At the end of each year, the BAO maintainers need to be elected and set forward a plan that must be approved for them to continue forward as maintainers.
This proposal lays out a new one-year plan, and a series of significant changes that the current Maintainer galaxy and council of guardians thinks are needed for the protocol to move forward.
2023 has seen great progress with the development of new products, but there have been shortcomings with the traction they have gained. This proposal aims to address the core problems behind these shortcomings by streamlining and redirecting resources, focusing on revenue and creating demand for the BAO tokens with a series of changes to existing products and interesting new products that will capture TVL to help Bao flourish.
During 2023 we have seen several core products launched that address problems we have in DeFi today, such as centralized stable coins and high ETH borrow rates. While these products solve problems they have failed to find a product market fit. Demand for borrowing has been low and users that deposit into liquidity pools to earn rewards typically do so with other tokens, creating an imbalance in the pool that is resolved by minting synths from the ballast.
This annual agenda aims to identify the causes and fix them or turn them into opportunities during a new 2024 roadmap as well as develop ground breaking new products that will capture the attention of DeFi enthusiasts.
It will also streamline operations with the goal of ensuring a 2 year runway that should take us into the new bull market where there will be more opportunity to become cashflow positive.
For reference, the treasury has approximately $550k in stables, 120 ETH and various governance tokens (BAL, SDT primarily) at the time of writing. This represents around $800k
Our burn rate for 2023 was around $550k. In 2024 we aim to see a significant reduction in costs in to bring them to around $400k for the year meaning around $150k in expenses need to be cut.
Current costs, excluding infrastructure and licensing costs are
Contributors - $120k
Chickn - $110k (FT)
Vital - $105k (FT)
Baowolf - $75k (PT)
Jester - 69k (FT)
Fabiaz - $57k (PT)
TOTAL = $536k
Baowolf has already announced that he intends to step down from his position as lead of the maintainer galaxy due to a reduction in time he has available & has nominated Chickn as his replacement. Baowolf and chickn have always worked very closely since the time joining Bao during its infancy. The same can be said about Fabiaz, who Chickn has requested join him as co-lead of the project, providing a more technical side to the team.
With the continued support of Baowolf and other guardians, chickn and fabiaz will take over the role allowing Baowolf to continue in an advisor role & Maintainer Galaxy contributor.
As Baowolf is reducing his role, he will move to a 1 hour a day (on average) contract paying $24k a year. This represents a $50k saving on current costs.
As Bao Finance enters its next growth phase, we have an opportunity to optimize our talent strategy to play to the unique strengths of our community.
As mentioned above, Baowolf will step back from his current role to more of a supportive one. Other areas that will cost reductions will be on the front end and community teams.
Vital who has been the front end lead since the role existed has found a new role in another project. We will take this opportunity to reduce costs associated with the front end while hiring an experienced full stack engineer.
Haruxe who is a new contributor for the project in the last couple of months has experience with both smart contract and front end development and has offered to take on responsibility for the front end amongst other things. A Snapshot vote recently approved promoting him to a guardian on $60k annual stream. In addition we have allocated some budget for market leading external contractors to assist with any design and development where required.
Community & Marketing
2024 sees a continuation of the bear market and we have seen significantly lower activity in the community than in the past. The council of guardians also recognises the current teams lack of experience with marketing. As a result we will evolve our approach to community and marketing by discontinuing the full time community manager role within Bao and using some of those savings to leverage flexible external experts while leaving the door open for community managers to contribute. This allows us to tap specialized skills on-demand.
The savings from these changes will be reallocated to fund:
- Marketing activities handled by pros with large audiences
- Professional PR and communications capabilities from leaders in the space
This strategy allows us to scale contributions while accessing world-class capabilities. The result is an organization optimized for agility, expertise, and delivering results.
We’re grateful for all who have advanced Bao Finance to where we are today. And we’re excited to see what we can accomplish together by fully leveraging our community’s diverse skills in the most impactful ways possible.
The expected budget for 2024 will be:
Chickn - $110k (FT)
Fabiaz - $60k (PT)
Haruxe - $60k (PT)
Baowolf - $24k (PT)
Front-end/ marketing contractors: $50k
Licenses and infra costs: $10k
TOTAL = $414k
After one year of inflationary tokenomics that are designed to build TVL and kickstart revenue it has become clear that this model is not working for Bao. The emissions rewarding liquidity providers are an order of magnitude more than the revenue from products being generated.
This is creating little demand for locking veBAO and a decrease in TVL over time, prompting research into other options. Work will start immediately on a new model that works better for Bao. The team has already identified the yearn veYFI as an excellent option to borrow concepts from that would not require another token migration or significant changes to our infrastructure.
What the veYFI model would mean for BAO
Instead of using inflation to reward liquidity providers, all inflation would be burned and revenue would be used to buy Bao tokens from the open market. These tokens will be deposited into gauges as rewards based on the weights voted by veBAO holders. In essence, rewards will be distirbuted in the same way but revenue is distributed as BAO tokens instead of inflationary rewards.
Since no new tokens will come into circulation and some of the distributed tokens will be locked as veBAO, we aim to achieve reinforcing flywheel effects where tokenomics rewards drive more TVL, that in turn drive more fees, that in turn drive more BAO buybacks, that is then used to reinforce the tokenomics.
We may see a large drop off in gauge TVL due to the lack of inflationary rewards before the more sustainable model takes effect. Measures can be taken to mitigate this and will be addressed in a BIP along with other details on a new tokenomics implentation
Lending is a significant market in DeFi, yet Bao Vaults have not seen much demand. While Baskets have provided project controlled flexibility over collaterals for our synths, they are presenting more barriers to entry than the positives they provide the protocol. They add contract risk, offer a rigid collateral choice for participants, increase complexity when liquidating and add gas costs. In addition they take significant resources to maintain.
A much simpler approach would be to approve other collaterals such as rETH, ETH or LUSD directly. While different collaterals will now be allowed we will still focus on tokens that are decentralized and directly or indirectly backed by ETH (LSTs, or ETH/LST backed stables such as LUSD). Before each token is approved there will be a full risk assessment to evaluate the token so that the community can make an informed decision on its approval via snapshot.
There are many opportunities to add use cases for our core synths by creating lending markets for them. This will allow holders to take more complex or risky positions without compromising the backing of our synths directly. For example, more centralized collaterals could be approved allowing users to leverage yield on sDAI or RWA tokens by borrowing baoUSD without them backing baoUSD directly.
Our goal for 2024 will be to identify lucrative opportunities for these lending markets like the sDAI and RWA token example above. We already have the contracts and expertise required to do this because we can re-use our Vaults contracts.
In the last few weeks we have been integrating with b.protocol’s backstop protocol. In order to make deposits attractive and increase incentives to mint synthetics we should direct some of the revenue from borrowing interest and ballast strategy to the stability pool as additional real yield on top of the liquidation penalties that will be collected.
By directing revenue to stability pool depositors we ensure there demand for synthetics and a stability fallback which in turn helps to create more revenue, further compounding the flywheel effect of our synths. In addition the backstop deposited baoUSD and baoETH will be composable with the rest of Defi, so it is possible to build other products on top of it that use the backstop tokens as yield bearing collateral.
Inverse finance have expanded their FED contracts to create an AMM FED that allows minting and burning of synths into liquidity pools where they can earn rewards and help keep the price closely pegged. We will fork these contracts and apply them to our own synthetics. This will turn any imbalance of synthetic liquidity pools into an advantage as the protocol will generate revenue from the imbalance through arbitrages and liquidity mining. An AMM fed contract can be deployed for AURA and StakeDao initially, to take advantage of yield on offer for Balancer liquidity on those platforms.
Fx have created a novel way of minting synthetics which has the potential for many use cases including synthetics linked to any data. The protocol is effectively one collateralized debt position with a collateral token (ETH in Fx’s case), a debt token which is “stable” ( fETH) and a token that represents the leverage or the difference between the debt and collateral value (xETH). Fx have chosen to create a stable coin linked to the Ethereum economy rather than the US one - it dampens ETH price changes by 90%.
The most interesting part about this approach for Bao is that the protocol itself is a market for the tokens it creates, which solves one of the key issues with creating synthetics linked to any data.
Theoretically we can link the price of the fToken to what ever we want and finally start to build towards our original vision of synthetics linked to any data.
As long as there is demand for the leverage token (xToken), we can create tokens that represent any data as well as leveraged long positions on the collateral vs data.For example with ETH collateral we could create a BTC synth (fToken) & leveraged long ETH/BTC synth (xToken).
Synths and leveraged long synths are redeemable at any time for the appropriate value in collateral and yield from collateral strategies is used to incentivise a rebalance pool that can be used to maintain protocol solvency during volatility.
Chainlink Data streams are launching too, potentially solving the other key issue with creating synths linked to any data - Front-running oracle updates to drain value from liquidity pools.
Chainlink data streams work by pulling data when it is required rather than pushing it periodically as we are used to.
Our goal for 2024 will be to develop a MVP F(x) fork, like a new way of minting baoUSD. We also hope to achieve our first data synth, but this is more complex because it will likely require the use of chainlinks new data streams which have yet to be fully researched.
Recent months have seen huge developments in the field of cross chain communication and liquidity. It is now possible for us to develop contracts that will allow baoUSD, baoETH and other synths to be minted and burned on any chain while maintaining collateral on main net so that we stay true to our goal of the safest, most decentralized synthetics.
This will also allow us to deploy lending markets on other chains and take advantage of opportunities for lending synths that are unique to each chain.
- Launch veYFI-inspired tokenomics changes
- Sunset baskets and approve new Vaults collateral like rETH directly
- Launch AMM FEDs for baoUSD and baoETH
- Multichain alpha testing
- Fx Alpha testing
- Launch the first baoUSD and baoETH lend Vault
- Launch F(x) synths MVP
- Complete research and begin testing integrations for multichain expansion
- Expand baoUSD and baoETH lend vaults
- Evaluate progress and traction of lending markets and AMM FEDs. Make adjustments as needed based on market feedback
- Complete research and begin testing integrations for data synths
- Launch data synths MVP if research successful
- Launch multichain expansion if research successful
- Begin development for data synth factory if research is successful
- Develop plan and milestones for 2025 based on learnings from 2024 initiatives
- Re-evaluate resource allocation and budgets based on trajectory
The key focuses in the first half of 2024 are stabilizing and simplifying the core business, launching incremental improvements, and building revenue drivers. Higher risk innovations are researched in parallel and launched later contingent on progress made on the core business.
*“OKR” stands for Objectives and Key Results. OKRs are an effective goal-setting and leadership tool for communicating what you want to accomplish and what milestones you’ll need to meet in order to accomplish it. OKRs are used by some of the world’s leading organizations to set and enact their strategies
Our OKRs are split into 3 categories to help align expectations on what’s directly controllable versus more aspirational targets.*
kens = key result is directly controllable by the team (kensuki)
lag = key result lags or trails the actions that drive it
*lead = key result is a leading indicator that precedes the outcome it drives
Kens key results - Directly within the team’s control (e.g. launching features, reducing budgets)
Lag key results - Lag or trail the actions that drive them (e.g. revenue targets, TVL goals)
Lead key results - Precede and drive the outcomes they are linked to (e.g. research reports completed before new products launched)
Kens - expectations are high to complete these
Lag - ambitious stretch goals to motivate the team
Lead - early indicators that actions are on track*
- Sunset baskets and approve at least 1 new vault collateral by end of Q1 2024 (kens)
- Define risk assessment framework for vault collaterals (lead)
- Launch stability pools by end of Q1 2024 (kens)
- Launch 1 ammFED each for baoUSD and baoETH (kens)
- Complete risk assessments for 3 potential new vault collaterals per quarter (lead)
- Launch lend vaults or mint vaults collaterals for suitable risk assessed collaterals each quarter (kens)
- Launch alpha testing for 1 lend vault on a new chain by end of Q3 (lead)
- Generate $250k in lending revenue by end of Q4 (lag)
- Launch veYFI tokenomics by end of Q1 2024 (kens)
- Each end of Quarter TVL beating the previous (lag)
- Increase veBAO holders by 50% by end of 2024 (lag)
- Launch working F(x) synths MVP by Q3 (lag)
- Launch multichain alpha by end of Q2 (lead)
- Have roadmap and resources lined up for top new products for 2025 by Q4 (lead)