As the DeFi space in the cryptocurrency industry expands, your risks as an investor inevitably increase. Those risks include scams, rug pulls, and decreasing yields that force you to prematurely change positions. BarnBridge aims to tackle that problem by serving as a hedge against price volatility and yield drop-offs.
In investing terms, when you set up a hedge position, you protect yourself against negative volatility in another position. For example, if you take a long position on a movie theater corporation, you might also go long on a movie streaming service. If the theater industry crashes, it will likely lead to an increase in streaming, or vice-versa. Either way, you incur no net loss.
The BarnBridge platform and its crypto - BOND - help you hedge against inflation risk, market price volatility, and cash flow volatility in crypto by tokenizing debt pools on other DeFi protocols. Each pool that BarnBridge chooses to tokenize offers tokens with varying levels of risk to suit your appetites. Although this system is fairly complicated, we will break it down so you can make money on it faster.
BarnBridge has introduced one of the most complex platforms in DeFi. This platform goes far beyond staking for rewards, then dumping for profits. It is more than simply swapping coins on a DEX as well. BarnBridge has built the framework for a platform that bridges traditional finance and decentralized finance - with an edge towards the decentralized, of course.
In short, BarnBridge is a risk tokenizing platform based mainly on Ethereum, but is now available on Polygon as well. As a result, you can use tokens from either network on Barnbridge. The entire platform is powered by smart contracts, hence the esoteric name of its products.
The basis of BarnBridge is SMART yield. Yield is the return on an investment in a given period of time - in this case yield from staking tokens.
SMART Yield offers users fixed or variable yield on their stablecoins through integrations with lending markets like Compound and Aave. It aggregates user deposits into underlying markets on these platforms and allocates the yield generated on the sum between two different risk profile subsets.
Fixed yield comes with lower risk, but also lower reward. Conversely, variable yield comes with higher risk and the potential for higher reward. This is a standard trope among many DeFi and TradFi investing platforms, and it is no different on BarnBridge.
BarnBridge calls the high-risk pools Junior Pools, and the low-risk pools Senior Pools. When you deposit stablecoins in either pool, you get tokens called bonds indicating your principal investment and whatever yield you get on that investment. When you return your bonds, you get your principal back plus whatever yield you earned.
This staking and yield arrangement is common among DeFi staking and yield-bearing platforms.
A unique aspect of BarnBridge yields is that junior pools subsidize senior pools. If the APY on a senior pool trends too low for at least 3 days straight, a portion of the junior pools known as ‘Senior Protection’ kicks in and restores Senior Pool APY to the guaranteed rate.
SMART Bonds work in much the same way that traditional bonds work. *Don’t confuse these bonds with the BOND token.*
You know now that there are Senior and Junior Pools with different risk profiles. Depositing into either pool gives you either senior bonds, junior bonds, and/or junior tokens (jTokens). Senior bonds, junior bonds, and jTokens are the tokens you receive after depositing funds into a respective pool. SMART bonds are ERC-721 tokens - the same as NFT - and jTokens are ERC-20 tokens.
As you may know, traditional financial bonds have a maturity date. This is the day on which the bond reaches its highest value. The time frame is always pre-determined before purchase. The same principle applies to SMART bonds. Senior bonds and junior bonds have a maturity date when you can redeem them and withdraw all your liquidity, plus any yield.
In Junior Pools, you have the option to receive jTokens instead of junior bonds. These can be redeemed at any time, but the amount of yield is always lower with lower risk.
SMART Exposure allows users to passively maintain a specific ratio within an underlying ERC-20 token pair. SMART Exposure offers certain types of risk-adjusted retargeting strategies in a convenient and non-custodial way, meaning you still control all of your assets. They also can potentially outperform buy-and-hold strategies under certain market conditions.
SMART Exposure positions are rebalanced after either a time-based or ratio deviation threshold is met. Thresholds can be set for every SMART Exposure pool through a DAO vote.
SMART Exposure can support up to 5 different ratios (i.e. “tranches”) for any token pair. Each exposure ratio is represented by a fungible ERC-20 token — making it easy to switch between strategies, buy or sell it on secondary markets, and potentially use it as collateral on other protocols.
Depositing into SMART Exposure supplies you with eTokens that mark your position, just as jTokens mark your position in a Junior Pool. You can trade those eTokens just like stablecoins, or redeem them for your principal deposit.
For example, if you deposit 100 USDC into the WETH/USDC SMART Exposure pool, you will automatically get about 100 bbETUSDC tokens deposited into the same wallet from which you sent the original USDC. It may not be an exact 1:1 ratio based on the balance of the pool, but rest assured that your principal is safe. That long ticker stands for BarnBridgeExposureTokenUSDC.
The most important thing is that yields on SMART Exposure are pretty high. As of early August, 2021, users can earn an average of 50% APY on stablecoin deposits. That is far above the average APY on platforms like Yearn, AAVE, and Compound.
Next, we get to the BOND token. In essence, BOND is a governance token meant to represent a single vote on its DAO. This gives BOND holders a say in how the platform operates.
There is a maximum supply of 10 million BOND, much of which is staked on the platform for the purpose of making governance votes. The BOND token is an ERC-20 token that can be traded on the Ethereum network.
While BOND itself is an arguably valueless governance token, it can be used as a means of gaining wealth for yourself by staking it on other platforms. Staking opportunities for governance tokens exist due to the fact that users have demand for a governance vote on such a powerful platform.
For example, you can stake your BOND on the BarnBridge DAO to earn more BOND tokens. A 50-week staking period on the DAO began on February 8th, 2021, and was preloaded with 610,000 BOND tokens. The current APR is about 50% but is subject to change.
You can also stake BOND tokens on other platforms to earn yield. The more opportunities to stake a token across the DeFi ecosystem, the more demand one can infer that token has. To illustrate the demand for BOND, even the relatively new Wild Credit DeFi lending platform features a BOND/ETH pool. On this platform, you can supply BOND tokens to earn roughly 37% APY paid in BOND.
How much BOND you supply as collateral determines how much ETH you can withdraw. The converse also applies. Under this arrangement, you can earn an APY on your deposit and borrow at least $1000 worth of an asset with which you may continue trading and gaining wealth. Borrowing assets incurs a variable APR, but also pays out in WILD rewards.
You can see now that BarnBridge is a risk tokenizing protocol. Traders like you can reduce the risks associated with DeFi, such as inflation risk, market price risk, and cash-flow volatility by depositing stablecoins for exposure to tranches of aggregated risk.
SMART yield, bonds, and Exposure currently round out the suite of products BarnBridge offers, but others are on the way. What’s more, if you want to see more options on the platform, you can buy BOND tokens, stake them in the DAO, and make or vote on governance proposals for more products!
This appears to be the way the future of the crypto industry is turning at large. It would be in your best interest to get acquainted with it, before it’s too late!