BarnBridge is a tokenized risk and fluctuations protocol built on Ethereum. Using BarnBridge’s SMART yield, users can buy and sell the risk associated with DeFi yields represented as tokenized liquid tranches. These tranches are made up of junior ERC-20 tokens and senior bonds, which are ERC-721 non-fungible tokens (NFTs). The native BOND token is staked in the BarnBridge staking smart contract to secure the platform via the BarnBridge DAO. Plus, the introduction of SMART Exposure enables users to automatically rebalance specific weightings of tokens within their portfolio. For those wondering, “what is BarnBridge?” and, “how do you use BarnBridge?”, you’re about to find out!
In this article, we’re going to explore the BarnBridge platform and the BOND token too. Also, we’ll discuss the BarnBridge staking mechanism, SMART yield, and the BarnBridge DAO. Plus, we’ll look at how BarnBridge is tokenizing risk to hedge yield sensitivity.
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What is BarnBridge?
So, what is BarnBridge? BarnBridge is a fluctuations derivatives and tokenized risk protocol designed for “hedging yield sensitivity and market price” conceived in 2019. The platform was developed at a time when decentralized finance (DeFi) was beginning to gain mainstream adoption.
As a cross-platform protocol for risk management, BarnBridge is designed to minimize the risks involved with decentralized finance (DeFi). This is achieved by allowing users to select risk profiles and hedge against interest rate risk across multiple DeFi protocols. Also, BarnBridge redistributes risk via “tokenized liquid tranches” using SMART Yield bonds.
This is achieved by breaking down the risk of digital assets into dollar-denominated pieces known as tranches. These tranches are used to build crypto derivatives. Moreover, BarnBridge aims to facilitate layered risk management for both the traditional financial sector (TradFi) and decentralized finance (DeFi) investors. This is achieved using yield and debt-based derivatives.
SMART Yield Bonds
SMART Yield alleviates the volatility associated with variable yield across DeFi platforms such as Aave, and Compound. Also, SMART Yield uses junior and senior tranche derivatives to mint tokens. These tokens represent an appropriately tranched deposit inside DeFi protocols.
These tranches are made up of two types of tokens. First of all, junior tokens are ERC-20 tokens that can be minted by users. Secondly, senior tokens, which are ERC-721 non-fungible tokens (NFTs) that represent bonds. Junior tokens serve as the liquidity required for senior bond investors to receive a stable yield. Also, junior tokens are used to buy risk from senior bond investors.
Senior bonds come with a guaranteed permanent fixed interest rate. There is a risk for junior token holders buying senior bonds when variable-rate annuities fall below the projected threshold. However, junior token holders stand to benefit from extra yield when the variable APY of the underlying debt pool is above the weighted average guaranteed yields of senior token holders.
Collateral from junior and senior deposits is placed into liquidity pools on yield-generating protocols and decentralized applications (dApps) before being bundled into tranches. This allows users to gain exposure to senior tranches with much lower risk. However, this does result in a slight reduction in yield. Moreover, SMART bonds allow users to buy and sell the risk associated with yield, with the price of tokenized risk driven directly by the market.
As the first tokenized risk and cross-platform derivatives protocol, BarnBridge will enable users to track and attribute yield to divided allotments of capital in a completely trustless and transparent way. Currently, BarnBridge is focused on yield sensitivity. However, in the future, users will be able to hedge against all kinds of fluctuations as the BarnBridge ecosystem expands.
The BOND Token
The BOND token is an ERC-20 token that holds several responsibilities as a multi-utility token including staking. Holders of the BOND token can stake their tokens to secure the network. Plus, the BOND token will be used to vote on governance proposals to update the platform and as a policy management medium.
The distribution of the BOND token is expected to take place over a two to three-year period, which began in October of 2020. According to CoinGecko, the BOND token has a circulating supply of 3.4 million tokens out of a maximum of 10 million tokens at the time of writing.
Designed to incentivize participant welfare and platform sustainability, The BOND token acts as a security. Furthermore, the BOND token will facilitate automated, decentralized governance via the BarnBridge DAO, controlled by the BOND token community.
The BOND token is available to invest in through some of the most reputable crypto exchanges in the industry. This includes Binance and Coinbase as the top centralized exchanges (CEXs). Also, Uniswap, SushiSwap, 1inch Exchange, and Bancor Network are popular decentralized exchanges (DEXs) that facilitate BOND token trading.
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The BarnBridge DAO is a decentralized autonomous organization (DAO) that grants voting rights to BOND token holders to make changes to the protocol and facilitate decentralized autonomous governance. Also, BarnBridge DAO is at the heart of all BarnBridge products. As such, the BOND community has full control over newly proposed protocol features.
Using the Diamond Standard (EIP-2535), BarnBridge DAO allows protocol upgrades to take place without the need for all members to unstake tokens to switch to a new version of the protocol. This provides an equitable platform for holders of the BOND token and makes BarnBridge a flexible Web3 platform.
Creating a proposal to present to the DAO requires participants to hold a minimum of 1% of all BOND tokens staked in the BarnBridge staking smart contract. Also, for a proposal to be successful, there must be a quorum of at least 40% of all staked BOND tokens, with a minimum acceptance of 60% of all votes. Moreover, voting on the BarnBridge DAO will be carried out using non-tradable vBOND tokens. In order to obtain vBOND tokens, participants must lock or stake BOND tokens. After locking up or staking BOND tokens, vBOND tokens will be distributed proportionally to the number of BOND tokens staked.
Not only can participants stake BOND tokens without locking them and receive more BOND tokens in return, but they can also redeem BOND tokens at any time. Moreover, staking the BOND token entitles participants to voting rights that will determine the future of the project.
Launched on July 5th, 2021, SMART Exposure is BarnBridge’s second application. SMART Exposure offers users the ability to automatically rebalance specific weightings of ERC-20 tokens within their portfolio. At the time of writing, SMART Exposure is only supporting Wrapped Bitcoin (WBTC), Wrapped Ether (WETH), and USD Coin (USDC) token pairings. A portfolio can be chosen to be balanced with either a 50:50 or 75:25 ratio weighting.
BarnBridge’s latest application provides automatic portfolio management, maintaining the chosen weighting of token pairs. This is made possible thanks to SMART Exposure maintaining its own asset pools. Furthermore, each token ratio is represented as an ERC-20 token with its own ticker. These tokens can then be traded or used as collateral on other platforms.
“We expect SMART Exposure to serve as a key building block for structured products incorporating assets from other BarnBridge products in the future. Today, it offers an efficient passive treasury management solution as well as tokenized versions of popular ratios”.
Why Use BarnBridge?
The traditional finance sector (TradFi) is experiencing historic debt levels. According to the International Monetary Fund (IMF), global debt rose to above 331% of global gross domestic product (GDP) in Q1 of 2020. This, coupled with negative interest rates, failing economies, and unprecedented monetary and fiscal stimulus, has paved the way for a new decentralized financial paradigm, known as DeFi.
As more capital flows into risky yield streams in the TradFi sector, DeFi has seen record amounts of debt. This is reflected in the total value locked metric (TVL), which went from millions to billions in 2020. Furthermore, the yield generated by DeFi protocols continues to dwarf those provided by TradFi.
Because of higher levels of assumed risk and more efficient technologies, smart contract-based decentralized applications (dApps) offer a much higher annual percentage yield (APY) than their traditional counterparts. Crypto-backed loans and collateralized debt have played an important role in this paradigm shift. As such, the TVL in DeFi continues to rise along with the number of smart contract-enabled blockchains, layer 2 solutions, and Ethereum competitors.
BarnBridge aims to bridge the TradFi and DeFi sectors. As the DeFi industry attracts more value, and loans are issued for a longer duration, crypto-backed loans could be utilized for everyday use cases such as mortgages on the blockchain and corporate debt. Also, the advancements of smart contracts and decentralized autonomous organizations (DAOs) can facilitate complex derivatives instruments and collateralized debt products with higher levels of transparency and security than the traditional financial system.
Moreover, BarnBridge was designed to assist in the migration of yield and yield-based derivatives from TradFi to DeFi by making decentralized financial products more efficient and risk-flexible. This opens up the doors to DeFi for a broad demographic of participants in a way that has never been seen before.
BarnBridge & BOND Token Summary
The crypto derivatives space has seen a wave of innovation in recent years. As many agree that DeFi must gain legitimacy within the TradFi space for it to become truly mainstream, BarnBridge is at the forefront of decentralized fluctuation derivatives. By enabling users to buy and sell tokenized risk, BarnBridge has created an environment that facilitates bespoke risk profiles for a wide range of investors and risk appetites. Moreover, BarnBridge is bridging the traditional finance sector with the world of decentralized finance to make smart contract-based yield platforms and decentralized applications (dApps) accessible to all!
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