[BIP-10] Approve Soft Synths (Bao Baskets) on main net

Summary

Approve soft synths deployment on main net and agree the starting baskets and parameters

Status

Agree final wording
This proposal has spent 1 week in the #concepts section of the forum so the community can brainstorm ideas and/or provide feedback to the goals suggested by galaxy members. It will now spend 1 more week in the governance section of the forum with its final wording. If no significant changes are made after 1 week, it will be moved to snapshot for the community to vote on.

Abstract

If adopted this proposal seeks to:

  1. Agree which baskets to start with on main net
  2. define a fee structure for Baskets
  3. define a rebalancing strategy
  4. Approve yield options for underlying assets

Background

Soft synths have been deployed on Polygon already under our Polly Finance franchise. The implementation will largely be the same, with the addition of an the “oven” feature that PieDao use to make smaller buys more gas friendly.

The “oven” accepts ETH deposits and waits until there is 10ETH deposited before carrying out the mint transactions, allowing everyone that uses it to share the gas costs involved with minting new baskets.

You can find the original proposal to deploy soft synths on polygon here: [BIP - 2] Accelerated Proposal for nDEFI

Motivation

Hard synths minimum viable product is live. The next step in our goals for 2022 is to deploy soft synths, so that they can later be added as collateral for hard synths. This will help to drive growth for both products by allowing users to borrow against a robust basket of yield bearing tokens.

1. Starting Baskets

We would like to propose starting with 2 baskets, bDEFI and bSTBL.

bDEFI
Following a similar theme to the nDEFI nest on Polly Finance, which outperformed its competitors, we will release a similar product on main net, designed to weight more towards projects with a high Total Value Locked (TVL) compared to their valuation.

DeFi projects need value locked in their contracts in order to generate revenue, so this approach is designed to try to weight more towards projects that could be undervalued by the market.

The Fully Diluted Valuation (FDV) is chosen instead of market cap because this takes into account any inflation that could will occur, which could negate some of the upside potential for the token.

The criteria for inclusion and weightings are defined as:

  • Top 12 DEFI projects by TVL on DefiLlama, that operate on ETH main net
  • Weighted by TVL/FDV
  • Has at least $2m Liquidity on a main net exchange
  • Have a chainlink price feed on main net
  • At least 3 months old
  • Have at least 7.5% of the total supply in circulation and have a predictable token emission over the next 5 years.
  • In the event of a safety incident, the team must have addressed the problem responsibly and promptly, providing users of the protocol a reliable solution and document a detailed, transparent breakdown of the incident.
  • Be Ethereum-focused
  • Must be sufficiently decentralized

Based on the selected criteria, if deployed when data was collected the basket would look like this:

One notable exclusion is SPELL. We believe that the project is higher risk than usual due to the recent scandals that have not fully been resolved yet, but may allow it for inclusion in a future rebalance should the situation be resolved in a satisfactory manor.

bSTBL

The bSTBL basket is designed to provide yield bearing exposure to a basket of decentralized stable coins, helping to negate risk and provide a low effort means of yield farming the best low risk yields available.

The criteria for inclusion and weightings are defined as:

  • Top 4 stable coins based on decentralization and yield potential from the available yield options
  • Must not rely on the projects governance token for backing
  • Weighted evenly
  • Has at least $2m Liquidity on a main net exchange
  • Have a chainlink price feed on main net
  • At least 3 months old
  • In the event of a safety incident, the team must have addressed the problem responsibly and promptly, providing users of the protocol a reliable solution and document a detailed, transparent breakdown of the incident.
  • Be Ethereum-focused

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2. Fee structure

The fees are broken down as follows:

  • Entry fee 0.5%:
  • Annual streaming fee 1%:
  • Exit fee 1%:

Fees will initially be collected by the treasury then as part of the veBAO implementation, usage of fees from all products will be voted on.

3. Rebalancing

baskets are maintained quarterly in two phases

Determination Phase
The determination phase takes place during the final 2 weeks of the quarter. During this phase the changes needed for the next reconstitution are determined.

Proposed changes will be published on the governance forum for 1 week then a governance vote will run for the community to approve changes.

Reconstitution Phase
In the two weeks following a successful vote, the nest components will be adjusted as per the instructions published during the final 2 weeks of the quarter.

Emergency Maintenance
The multisig holders are authorized by the community to re-balance nests outside of the usual schedule during moments that they collectively deem to be critical emergencies. This clause will allow for quick re-balancing in the event of a protocol or nests being in danger of failing. An example of when this would be utilized would be if a stable coin begins losing its peg/ becoming insolvent, or a protocol suffers an exploit that is not dealt with sufficiently.

These scenarios may be time sensitive and require immediate resolution. Thus the team may decide to act without warning and explain their actions in a governance forum post afterwards, or if there is deemed to be time, an emergency governance vote will be posted.

This is intended as a safety mechanism only, to prevent loss of funds for our users and as such would be a power exclusively exercised under extreme circumstances.

4. Yield options for underlying assets

Yield farming will be approved on the following projects for all tokens

  • Aave
  • Compound
  • Sushi
  • Yearn (strategies still to be developed)
  • Convex (strategies still to be developed)
  • Rari (strategies still to be developed)

Developing the strategies above that are not yet available is not guaranteed, but can be implemented without a further governance vote. Any additional yield farming strategies will be approved via governance.

Please note: Compositions of the baskets may be different than the ones displayed, as the rules for each will be applied just before the baskets are created, so the most up to data is being used

3 Likes

Is this proposal ready to go to vote?

  • Yes
  • No (please comment why)

0 voters

2 Likes

Nothing more nothing less.
I like the special emphasis on protocol security.

I made an edit to change where the fees go after some discussions with other galaxy members.

Since the details of veBAO still have to be voted on, burning BAO may not be the best use of fees. When we discuss options for implementing veBAO the best way to use fees will be more clear.

In the mean time the treasury can collect the fees, and the community can still decide what will happen to those fees with another proposal at a later date, or they can be left to extend the runway available for the project.