Proposal on Next Steps for Bao (Soft Synths on Polygon)

After taking some time to evaluate the past 8 months for Bao and put lessons here: Learnings from BAO

As well as with the sudden stop of our xDAI farming rewards, it was time to decide what was next for Bao. The community was overwhelmingly in favor of a soft synth proposal on Polygon: Snapshot

A few of the galaxy teams had been coordinating on a proposal for the following:

  • A new franchise on Polygon.
  • Built off of a modified version of PieDAO’s implementation of indexes using the Diamond Standard and our own custom built recipes.
  • The recipe structure will source liquidity from Sushiswap, both as regular tokens and as LP pairs.
  • The indexes allow for flexible strategies that mean when you buy an index your underlying tokens are automatically also used in yield farming strategies.
  • These index tokens will also have staking farms similar to the Bao farming experience you are all used to, but instead of being an LP of two assets, they will be an LP token representing many assets where those underlying assets are also farming.

This means the assets will gain from farming the LP token, rebalancing on the index, and farming with the underlying tokens.

Why not Balancer V2?

We spent a long time working on customizing and configuring Balancer V2 and had actually deployed versions of their contracts to Polygon already before making agreeing that we should make a proposal to not move forward with Balancer.

There are a few important reasons:

1. AMM Risk:

I mentioned in our learning thread that most hacks that have happened in the past 6 months have been because AMMs (especially those with constant rebalancing) get exploited or had issues with one single token.

This means that the more tokens you add to an index the larger the risk of an exploit.

The index system we’re proposing is not AMM based, it is vault based. This means it isn’t going to be constantly rebalancing.

Instead, when people enter and exit the pool, they will do so proportionally via a Zap. The pools will then rebalance through keeper action on a set timeline/trigger (much more similar to TokenSets than Balancer V2)

This prevents any exploit risk by a single token, which means unlike pool based solutions we can actually be much more aggressive in support new and diverse projects.

2. Asset Managers

The Balancer V2 asset manager system is not ready to be deployed yet.

While that code exists it needs extensive refactors to even deploy to chain as it is bigger than the max contract size.

Unlike with the Diamond Standard, Balancer V2 is not modular. It cannot be added in easily later without migrating some components and it cannot take in simple standalone strategies.

The Diamond Standard lets us create a simple component now and easily move to more advanced strategies later.

We could launch Balancer V2 without the asset manager component, but that simply isn’t competitive in these markets.

3. Building Partners

As mentioned in our learning thread, our move to AMMs on sidechains led us in an awkward position once Sushiswap launched on those chains as well. We were essentially competing for liquidity with the partner whose assets we primarily want to support.

Balancer V2 is an AMM that would do the same.

The Diamond Protocol Indexes are vaults that would use Sushiswap as their liquidity source and bring us closer with Sushi.

We’ve underserved that partnership and I think its important we further invest in it.

There are some other small consideration as well but let me summarize those with bullets from the above:

  • No AMM risk.
  • Asset managers for underlying yield farming.
  • Builds on and honors our partnership being able to use Sushiswap as a liquidity provider.
  • The Diamond Protocol Indexes can be run on any chain where there is an existing AMM to partner with.
  • The Diamond Protocol is a modular, expandable and upgradable contract spec system.
  • There already exists excellent example asset managers from PieDAO that can be expanded upon.
  • Since our Index Recipes can plug in to multiple AMMs this means on xDAI and BSC we can source both from Sushiswap and Baoswap/Pandaswap providing value to those AMM systems.
  • The Diamond Protocol Indexes could be reworked to run ontop of a Balancer V2 instance in a seamless manner if we ever decide we need those additional features.
  • The Diamond Protocol Indexes can still provide time based or conditional based rebalancing similar to TokenSets.
  • The Diamond Protocol Indexes limit and in some cases entirely prevent IL in pairings.
  • Because the system is modular we can build out future integrations including strategies that used advanced vaults like Yearn or build indexes solely out of LP pairs.
  • Because of the Diamond Protocol’s upgradeability it is easy for us to add, remove or adjust fee models for integration with other Bao projects without a full migration.
  • The Diamond Protocol Indexes require less infrastructure overhead than the Balancer V2 port and so in the future we may be able to deploy that to any chain or L2.
  • In theory, the Diamond Standard being modular means we may be able to build our synth protocols directly into this existing contract without needing separate deploys, this would be a much more unified experience.

Why Polygon?

In order to enable rebalancing easily we needed a low gas environment but we also need an environment with lots of users and liquidity, and existing AMMs.

xDAI’s overall user base and volume has been low. While we still like xDAI and plan to support it and hope it continues to grow it doesn’t make sense to build out an index tool there right now, especially since many projects haven’t bridged over there and so index options would be limited.

BSC has shown to have major infrastructure problems when it comes to RPCs and being able to run your own indexing nodes. While it is stable enough for users, things like analytics sites, APY calculations and other important tooling isn’t as reliable there.

While we hope to launch our indexes on both these chains one day we still need more development to progress.

Of the remaining chains we knew that there were a few priorities:

  1. Professional grade nodes and RPC
  2. Professional grade oracle support
  3. High liquidity
  4. Large userbase
  5. Sushiswap support
  6. EVM (with no modification)

This left us with Polygon who has:

  1. Infura nodes
  2. Chainlink oracles
  3. Rapidly growing user base
  4. Sushiswap supported and major liquidity
  5. Yield farming opportunities.
  6. Most major assets bridged across.
  7. Decentralized bridge infrastructure.
  8. Standard EVM.

This meant that currently as far as sidechains go, Polygon is not only the right option, it is the only option for what we need right now.

If the tests on Polygon are successful we would likely next focus on bringing this to an L2 as we have already been in touch with at least one L2 developer about that.

What is the Diamond Standard?

Diamonds (EIP-2535) are a protocol designed by Nick Mudge (EIP-2535: Diamonds)

Similar to how L2s write to storage contracts on an L1 chain, the Diamond Standard allows you to make a modular smart contract of almost no limit size by writing functions to the memory of a single address to map to interactive modular facets that complete the functionality.

The Diamond standard is a pretty complex piece of work and its not seen a lot of adoption because of this complexity. It’s currently used by only Aavegotchi, Barnbridge, PieDAO and Gelato.

You can imagine it as a way to let many small smart contracts work together as one large smart contract but be constantly upgradeable and expandable. Which is remarkably powerful.

What about PieDAO?

PieDAO is a fantastic index product run by a community as well.

They’ve created a vault factory that stores information for multiple pool holders mapped into the Diamond Standard.

This component which is licensed under the open source MIT license is what we would be using.

The real magic however in these products comes from the ‘recipes’ (the components of what makes up an index, how it is acquired, and the other protocols it interacts with) and the ‘asset managers’ (how those underlying assets are deployed in yield farming)

If we stick with the analogy of pies, we’ve essentially went out and got an open source pie dish that allows us to make and store our own pie.

We’re still going to need to come up with our own crust, our own filling, recipe and process and decide on all the ingredients. We don’t think its the right idea to simple clone all of that from PieDAO, especially when indexes are not our endgame, so we’re just using the pie dish.

Beyond that, I did reach out to a member of the PieDAO team to start conversations on exploring partnerships to work together on our efforts, as I believe we are always better by combining forces rather than competing.

While I haven’t heard anything back yet, I do think either way that we should have some governance proposals to buy some PieDAO $DOUGH, as well as consider having some of the amount of the fees we generate from our indexes being used to buy $DOUGH.

That likely seems odd to many as most projects who reuse part of open source code wouldn’t make such payments, but I think it is the right thing to do and that we will go further if we build bridges. Our main goal long term is not to compete on indexes with PieDAO but to make sure we have the infrastructure we need for a portfolio of synths, and while we will only be using a component of their work I think it is important that we value and respect the hard work, efforts and innovations they put forward.

I also still hope they reach back out and we can continue to find more ways to work together, as I think they are a great technical and design team, and we’re a strong community, economics and product team. So while there is no formal partnership there now, I think both DAO’s should welcome that opportunity in the future.

What are we naming this franchise?

While the community galaxy team has a proposal on name and design for this franchise, I’ve suggested that we don’t include it in this proposal and let it be a surprise given that every time we’ve released a name beforehand other projects have ended up using it.

Would this be a franchise?

Yes it would be a franchise with its own token and a portion of the tokens vault locked for the Bao token holders to own by proxy with thresholds on when the DAO could vote to sell and distribute those tokens.

How could this use Bao?

We would need to work on more refined proposals after launch (which we can thanks to the Diamond Standard) but our indexes can include Bao in them, or the ‘recipe’ to create or redeem an index can charge a Bao based fee in the background.

There are many other ways to integrate Bao into the economics of this system as well and the community is welcome to make additional proposals on that.

It is important to remember though, that indexes are not our final product, they are a utility for synths which is where Bao’s main tie in would be.

Will this get launched on mainnet?

Our first focus is getting this deployed successfully and running on Polygon.

After that the DAO can vote on additional paths forward.

If this runs smoothly on Polygon then there is no reason why we can’t release it to our other chains including mainnet or at the very least some sort of L2.

What is the timeline for launching this?

The maintainer galaxy is still working through components of the deploy process and security tests, and the frontend galaxy is currently working on new front-end integrations.

Plus, we still need time for the governance process.

If everything goes smoothly we’re likely looking at a few weeks to get something live, but as always it could take longer.

What are the next steps?

This concept discussion will be open for the next few days for comments and questions. Then it will move to a formally written proposal in the ‘Proposals’ section of the forum where the final language of the governance proposal will be available for review for 3 days.

After that we’ll put up the formal snapshot vote which will last for 7 days.

Various galaxy teams will continue to work on detailed proposal elements and integrations in the background as well as proposals for initial indexes.

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Nice to have another big update!

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Fantastic update. Big fan of the opportunity to work/ link with PieDAO. Hope it has legs!

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I’m still learning, so I defer completely to your judgement, but that seems a very good idea re PieDAO and building bridges in general. Nice one :) Also, yeah, the whole sushiswap relationship did seem a bit underserved, just because that’s the way things worked out with the necessary exodus to XDAI from mainnet - so that’s also a good move in the same spirit I think.

Nice one re not releasing the name - it’s amazing how many panda and yeti clones sprang up as soon as the names were revealed, and I think a few newer people got stung, thinking they were buying into the bao ecosystem - that’s a shame, so yeah, not releasing the name is also the safest option for potential new users.

The idea that indexes will, in some cases, be able to mitigate the risk of IL is amazing, and certainly fits in with the goal of wanting longer-term farmers/investors in the ecosystem. I know the Panda experiment was with harsher time penalties, but if IL can be largely taken away as a factor, then it may really set the scene for people to just park their liquidity and leave it to work for them… Especially (and I don’t know if this is the idea - my experience with tokensets is limited) if the assets can be rebalancing according to certain parameters or otherwise have intelligence written into their management. That’s quite a thing.

It also sounds like there are several layers to the levels of rewards being gained from the system - I’ll have to see it to get my head around how that works, and I look forward to it.

It’s pretty amazing how much you guys are releasing new functionality with each iteration of franchises - It’s very encouraging! Thanks :)

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It is always a pleasure to read you Baoman.
I cannot wait to see all the franchise working together.

Bao for life!
This is the way

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I think that buying $DOUGH is a great idea because in regards of soft synth, PieDao success will also be our success. I would not stop there either. The $DOUGH bought could be put in a specific wallet address and a delegate from one of the BAO galaxies could participate and vote in the PieDao governance, ensuring that BAO have a voice of the future of their project.

Also, i would strongly suggest we start by defining 5 indexes from the start. 3 that would be available from the start and if all goes well, we could roll out two mores. Members of the community have proposed ideas for those indexes, and the best ideas could be debated in the brainstorm section for proper composition, proportional share of each assets, and other components proper to Pies.

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Great update, great ideas. I’m a big fan of PieDAO and think it could be a great partnership. I’ve actually raised this in their discord to try and bring some attention to it, though I love the idea of purchasing dough regardless. Looking forward to what is to come!

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I still need to get my head around most of the terminology. I support the idea of buying $Dough to support PieDao with @Baowolf suggestion to use the tokens to be able to provide “Bao” vote in their governance.

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Hi, Mick here from PieDAO.

I’m a member of the PieDAO core team and wrote most of the PieVault smart contract code and I’m happy to move this forward.

Expanding our product suite to other chains is something we’ve been wanting to do for a while now but did not really get to just yet. I see much potential for a symbiotic relationship between PieDAO and BaoFinance.

Deployment

Happy to help with that and get a testing environment running on Polygon we can play around with ASAP.

Further integrations and recipes

I think a lot can be gained from combining forces on this front. New things developed by us can be used on Polygon and vice versa

Symbiotic relationship

Personally I appreciate the sentiment of building bridges very much and have some thoughts on how we could move this towards a more structured possible partnership.

Instead of the indexes on Polygon being Bao Finance products I would like to look at it as sort of a joint venture. In which PieDAO supplies a large part of the tech and Bao manages the indexes and their allocation. Additionally we could give these joint indexes a place in our UI and Bao would give bridged representations of our indexes a place in the BAO UI.

I like the idea of Bao owning DOUGH and having a say in governance but I would also like to see that happen the other way around. That’s why I think it would be interesting to consider a possible token swap where both projects swap an equal valued amount of tokens to solidify the possible partnership.

In conlusion

Looking forward to feedback on these thoughts. I’ve created a public discord channel on our server but we can also keep the conversation concentrated here in an async fashion.

(These are my personal thoughts and any partnership is of course subject to approval of both Bao and PieDAO governance)

Stay Crusty and Tasty,

Mick

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Hey guys, Gabo_o here from PieDAO 👋🏻
Thanks @TheBaoMan for putting this together! As @Mick_de_Graaf just pointed out, this sounds like a great opportunity to more concretely explore mutual synergies. DAO^2 👀
Looking forward to that!

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Just had a read through. I think the idea of a more extended joint venture sounds strong, especially when I look at our team compositions and what PieDAO has been hiring for. Our team has a lot of strengths in product management, marketing, devops, and most importantly finance/economics experience. PieDAO seems to have also a very strong engineering and design core, which we’ve been challenged to hire for.

I think I see a strong potential for synergy here, and a Polygon joint venture to be the first step of that which we could expand from there potentially with the opportunity for us to merge on later products surrounding our synthetics.

One of the challenges we’ve looked at though is that the PieDAO product economics need some refinement to make a sustainable protocol, and the strategies for managing underlying assets could likely also be refined. This is something that myself and our other dev (Rocky BaoBoa) were currently giving a great deal of thought to.

Those changes are also something that is likely easier for a team that built the initial system, but we viewed opportunities to go after riskier but higher yield asset opportunities and have some creative concepts around how those could be implemented.

I think the right next steps may be for us to send you a proposal of some of the technical tweaks we were thinking about and establish if those are easy tweaks that your time has time and capacity to implement.

If it is, we’d spin up a joint venture on Polygon with the approval of our DAOs, along with some model of token swap/buying, and some sort of structured fee split for the DAOs on the new products.

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I love the ethic and attitude of giving more than is asked for and thereby igniting appreciation, love and human teamwork. This is the correct (Dharmic), aligned human vibration which pays love forward and always comes back multiplied. Amen! Awoman!!

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As we are a Universe of energy not of matter a joke I like is "matter doesn’t matter — haha what I am saying is that the energy is much much more potent than any short term gain or form of matter. It’s rare to see someone or some group generating from this perspective. So glad to have found you!!!

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Welcoming the BAO community to Polygon and happy to assist in all sorts of marketing and technical integrations from our side. Feel free to DM me on twitter @khamzah22.

As for the Balancer v2 - there’s a governance forum post happening currently to finalize join liquidity mining with MATIC and BAL tokens. So basically Balancer v2 will be launching pools by next week most likely on Polygon.

P.S. I lead DeFi at Polygon - happy to collaborate on all fronts with the community here.

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Hey Mick,

Hamzah here from Polygon DeFi team. Happy to expedite any of the tech/integration issues you/your team might be facing for Polygon side of things. You can reach me on Twitter or TG. 🙏

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How’s the deployment to Polygon looking fam? Anyway we can help?

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Wow you guys are starting to network this thing in a really cool way I jumped in cause I liked the original Bao vision but this is morphing into something even cooler and more interesting then I ever thought it would! Keep it up fellas I dig the cross team work and the respect given to all involved feels like some good things coming in the future no matter where we all end up :) Cheers

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Hi Hamzah,

Are you present on discord ? We have a discussion open with Asif from your team as well and I would like to include you in the conversation :)

If you are, you can find and DM me on our discord server Bao Finance

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