[BIP-270] Enable baoUSD/LUSD gauge w/2% cap [Ethereum]

BAL Gauges
1

PR with Payload

Summary:

This proposal aims to approve the creation of a gauge with a 2% cap for baoUSD/LUSD Composable stable pool.
If the gauges are added, Bao intends to build on their locked BAL position as well as incentivise voters to vote for the pool and seed liquidity in the pool
The baoUSD/LUSD Balancer pool will act as a base pool for Bao USD liquidity gauges.

References/Useful links:

Link to:

Protocol Description:

Bao Finance is a community-run protocol creating synthetic assets and markets for any data. Our first synth, baoUSD, is backed by debt positions created in our vaults, and stable assets via its PSM.

BaoUSD is minted by whitelisted contracts, which currently are “the fed” and “the ballast”. The Bao multisig has control over which contracts are whitelisted. Changes are approved via governance.

The fed mints baoUSD into our vaults, ready to be borrowed against highly liquid collaterals. Controlling the borrowable supply also affects the variable loan interest rate, helping maintain the peg.

The baoUSD ballast mints baoUSD when supplied with DAI at a 1:1 ratio. While there is DAI available, baoUSD can be burned to claim DAI at a 1:1 ratio. The baoUSD “mint limit” is controlled by the BAO multisig.

Bao also issues basket tokens, representing an index of underlying tokens with the option to a yield strategy. These underlying assets are not tradeable with each other, so don’t suffer from the same risk vectors as an LP position, where a single asset could destroy the value of the entire position, or pool balances can be manipulated into an exploitable state. Each basket token represents the holders’ share of underlying assets. It can be minted with a supply asset (ETH, DAI), which is traded for the underlying assets and deposited into their yield strategy. Underlying assets can be redeemed at any time by basket token holders. The composition of each basket is managed via governance.

bSTBL is Bao’s first basket and is designed to be ideal collateral for baoUSD, focusing on the industry’s lowest risk, most liquid stable-coins, and the safest yield strategies. Using bSTBL as collateral for baoUSD allows highly liquid, stable, and yield-bearing collateral whose underlying assets and strategies can be adapted over time with the market, without relying on users to alter their positions. The current composition of bSTBL is 50% DAI and 50% USDC.

Further baskets and synthetics are planned in the future, beginning with the upcoming bETH and baoETH, which will work similarly to bSTBL and baoUSD.

Currently the only exchange with baoUSD liquidity is curve. The baoUSD/3crv pool can be found here: https://curve.fi/#/ethereum/pools/factory-v2-84/swap 5

Motivation:

We would like Balancer to become an essential marketplace for our synthetics. Integrations outside our liquidity gauges are key to sustainability. Balancer was chosen to create Bao’s USD base pool, baoUSD/LUSD, because it is easy to pair with any other token whether stable or volatile. Bao intends to use this property to increase adoption of baoUSD by allowing other projects to pair with this pool and incentivise it with Bao emissions on the Bao Finance platform. If successful, the balancer community will benefit from their growing adoption through trading fees and boosts to liquidity in addition to bribes to vote for the pool.

Specifications:

  1. Governance: Currently baoUSD is governed by the BAO community. Actions voted on are carried out by the community “council of guardians” via its 4/7 multi-sig. This multisig/ council of guardians controls various baoUSD parameters like it’s mint limit and collaterals. The council of guardians includes at least one member of each permanent Galaxy (sub team), and any guardian can be recalled at any time via public vote. We plan on using governor bravo or similar in the future to improve decentralization.
  1. Oracles: Chainlink oracles are used to find collateral prices.
  1. Audits: Bao re-uses battle-tested compound, inverse, and curve code with some changes and is in the process of auditing
  1. Centralization vectors: The 4/7 multisig controls the supply of baoUSD available in the PSM and lending market. Other parameters under the multisig control are collateral factors, IMF factor (CF factor reduces as loan size increases), liquidation incentive, ability to deposit collateral, price oracle, new collateral additions.
  1. Market History: baoUSD has been closely pegged since its inception and has robust, battle-tested mechanisms to help it stay pegged. It did suffer a similar depeg to USDC recently, primarily due to most of the available liquidity being in pools containing USDC and DAI. Steps are being taken to reduce reliance on USDC.
  1. Value: baoUSD is in its infancy, but balancer has an opportunity to become the primary source of liquidity for it and future synthetics. The Bao protocol gained a lot of exposure during 2021, attracting up to $200m in liquidity with only a vision, and now the community lead project is launching its first products.

Contract Addresses

Specification:

The DAO Multisig 0x10A19e7eE7d7F8a52822f6817de8ea18204F2e4f will interact with the AuthorizerAdaptor at 0x8F42aDBbA1B16EaAE3BB5754915E0D06059aDd75 and call performAction with the GaugeController at 0xC128468b7Ce63eA702C1f104D55A2566b13D3ABD for the target(address) argument and using 0x3a04f900 followed by the gauge address 0x5aF3B93Fb82ab8691b82a09CBBae7b8D3eB5Ac11 and the corresponding gauge type for the data(bytes) argument.

data(bytes) :
0x3a04f9000000000000000000000000005af3b93fb82ab8691b82a09cbbae7b8d3eb5ac110000000000000000000000000000000000000000000000000000000000000002

3 Likes
2

So, let me get this straight. On bao.finance, I can buy or mint bSTABLE or bETH and earn a yield. Then borrow against either, for baoUSD, and use that on Balancer? If so, what are the yields for the underlining collateral?

3

The yields come from strategies that the underlying collateral is being utilized in on the smart contract, and the increase of the value of the underlying collateral increases the value of the token. Your token appreciates in value and compounds the yields.

5

https://snapshot.org/#/balancer.eth/proposal/0xe99e3d2b1b3ffaeff1597de59c252fe829259f877a2d78a417bbe7521cbe8d7f

6

Some additional information to clarify some points form the proposal after some questions were raised elsewhere

Safe Expansion:

Currently the mint cap for baoUSD is $2m. The mint cap directly affects the variable interest rate as changing the supply also changes the utilization ratio that interest rates are linked to. With this in mind, the supply cap should fluctuate over time, increasing interest rates at times of low demand to protect the peg.

Incentives outside of the Bao platform are key to growing the baoUSD supply safely & Bao has chosen Balancer to focus these efforts due to the flexibility of balancer liquidity pools over other platforms. This is important because Bao plan to incentivize liquidity for their new “base pairs” on the Bao platform starting with a BAO/baoUSD-LUSD gauge. Other projects can also propose gauges for baoUSD-LUSD liquidity and use Bao tokens to vote for their weights similar to balancer.

Decentralization Plans:
[note: these plans are in the research stage still and may change. It is our aim to remove all centralized control]

  1. Restrict collateral to only bSTBL, bETH, ETH by removing multisig control from the baoUSD Vault.
  2. Add governance contracts that execute actions automatically once they are approved via vote. Give it the ability to pause collateral deposits and expand and contract the borrow cap on the baoUSD vault and PSM.
  3. Revoke baoUSD ownership, preventing any additional minter contracts from being added.
  4. Pass maintenance of Baskets to a governance contract

After all four steps are complete baoUSD will only ever have ETH, the safest stablecoins (bSTBL) and the safest LSDs (bETH) as collateral. Beyond the community controlled supply/interest rate and the underlying composition of bSTBL and bETH, nothing else can change.

baoUSD will be immutable, decentralized and not reliant on any single collateral type.

2 Likes