplpay
BNPL Website: https://bnplpay.io/
BNPL Whitepaper: https://bnplpay.io/docs/bnpl-white-paper.pdf
About Qi Capital
Qi Capital is a group of like-minded and experienced individuals from around the globe, sharing two common objectives: providing insights about crypto and DeFi, and proactively working with ambitious teams on the future of decentralized finance. Our core principle is to promote and foster individual creativity, growing not only as a group but also as creative thinkers and builders. To learn more about us, check out our website www.qicapital.org and our “Qi Podcast” via www.buzzsprout.com/1729379/ or engage with us on Twitter: @QiCapital.
Disclaimer
Qi Capital is a strategic investor in BNPL. This statement is intended to disclose any conflict of interest and should not be misconstrued as a recommendation to purchase any token or participate in any farms. This content is for informational purposes only and you should not make decisions based solely on it. This is not investment advice. All market prices, data, and other information are not warranted as to completeness or accuracy, are based upon selected public market data, and reflect prevailing conditions and the author’s own views as of this date, all of which are accordingly subject to change without notice.
