With CDO as the core, BarnBridge’s mechanism realizes the distribution of cash flow from top to bottom and the sharing of risks from bottom to top, thereby strengthening the leverage effect and obtaining a more controllable rate of return.
Written by: Ad
The annualized income of old mines has been declining, and new mines have repeatedly run off. Farmers who farm income have recently fallen into a state of no (high-quality) mines to dig. On October 19, a decentralized cross-platform derivatives agreement called “BarnBridge” quietly brought a long-lost heat to the market. Before the official launch of the BarnBridge platform, the amount of US$82.55 million in lock-up funds soared to US$180 million in the first 24 hours after the launch, and the market felt the warmth of the hot summer belonging to DeFi not long ago.
What is BarnBridge? How does BarnBridge’s graded derivatives work? This chain news will take everyone to understand.
What is BarnBridge?
BarnBridge is a cross-platform graded derivatives agreement that quantifies and marks DeFi product risks in batches through the dimensions of return and volatility, and grades the risks to provide investors with different needs.
Cross-platform graded derivatives agreement BarnBridge
In BarnBridge’s view, DeFi platforms such as MakerDAO, Synthetix, AAVE, Compound, and Curve can provide users with better returns, but currently there is no smart contract that can combine different protocols and generate a standardized risk curve based on This curve provides hedging derivatives. If traditional financial institutions with extremely high risk control requirements want to enter DeFi, they will inevitably choose new derivatives that greatly optimize risks based on stable returns.
Initial products: Smart Yield Bonds and Smart Alpha Bonds
BarnBridge will initially launch an Ethereum-based income product ” Smart Yield Bond ” and a derivative tool ” Smart Alpha Bond ” that can hedge against market price fluctuations of any ERC20 token.
Smart Income Bond
In addition to guaranteeing the generation of fixed income, smart income bonds can also hedge yield fluctuations through debt derivatives.
At present, the interest rate products appearing in the DeFi ecosystem are mainly simple floating interest rate annuity products. Barnbridge is trying to convert a floating rate of return to a fixed interest rate through rate grading + tiered tokenization. These fixed-rate products have the characteristics of traditional bonds: locked collateral, fixed interest payments, and innovative no deadlines.
What is classification?
From the official introduction, the BarnBridge grading mechanism can be roughly explained as: deposit the assets locked by investors into the loan platform or DeFi project to obtain income, and grade the risk through the rate of return and tokenization. Investors can choose the level with low risk and low return, or the level with greater risk but higher rate of return.
Different risks and loss possibilities of BarnBridge bonds
Is it difficult to understand? In fact, if we want to understand BarnBridge’s grading mechanism, we can start with the traditional financial CDO (Collateralized Debt Obligation), that is, secured debt certificates. Guaranteed debt certificates refer to innovative derivative securities products that are based on mortgage debt credit and are based on various asset securitization technologies to restructure bonds, loans and other assets to re-divide investment returns and risks to meet the needs of different investors.
CDO has some recognized typical features (Stylized Fact), these features include:
1. CDO has an asset pool consisting of a series of credit assets, and based on the cash flow generated by the asset pool, it issues securities of different grades (Tranches) to investors.
2. The level of securities generally includes senior level (Senior Tranche), intermediate level (Mezzanine Tranche) and inferior level (Equity Tranche). All levels of securities correspond to the same basic asset pool, but have different expected returns and risks, which are caused by the cash flow distribution rules or loss bearing rules.
The cash flow distribution rules refer to the cash flow generated by the asset pool, and the order of payment of interest is the holders of senior securities, intermediate securities holders, and inferior securities holders.
The order of the loss-bearing rules and the cash flow distribution rules is reversed: if the credit assets in the asset pool default, all losses will be borne by the inferior securities holders, then by the intermediate securities holders, and finally by the priority The securities holders bear.
In other words, inferior grade securities provide a certain degree of protection for intermediate and preferred securities, and intermediate securities for priority securities.
The structure of CDO
Looking back from the CDO example, the BarnBridge grading mechanism is very clear: tokenize the fluctuations in the yield of DeFi products, and token pricing is completely driven by the market. A more stable return can be obtained through income grading, and another major advantage of tokenized products is that the income can also be transferred at any time.
Smart Alpha Bond
Smart Alpha bonds do not classify the level of return, but anchor the price of the asset, and hedge market risks through hierarchical volatility derivatives .
For example, split the ownership of 1 ETH into two levels, high risk and low risk. Assuming that the current price of ETH is $1000 and then drops to $900, the higher risk part bears a higher proportion of losses. On the contrary, if the current price of 1 ETH is $1000 and then rises to $1100, the high-risk part will get higher returns.
The measurement and distribution of these gains and losses can be done through smart contracts. Each risk level (two levels of high risk and low risk as described above) can be traded as an independent token. For example, jETH (high risk/high return), mETH (risk mezzanine), and sETH (low risk/low return). These different classifications will be provided to investors as a risk RAMP (Risk Assessment & Mitigation Plan).
Distribution and governance
According to the official product roadmap, BarnBridge will first create Launch DAO (currently online) based on the community contract of the Aragon DAO company template, which will mainly serve as an incubator. The BarnBridge DAO, which manages the contract, will be online within two weeks.
Launch DAO will use the Aragon DAO corporate form. The founding team, seed investors and advisors will all represent shares through tokens held, and make decisions through token weighted voting. Its native token will be BBVOTE. Founders accounted for 45%, seed investors accounted for 45%, and advisors accounted for 10%. The Launch DAO support rate is set to 62%, which means that a proposal must receive at least 62% support before it can be passed.
BOND is BarnBridge’s ERC-20 token, which can be used to govern mortgages. The total issuance of BOND is 10 million, of which the BOND allocated to founders, seed investors and advisors accounts for 22%, and about 4,230 pieces will be unlocked every week within two years, during which liquidity mining will start at the same time. BarnBridge DAO is controlled by the BOND community and builds smart contracts based on the Diamond Standard (EIP-2535).
Development route
According to previous reports from Chain News, BarnBridge announced the completion of a $1 million seed round in September. Investors involved include Fourth Revolution Capital, ParaFi Capital, Synthetix founder Kain Warwick, Aave founder Stani Kulechov, and DARMA Capital managing partner Andrew Keys , Centrality, Blockchain Companies, Dahret Group.
Except for Launch DAO, which is already online, and BarnBridge DAO, which will be launched soon, its planned smart yield bond and smart Alpha bond products are expected to be launched within 8 weeks and 16 weeks, respectively.
In the future development plan, BarnBridge also plans to reduce Gas costs through some Layer 2 solutions, and plans to launch SMART Swaps, SMART Prediction Hedge and market-driven rating oracles (Market Driven Ratings Oracle).
summary
With CDO as the core, BarnBridge’s mechanism has realized the distribution of cash flow from top to bottom and the sharing of risk from bottom to top, thereby achieving enhanced leverage and a more controllable rate of return. At present, there is no similar product in the DeFi field. I believe this is one of the reasons why everyone is rushing. This type of product has a positive significance as a tool to transfer and diversify risks, but without a clear understanding of the risk points of the structured financial product itself, it is difficult for investors to establish an effective control mechanism, which is also what investors need to pay attention to Point.
