BOND, the governance token of the BarnBridge risk tokenization protocol, has been eligible for depositing into, and available for borrowing from, Cream since the turn of the year. Since then, the project has successfully established its DAO and launched its SMART Yield application. SMART Yield currently has $80M in TVL, putting it in the top three projects within the DeFi Pulse “Derivatives” category.
This proposal seeks to raise its collateral factor from 0% to 20%. The updated collateral factor would reflect the significant progress the protocol has made since the initial onboarding of the BOND token, and stands to further strengthen ties between our two communities. Currently, no other platform supports collateralized borrowing against BOND.
Increase the collateral factor of BOND to 20%
Maintain its current collateral factor of 0%
This change is being proposed to reflect the progress the BarnBridge protocol has made since the initial onboarding of the BOND token. In that same vein, the proposed 20% collateral factor reflects that there is still much to be done: onboarding new originator markets beside cUSDC and cDAI, launching SMART Alpha, and achieving greater uptake of our senior SMART Yield tranches, primarily. We have positive outlooks on all three fronts, but recognize that the collateral factor can be raised via future vote as subsequent progress is made.
Further increasing ties between the Cream and BarnBridge communities could also help launch an integration with our SMART Yield application. SMART Yield allows for users to mint either fixed or levered variable rate products based off of underlying debt pools (e.g. Cream USDC would be one), and the BarnBridge DAO has the power to incentivize supported pools should the community vote accordingly.
At the core of the BarnBridge thesis is the market need for diverse yield products. Two particular attributes we are focusing on are the ability to take fixed rate positions, and higher variable risk exposures from a single asset pool. We are taking an approach that’s tried and true in traditional financial markets called risk tranching.
Tranching risk allows investors to take targeted positions and exposure on yield producing assets. These financial assets are generally known as collateralized debt obligations, the most popular of which are mortgage backed securities.
Tranching is the process of subdivided a pool of assets into risk categories with different return profiles. Typically the more conservative and lower risk / lower return pools are called senior tranches and the more aggressive higher risk/ higher return pools are called junior tranches.
Example of the tranched debt pool (for Illustration purposes only)
The end goal is to create derivatives that give liquidity providers a more diverse set of tradable products that meet their evolving needs. This should create more liquidity in the market for debt products and attract new capital into the DeFi space.
The contract address for BOND can be found at 0x0391d2021f89dc339f60fff84546ea23e337750f.
You can interact with SMART Yield and our DAO at app.barnbridge.com.