HomeCoinsBarnBridge (BOND)UMA KPI Options for SMART Alpha are Now Live | by Maximilian...

UMA KPI Options for SMART Alpha are Now Live | by Maximilian Fiege | BarnBridge | Oct, 2021

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Key Performance Indicator (KPI) options are now live for SMART Alpha! This post will provide an overview of how you may have already earned an airdrop, how you can earn more options between now and November 2nd, and what potential payout looks like.

Please refer to the original announcement for a more detailed background on what KPI options are and how they work.

Two KPI option programs will run in parallel: one for the ETH (USD) pool, and one for the BTC (USD) pool. Each will have 5,000 KPI options associated with them.

  • A maximum of 5,000 BOND are set aside for both
  • Outcome of the program will be assessed by UMA on November 3rd, 2021
  • 30% of each program’s supply is reserved for airdrop recipients

You will have qualified for the airdrops if you were either:

  • A SMART Alpha participant in either Epochs 1, 2, or 3 for either pool
  • A BarnBridge DAO staker as of September 27th, 2021

Airdrop distribution will be addressed over the coming weeks.

3,500 of each KPI option supply will be emitted via a liquidity mining contract hosted on the BarnBridge interface here. Emissions will go from now through November 2nd, 2021.

To earn ETH (USD) KPI options, you will need to deposit the Balancer Pool Token associated with it.

To earn the BTC (USD) KPI options, you will need to deposit the Balancer Pool Token associated with it.

At the end of the KPI option program, you will be able to redeem these options for an amount of BOND per token determined by the following function:

TVL of the SMART Alpha Pool at Epoch Advancement on November 1st * Average Epoch Score

Let’s break that down:

  • TVL of the SMART Alpha Pool at Epoch Advancement on November 1st: The cumulative amount of dollar-denominated value between the junior and senior side of the pool at 10:00 AM EDT on November 1st, 2021.
  • Average Epoch Score: Each epoch is scored between 0 and 2 depending on how far away from 50% the junior dominance of the pool was. If junior dominance is lower or equal to 50%, the epoch score is calculated by multiplying the junior dominance share by 4; if junior dominance is higher than 50%, the epoch score is calculated by multiplying senior dominance share (this is 1 minus junior dominance share) by 4.

This function is bound between outputs of 100,000 and 19,900,000:

Here are some examples of how this could play out:

  • TVL for the last epoch advancement is $10,000,000 and the average epoch score was 2| KPI Option = 1 BOND
  • TVL for the last epoch advancement is $10,000,000 and the average epoch score was 0.5 | KPI Option = 0.4 BOND
  • TVL for the last epoch advancement is $15,000,000 and the average epoch score was 1 | KPI Option = 0.6 BOND

The Balancer pools are composed of three assets each:

Half of the pool is represented by the underlying asset always, while the other half is split between the junior and senior versions of the asset. Each week, the split between the junior and senior sides are recalibrated to mitigate potential downside caused by junior volatility. This is done as a function of junior dominance.

The goal of Balancer pool reweighting is to ensure that the assets gained by the senior side cancel out those lost by the junior side at the senior downside protection limit. What does that mean?

  1. A specific epoch advances and has a confirmed junior dominance
  2. This junior dominance determines how much downside protection seniors receive and how much juniors will give up in the underlying asset at that point
  3. You can then calculate the ratio between the two sides that keeps it even, with a bias to the senior side

This allows for impermanent loss to remain in the single digits, even when juniors bear high volatility moves to the downside. For this pilot, a core team multisig will be updating the weights on an epoch-by-epoch basis. Should longer KPI option programs be pursued in the future, a keeper network would be utilized.

Before participating in the mining portion of the program, please make sure you understand the following risks:

  • Initial Volatility: Junior and senior positions can only be minted once a week, while Balancer pools allow for single-sided deposits. This could result in senior and junior positions trading at a premium in the initial week or two of the program as people just deposit WETH or WBTC.
  • Expected Discount: In an equilibrium state, you would expect both junior and senior positions to trade at a discount to their contemporaneous value. This discount would be largest at epoch beginning, and converge on 0% toward epoch end.
  • Impermanent Loss: Should one or more assets in the pool severely decline in value, you are at risk of losing other pool assets. To calculate how this would play out under different circumstances, we recommend using https://baller.netlify.app/.
  • Smart Contract Risk: To participate, you will be interfacing with smart contracts from BarnBridge, Balancer, and UMA.
  • Payout Risk: If the program doesn’t end anywhere close to its goal TVL, your KPI options will be worth less BOND.

With that said, see you in the pools!

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