This proposal has been in a concept phase for a few weeks and comments can be seen here.
At the end of each year, the BAO maintainers need to be re-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 thinks are needed for the protocol to move forward.
You will find in the following sections the purpose (the why) of this annual plan, aligning with the vision of Bao Finance since its inception next to the different milestones proposed for the next year.
To get there, Bao needs to find its niche. Bao needs to go back to its initial core vision, which is to rather than re-invent the wheel, it will create new features for existing DeFi protocols.
We must remain true to our identity and leverage data on-chain for any web3 users to exploit.
The context of this proposal (the why)
DeFi ecosystem is evolving at a fast pace
Over the last couple of years, we saw the DeFi ecosystem blooming into a multitude of protocols. Many L2 chains and sidechains have seen success one after the other.
One of the main issues many new protocols have seen through different incentives models (Yield farming, (3,3), even voting escrow) is that protocols borrow liquidity in the short term by incentivizing participants with token emission. For almost every protocol, this hasn’t been sustainable in time, as APR could not be attractive forever. The conclusion is that mercenary liquidity is moving across protocols and chains.
We learned this lesson the hard way when we created our franchises on BSC and Polygon. On Polly, we tried to create a product and be our market maker by borrowing liquidity from yield farmers. The depth of liquidity backing the different tokens in our nests lasted for a while but dried up as other chains offered great incentives for liquidity providers.
We believe that our Bao Markets (baoUSD) will bring an edge into the synthetic ecosystem representing a stable asset, as the market will be overcollateralized with only safe and liquid collaterals. We have ambitions for a few other synthetic markets as well.
For this to happen, we are doomed to play the liquidity incentives war to keep our markets healthy. This is a battle we can be part of, but it’s not a battle we can win for every market.
That’s true for synthetic assets that would be tokenized as ERC20 tokens. Each data tokenized would need its market, injecting enough liquidity to avoid manipulation.
Not every data point that can be tokenized needs to be tokenized.
But that doesn’t mean we can’t move forward as a sustainable protocol!
Bao needs to remain true to its root
Do you remember the article “A dumpling vs Wall Street ”?
The article mentioned why we need synthetics:
With synthetics, you can turn any quantifiable discrete event into a financial feed that people can buy and sell.
You can create an asset based on the “Unemployment Rate in Hong Kong” or “Average Annual Rainfall in Seattle” or the “Number of iPhones Sold Annually”.
These synthetic assets allow you to buy long or short, depending on if you think the number will go up or down, and this creates two powerful cases.
The initial idea to create a market for any data point is what most Bao members were excited to accomplish.
But as priorly mentioned, only a few synthetics could find a healthy market for buying exposure or betting over long or short positions on a discrete event. Providing liquidity to back data may be sustainable in some markets but not in any market on any chain.
Data needs to be transformed into information. We need data to make decisions. We need decentralized data where we can define actions based on a discrete event, no matter the amount of liquidity provided.
Data needs to be consumed where the users are, whether on the main net, or any EVM sidechains or L2. We need to get closer to where the users are. We need also to be agnostic of where the liquidity or market is shifting or is being incentivized.
Bao needs to create the infrastructure to leverage data into decisions and actions.
1. Reapprove Maintainer Galaxy
Reapprove the maintainers (Baowolf, Baoman) for one year ending December 31st, 2023.
BaoMan will take a $0 salary from the galaxy until hard synths have reached a mint volume of >$25M.
Baowolf will take a $75k annual salary as the head of treasury and operations. As a part-time guardian, Baowolf’s salary is aligned to leader or manager roles across other protocols.
2. Vested BAO for all previous and present guardians
In the initial distribution phase (yield farming) of the BAO token, 6% of the minted tokens went to a development wallet. 5% is currently unlocked, and 95% is locked like the rest of the DAO member’s locked tokens.
This point will divide the development wallet vested tokens to reward properly the guardians who brought the protocol up to this point.
Future guardians would be able to obtain vested BAO in the future as well. The ratio of vested BAO would have to be defined in the future.
3. Creation of the advisor role
We have a few guardians, including Rocky-Baoboa, Vex and Fresh Pizza, working on other projects and companies but still providing internal support and insights.
While they aren’t actively contributing to the DAO, their experiences and willingness to advise for the greater good of Bao Finance make them valuable for the guardians.
Advisors can discuss and share opinions and insights with the Council of Guardians but aren’t voting members. If an advisor begins to contribute actively again, the Council of Guardians can reappoint them as guardians or contributors.
This point will elect Rocky, Vex, and Fresh pizza to the Advisor role from their former Guardian position.
4. Core leadership and reduction of the number of Galaxies
Over the last couple of years, we created a lot of galaxies in the hope of fully decentralizing in multiple sovereign entities, but also in the hope of having many DAO members join our ranks.
This led to multiple guardians and contributors involved in many aspects of the DAO across all galaxies.
This point will reduce the number of galaxies and bring together the contributors who work closely daily. This point will ease the onboarding process, governance, budget for each galaxy, and day-to-day operations.
By reorganizing the galaxies, we hope to increase our efficiency and represent how we are currently working and clustering internally.
Designated leaders will be elected to the Council of Guardians.
| Galaxy | Old galaxies | Leader(s) | Monthly Budget |
|---|---|---|---|
| Maintainer | Maintainer | Baowolf | 2k USD |
| Community | Community & Creative Content | Jester | 5k USD |
| Product Engineering | Smart Contract, Front-End & QA | Vital, Fabiaz | 20k USD |
| Business Development & Operations | Treasury & Governance | Chickn | 5k USD |
5. Minimizing the risks over custody
DeFi and stablecoin regulations have been a hot topic lately, but not for the good reasons. There are a lot of concerns about the role of different protocols and core members, especially those living in the US.
Managing or having custody of users’ funds is among the reasons DAO and protocols have been scrutinized in the past.
This point will task galaxies in suppressing and minimizing custody risks over baoUSD markets and yield-bearing assets such as bSTBL over the protocol.
Among the different points to explore:
- Partner with other protocols to include their safe yield-bearing assets to our markets
- Outsource bSTBL management to another protocol
- Introducing Governance Bravo / Charlie for on-chain governance over the smart contracts
As Bao Finance can’t do everything on its own, I (Baowolf) strongly encourage the galaxies to pursue partnerships to develop a strong DeFi ecosystem and foster relations that could benefit a larger and broader audience of DeFi users and liquidity providers.
6. BaoUSD Market
Since the start, we designed BaoUSD with a few premises:
- We wanted our first synth to be tied to the most used form of data in DeFi: a USD synthetic token.
- We wanted to create a market with safe collateral that everyone could use
- We wanted to create a market where anyone would believe in the safety and decentralization of the synth market.
We still believe we are leaning toward those premises. We need to push forward this year by
- Adding Governance Bravo or Charlie into the protocol (See the last point)
- Adjusting the different collateral factors of each collateral
- Ensuring the community knows how to properly trigger liquidations (Bao runs its liquidator, but anyone else could too!)
- Documenting the actions the DAO can do and cannot do with the market
- Leaning toward making BaoUSD market immutable by making certain aspects of the market immutable. (ex: The different collaterals that the market can have).
Those adjustments and progress will make this market more secure, trustless, and decentralized.
7. Enter the liquidity game incentives (Curve / Convex / Balancer / Aura)
Until now, baoUSD hasn’t been incentivized.
In the introduction, we mentioned that we could not win a liquidity war. But that doesn’t mean we cannot compete in it.
This point will task the different galaxies to analyze and incentivize the liquidity of baoUSD over the most secure protocols on Ethereum. There will already be incentives with veBAO for baoUSD liquidity providers, but to attract even more liquidity from them, we need to attract more yield by adding incentives from seasoned protocols.
By partaking in governance votes around liquidity gauges of the following protocols, we can develop the market size of baoUSD, bringing more eyes to what we are building!
Protocols we could target over next year:
- Curve
- Convex
- Aura
- Balancer
- Frax
- Tokemak
- BeraChain
8. Create BaoETH Market
Not every data point can be tokenized. Representing data in ERC20 tokens has its limits. But we can still innovate and create reliable synth markets.
Following baoUSDs success, we will create a baoETH market where collaterals will include ETH, stablecoins, and diverse ETH yield-bearing assets.
Ethereum stablecoins have less obvious use cases than dollar-pegged stables because ETH already exists by default on the Ethereum network but dollars do not. A synthetic ETH allows users to borrow ETH at a much lower interest rate than would otherwise be possible.
ETH is scarce, and it is possible to earn a very low-risk yield by staking it. This market dynamic will make borrowing ETH expensive because lending rates will naturally track the yield available by staking.
This will be especially true when staking withdrawals are enabled because the perceived risk of using liquid-staked Ethereum products like rETH or stETH is much lower. baoETH will solve this because its supply is limited only by the collateral that is deposited to mint it, making it possible to borrow at rates uncorrelated to the yield available on staked ETH.
This will allow powerful use cases like perfect loans (collateral always goes up in value vs. the borrowed asset), early access to your yield, and leveraging your yield. It is worth noting that while some of these use cases are already possible by using lending protocols like Aave, this will become less so once staking withdrawals are enabled and existing products built on top of Aave like Indexcoop icETH may find synthetic ETH products like baoETH will provide far greater yield for their users.
The baoETH market could lead to an exciting yield-bearing ETH derivative where ETH maxis could provide ETH/baoETH liquidity with almost no impermanent loss. At the same time, they see their loan against their collateral lowered over time.
The list of collateral will be analyzed and carefully selected for the market.
We believe this new market will provide a good foundation for future tokenized data tokens.
9. Introducing Bao’s Dim Sum House
For Bao Finance to remain true to its root but also to build innovative products that will find their niche in the DeFi ecosystem, we need to make a slight shift in the direction we want to pursue in the future.
As priorly stated, Bao needs to create the infrastructure to leverage data into decisions and actions.
Data is used in many aspects of TradFi and will be used in numerous ways on DeFi. TVL and liquidity have been at the core and root of DeFi, as we know so far. But triggered actions based on data will make DeFi so powerful in the future.
In his medium article, let’s take the Mayor bonus example from Baoman’s vision. Creating a liquidity market to back the Mayor balanced scorecards of KPIs to bet long or short about the attainability of the objectives is not achievable.
Suppose the Mayor was a DeFi Founder in the prior mentioned use case. In that case, a Delphi oracle could track the accomplishment of many KPIs of the protocols, such as active wallets, TVL, liquidity depth, volume, or any other KPI that make sense for a founder to be rewarded. That Delphi Oracle will track that certain thresholds have been attained and could either give a reward to the founder or start vesting rewards over a certain time based on smart-contract interactions.
With oracles, we can track data on-chain. Last year, we created Delphi, which lets any user create new calculated oracles on top of Chainlink. This means we could create “The Flippening” oracle that tracks if the ETH market cap is higher than the BTC market cap. We could then perform any actions based if that event occurs, from sending funds to a specific wallet or interacting with a set of smart contracts.
By creating the infrastructure to support the different use cases that only our business requirements and imagination can define, Bao will create factories for everyone to deploy custom-made contracts that are tailored to the user’s need.
By providing the best user experience, we can create powerful escrow contracts, Web3 data, or token stream pipelines that can be triggered on any discrete events. Users will be able to build their piggy banks that make the funds inside it capital efficient.
As liquidity moves between protocols and chains, Bao will favor DevOps techniques for factories and contracts to be deployed where the user is experiencing DeFi. As such, we will let other contributors add protocols and functions to a future toolbox to extend infinitely the possible use cases and protocols a user wants to use, independently of the chain where the contracts are deployed.
By approving the annual roadmap, the community will allow the galaxies to build toward that vision.
10. Protocol-Owned Liquidity
DeFi protocols nowadays shift from renting mercenary capital through yield farming to protocol-owned liquidity. The best example in the last year following that model is Olympus DAO with their bonding model.
With BAO entering a new phase of tokenomics with the migration to Bao V2 and veBAO integration, having POL could ensure a better long-lasting treasury for the DAO while driving better capital efficiency for the BAO or baoUSD trading pair for the community.
This point will task the Business Development & Operations galaxy to evaluate the different options for protocol-owned liquidity.
Criteria such as security, efficiency, and liquidity pair options should be carefully studied and proposed to the DAO.