We host a weekly tutorial on the most compelling ways to consider yield farming, written by our friend DeFi Dad, an advisor at Defiant and Chief DeFi Officer at Zapper. The goal is to introduce new DeFi applications and associated liquidity mining programs to more Defiant readers. Background to the protocol:…
We host a weekly tutorial on the most compelling ways to consider yield farming, written by our friend DeFi Dad, an advisor at Defiant and Chief DeFi Officer at Zapper. The goal is to introduce new DeFi applications and associated liquidity mining programs to more Defiant readers.
Background to the protocol: Fixed interest returns are a popular product at TradFi. It allows investors to tie up capital with guaranteed returns, often tied up for a specific period of time. In comparison, DeFi primarily features structured products with competitive variable interest rates and the ability to withdraw funds at any time, which has attracted those of us looking for the highest returns.
As the DeFi landscape matures and becomes more liquid, we need to replicate products that allow investors to lock up capital with a lower risk profile. DeFi newbies from TradFi will no doubt be looking for opportunities like tranche lending, which offer significant returns compared to what they bought and sold on Wall Street.
BarnBridge made waves with the launch of its first tranche lending product just over a month ago and has since attracted just over $52 million TVL, aside from the hundreds of millions previously deposited as part of a liquidity mining program for its governance token BOND . BarnBridge bills itself as the most advanced “fluctuation derivatives protocol for hedging yield sensitivity and market price.” But what exactly does this mean for us DeFi users?
Pooled collateral (e.g. USDC or DAI) is deposited by BarnBridge into lending protocols or yield-generating contracts such as Compound or Aave, and the yield is pooled and tokenized into different tranches. This allows one to buy the highest tranche with a fixed interest rate of up to one year at a lower return and a much lower risk profile, while the junior tranches receive a higher return and a variable interest rate and can be withdrawn at any time they like and have a much higher risk profile.
Here are today's interest rates, but I've seen junior APY over 20% and senior APY as high as 14%.
The real benefit for junior tranche holders is that they benefit from the additional rewards generated by the liquidity locked in the senior tranches when Compound's variable APY (including COMP rewards) is higher than that guaranteed returns on current sBONDs. However, in the event of falling lending rates on Compound, not only will the juniors' returns fall, but if necessary, their locked funds will be used to pay the senior tranche lenders' guaranteed returns.
To boost liquidity and incentivize junior tranche lenders given the risk of having to use funds to pay fixed senior interest rates, there is a SMART Yield Pool into which a junior can stake their holdings and have a known yield -Farming program BOND can earn. Above under “Junior APY,” the smaller number in the BarnBridge interface indicates that Juniors in the Smart Yield Pools earn 45.57% APY in BOND.
All in all, juniors earn significantly more compared to seniors, and that's what we're going to talk about today!
Opportunities: BarnBridge offers 4 stablecoin tranche lending products and 3 farming ways to earn BOND. Note that all of these estimated interest rates are constantly changing unless you purchase senior bonds and receive a guaranteed fixed interest rate for the life of the bond.
- 4.52% APY -> USDC Senior
- 6.78% effective annual interest rate -> DAI Senior
- 4.47% APY -> USDC Junior
- 6.68% APY -> DAI Junior
- 45.57% APY -> SMART Yield staking (for USDC Juniors only)
- 54% APR -> Stake BOND into BarnBridge DAO
- 133% APR -> Use BOND/USDC LP
Time to Completion: 10-15 minutes when paying the recommended FAST gas price on gasnow.org
Gas and Protocol Fees: Based on the FAST gas price on gasnow.org, which is currently between 100 and 200 Gwei, I would estimate paying the following gas fees.
- Deposit in tranches = $100-150
- Deposit into SMART Yield Pool = $30-$100
- BOND stake = $30-$100
- Becoming a BOND/USDC LP = $60-100
- BOND/USDC LP stake = $30-50
Risks: As always, this is not financial advice and you should do your own research.
- Smart contract risk
- Oracle error
- Liquidity crisis
- Failure of financial incentive
- Systemic risk in DeFi composability
- Estimated APRs may increase or decrease depending on BOND price, pool liquidity and lending rates on Compound
- If I become an LP for BOND/USDC, I will probably suffer a temporary loss.
Tutorial:
To start using the junior or senior tranches, I would first ask myself, “Is it worth pegging USDC or DAI to lock in the senior fixed rate, and if so, for how long, up to.” 365 days?”
- From there, go to the BarnBridge SMART Yield app.
- Choose to deposit either DAI or USDC.
- Choose Senior to secure a fixed price for up to 365 days. However, the disadvantages are:
- I cannot withdraw until the bond maturity date that I specify.
- I pay 5% of my winnings as a fee.
- If I choose Junior, I may be able to earn higher interest on my stablecoins, but I run the risk that my money will be used to subsidize Seniors if the compound interest rates fall below the fixed interest rates of the Senior tranches.
- Next, whether I'm becoming a junior or a senior, follow the instructions to specify how much to deposit. You will then need to activate tokens to grant permission to issue stablecoins on BarnBridge.
- Then click “Deposit” to follow the instructions on MetaMask and you are now in a tranche!
If you have chosen junior tranches, learn how you can get more returns below.
- Go to the SMART Yield Pool page now to stake and earn more BOND as a junior tranche holder.
- Follow the same steps as before to first activate the token.
- Then choose to stake the entire bb_cUSDC token to earn 45.57% APR in BOND tokens.
Finally, go ahead if you want to invest the bond earned from the junior tranches in working farming!
- I can then either stake BOND in the BarnBridge DAO to earn around 54% APY in BOND, or use it to add liquidity to the BOND/USDC and stake the LP to earn 133% APY in BOND rewards.
- When I stake BOND at 54% APY in DAO, go to BarnBridge DAO to deposit (activate token first and then deposit to continuously earn more BOND). You can track your BOND staked in the BarnBridge DAO on zapper.fi.
- Alternatively, if I want to earn a higher APY as a BOND/USDC LP (while accepting the probability of temporary loss), I can go here on Zapper to add liquidity via a single asset deposit using my BOND in two transactions.
- Finally, go back to the Yield Farming tab in the BarnBridge app to stake this BOND/USDC LP and earn more BOND. You need to activate tokens and then deposit.
About the Author: DeFi Dad is a DeFi superuser, educator and investor. You can subscribe to his YouTube channel at defidad.com. Disclosure: DeFi Dad is a BOND token holder in the BOND stake pool. This is not a recommendation or recommendation to purchase BOND.
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