This proposal aims to approve the creation of a gauge with a 2% cap for baoETH/ETH Composable stable pool.
Bao intends to continue to build on their locked BAL position as well as incentivize voters to vote for the pool, and seed liquidity in the pool
The baoETH/ETH Balancer pool will act as a base pool for Bao ETH liquidity gauges and will have incentivised liquidity on the Bao platform beginning BAO/baoETH-ETH and bETH/baoETH-ETH
Bao Finance is a community-run protocol creating synthetic assets and markets for any data. Our synths, baoUSD and baoETH, are backed by debt positions created in our vaults, and stable assets via its PSM.
BaoETH 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 baoETH 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 baoETH ballast mints baoETH when supplied with ETH at a 1:1 ratio. While there is ETH available, baoETH can be burned to claim ETH at a 1:1 ratio. The baoETH“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. Our current baskets are bSTBL (yield bearing USD basket) and bETH (a basket of LSD tokens)
bSTBL and bETH are designed to be ideal collateral for baoETH, focusing on the industry’s lowest risk, most liquid stable-coins and LSDs, and the safest yield strategies. Using bSTBL and bETH as collateral for baoETH 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 and the composition of bETH is initially 71% wstETH and 29% rETH.
Further baskets and synthetics are planned in the future.
Currently there is no incentivised liquidity for baoETH although this is expected to change shortly as there is a routine governance proposal on the Bao governance forum activating rewards for several gauges based around the beoETH balancer base pool - baoETH/ETH, BAO/baoETH-ETH and bETH/baoETH-ETH. [BIP-36] Base Pool Gauges - Governance Proposals - Bao Finance Governance
Additional details on our expansion and decentralization plans can be found here, in our successful baoUSD gauge proposal: [BIP-270] Enable baoUSD/LUSD gauge w/2% cap [Ethereum] - #6 by Chickn
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. We would like to continue this relationship with our baoETH base pool. Bao intends to use the flexibility of balancers pools to increase adoption of baoETH by allowing other projects to pair tokens with our base pools and incentivise liquidity 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.
- Governance: Currently baoETH 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 baoETH 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.
- Oracles: Chainlink oracles are used to find collateral prices.
- Audits: Bao re-uses battle-tested compound, inverse, and curve code with some changes and is in the process of auditing
- 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.
- Market History: baoETH 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.
- Value: baoETH 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.
The Balancer Maxi LM Multisig
eth:0xc38c5f97B34E175FFd35407fc91a937300E33860 will interact with the
0x5DbAd78818D4c8958EfF2d5b95b28385A22113Cd and call the
addGauge function with the following arguments:
0xD449Efa0A587f2cb6BE3AE577Bc167a774525810 which corresponds to the 2% capped gauge for this pool