Proposal 39 to launch new thematic pool: BSCDEFI
It is proposed to update the composition and weighting of the previously-proposed BSC DeFi thematic pool, and launch in collaboration with Binance Smart Chain and Linear Finance. This update to Proposal 30 reflects modifications addressing the following constraints:
- Technical integration of CVP into the BSC official bridge took longer than expected;
- Our market makers required that the initial shortlist include only Binance (CEX) listed tokens;
- It became clear that two different BSC pools would fragment liquidity too much;
- The product will be more composable/hedge-able with synthetics/derivatives partners;
- The up-coming comprehensive New Vision roll-out gives new perspectives
Rewards offered for DeFi liquidity on BSC will have to be much higher to attract liquidity from Ethereum and other chains/layers, and fees should be much lower.
With some centralisation of BSC also comes much better BSC broadcast marketing in gas fee-sensitive markets in Asia, and use of the Binance BNB token to pay fees makes BSC DeFi effectively a (slightly) decentralised, distributed architecture extension to the Binance empire, with international fiat on/off-ramps.
The foregoing suggests that BSC DeFi could attract and sustain significant TVL/fees relative to the rate of rewards tokens issued. Recently, BSC has struggled with performance (some say the nodes will not scale) and security issues, as a plethora of hacks have exploited less-competent BSC cut-paste-fork initiatives. That said, mutual insurers like BSC-native Soteria are gaining traction and experiencing few claims as BSC DeFi investors become more aware of the difference between insurable and un-insurable protocols.
It is possible that Ethereum gas prices will never really be low enough for retail investors, and that liquidity will continue to flow back and forth across chains and layers like the tides. The Proposal is to launch a PowerPool BSC DeFi thematic pooled vehicle to give average retail investors gas-efficient, broadly-diversified exposure to BSC DeFi but WITH rewards.
Proposed initial composition
The initial composition of the BSCDEFI pool was defined by the team and CVP community members, with advice from the Binance Smart Chain team and Wintermute (CVP market makers). This composition and weightings are just a starting point, as the DAO will be involved in periodically re-visiting both composition and weightings at regular intervals based on fundamentals tracking and flash-polling of sentiment changes among DAO members. Some of the considerations/filters applied in defining the initial shortlist include:
- Each project should have meaningful TVL, user base, and history of operation;
- Binance (CEX) listing - a credential and aid to creating a hedge-able synthetic ‘mirror’ in collaboration with other protocols, may also hasten a CEX listing for the token;
- Token should be insurable either on Nexus Mutual or Soteria;
- Token should represent a thematic exposure primarily to the future advantages/disadvantages of DeFi on BSC
The proposed initial composition is presented below:
- PancakeSwap/CAKE: 40%
- Venus/XVS: 16%
- MDEX/MDX: 8%
- Ellipsis/EPS: 7%
- BakerySwap/BAKE: 6%
- Linear/LINA(BSC): 5%
- Autofarm/AUTO: 5%
- Dodo/DODO: 4%
- CREAM/CREAM: 3%
- TokoCrypto/TKO: 2%
- Alpaca/ALPACA: 0%
- Beefy Finance/BIFI: 0%
- Saffron Finance/SFI:0%
Note that there are at least 6 BSC DeFi projects waiting to enter into consideration for non-zero weightings, mostly because they are not yet listed on Binance (CEX). As and when these zero-weighted candidates become listed, or when the Binance (CEX) listing requirement is relaxed, the weightings of these projects will be reviewed. Others will no doubt surface for consideration in future.
PowerPool has learned from launching previous products that it is important to act in concert with other DAOs, especially synthetics and derivatives sites, as well as lending sites, to maintain fungible composability of the pooled token. In the case of the BSCDEFI pool, we propose to collaborate with Linear, a BSC-native synthetics platform, to jointly launch composable ‘mirrored’ pool tokens, with PowerPool responsible for periodic DAO-driven maintenance of the composition and weighting.
Consistent with the New Vision, pool management fees will be initially set at 2%, with progressively automated rewards harvesting and no performance fee.
We propose to implement this product not as an AMM pool that allows traders to swap assets, but as a basket of assets without swaps for the following reasons:
- avoid IL associated with an AMM, the “selling winners and buying losers” problem;
- avoid security risks of hacks in particular protocols leading to draining the pool;
- the composition and weights of this kind of pool change relatively infrequently.
Talking about synthetic short for BSC product, we need to point out that it is much easier to track a static basket of assets with relatively-static weights than within the constantly rebalancing AMM pool. Therefore we recommend that technical implementation be done on top of the Balancer AMM pool with disabled joins, exits, and swaps. We propose to use this solution since our team has very good experience in building products on top of Balancer pools and it will save a lot of time on audits as well.
Users will be able to join and exit this pool (supply and withdraw liquidity) using ZAP (similarly to YLA ZAP implementation). Since ZAP and the product operates on BSC with much lower fees, ZAP can be designed to have batches for supply/withdrawal of assets much more frequently, for example, every 30 mins.
We propose the internal rebalancing mechanism based on the auction. When the pool will be rebalanced by periodic community flash polling resulting in a decreased weighting for token A, and increased weighting of tokens B and C, then the pool controller contract will call an auction for trading the necessary amount of A to B and C with a certain discount. If during time T nobody from the open market buys A for B and C, the discount increases by X%. We expect that such an approach will be more efficient for the pool capital than rebalancing by means of arbitrage traders. We are conducting simulations to prove that and will share results soon.
For running auctions, the system needs a reliable price feed. PowerPool has Power Oracle, a TWAP Uniswap/Sushiswap oracle, but we need an additional independent source of price feeds. We are talking with Chainlink now to establish a partnership and use Chainlink as the exclusive oracle provider for PowerPool, subject to DAO approval.
Synthetic hedging options
By agreement, Linear Finance, a synthetics/derivatives site native to BSC will be creating a synthetic token that will track the BSCDEFI basket of assets, thereby creating a shorting option for use in hedging the long-only pool. Currently, we are working with Linear on developing a technical roadmap for the synthetic derivative product. We may also approach other derivatives/synthetics platforms, like Synthetix, with whom we are already collaborating on the forthcoming PPDEFI Ethereum DeFi pool. Inter-DAO agreements of two protocols should encourage all others to use the same composition/weights to boost liquidity and composability.
We are hereby submitting a formal proposal to the DAO to launch a revised version of the already-approved BSC DeFi thematic pool as a Power Universe token BSCDEFI. The composition and weighting will be actively managed by the PowerPool DAO xCVP staker community. It will be a basket of assets without swaps and it will be mirrored by an optional hedging instrument provided by Linear Finance. This product design will allow BSCDEFI token holders to create partly or completely hedged baskets in a flexible way, receiving yield and governance value provided by assets from the basket, either with or without long-term upside associated with a favourable competitive environment for BSC DeFi. We believe this will be the first structured investment pool offering diversified exposure to BSC DeFi, and definitely the first with composable ‘mirror’ tokens facilitating full or partial hedging.