With 2022 just around the corner, we’re releasing a detailed roadmap for what’s on the horizon for BarnBridge. This is a three-part series on the products in the pipeline and go-to-market timelines.
After doing extensive market research by speaking to funds and iterating on the concept, we’re excited to announce a brand new product addition to BarnBridge: Sailor!
Tl;dr: High fixed income rates made possible by Bitcoin CAGR.
- Seniors deposit stablecoins like USDC.
- Juniors deposit wBTC.
- Seniors’ stablecoins are used to purchase wBTC.
- At maturity, sell enough wBTC to pay Seniors their principle plus interest owed.
- All remaining wBTC is given to Juniors.
Let’s delve in deeper…
The inspiration for this came to us after Michael Saylor did an oversubscribed — $500M round, back in June 2021. This was for 6.125% per year senior notes — maturing in 2028. The net proceeds from the sale of the notes were specifically stated to be used to acquire bitcoin.
In our case, we want to create a product that opens up the possibility for everyone to engage in this sort of trade — and not just for accredited investors, and those that have the luxury of issuing these coupons as senior obligations of their company.
This product will be an open market where the Michael Saylors of the world can meet the fixed, senior note buyers of the world.
The current fixed income bond market is broken. Interest rates are being kept artificially low and quantitative easing is setting the floor for bond prices which translates to caps for yields.
What if there was a way to offer high interest rates hedged by the CAGR (Compound Annual Growth Rate) of a crypto asset?
BTC has been increasing at ~200% CAGR over the last 10 years. Even with a diminished CAGR, it can absorb the monetary supply increases of fiat.
If you bought Bitcoin at a point in time and held it for a long enough time period, chances are that you made an excellent return on capital invested.
There is always risk involved in being long, especially in a volatile asset class. And that’s where Sailor comes into play.
Sailor splits risk into two tranches:
- Seniors: Deposit a stablecoin like USDC and get a fixed interest rate paid out in the same stablecoin.
- Juniors: Deposit wBTC and get all excess gains in wBTC.
Seniors are selling risk to Juniors and are given a much higher interest rate on stablecoins as compared to current lending protocols.
Juniors are buying risk from Seniors and are essentially leveraging their Bitcoin position.
An alternative way of looking at this is that Juniors are borrowing money from Seniors and paying them interest to lever BTC.
The mechanics of how Sailor works is quite elegant:
The boat / pool is defined with a maturity date and the interest rate that Seniors will receive.
Once the pool has been defined, the loading begins. Juniors deposit wBTC. Seniors deposit a stablecoin like USDC.
The stablecoins deposited by Seniors are used to purchase wBTC from an AMM like Uniswap. During the journey to maturity, the pool entirely contains wBTC.
At maturity, enough wBTC is sold to pay Seniors their principal plus interest owed. All remaining wBTC is given to Juniors.
Seniors are guaranteed the interest owed to them. Therefore, the primary risk for Juniors is Bitcoin price capitulating below a specified threshold — which would be above what is owed to Seniors.
In a scenario where Bitcoin price drops below this threshold, wBTC is sold to honor the yield promised to Seniors and the journey is paused.
If BTC price recovers, the journey continues from Step 3 above (purchasing wBTC with stablecoins).
Seniors are able to get high interest rates for stablecoins that are both above fiat inflation and competitive with other DeFi lending protocols. Bitcoin’s approximate CAGR of 200% allows an attractive opportunity for Seniors to earn a high yield.
Juniors are able to get a low leveraged long position with a maturity date and no operating leverage costs. Sailor presents an excellent opportunity for those long-term bullish on Bitcoin and looking for a way to gain added alpha while they HODL.
It’s a product that has received positive sentiment and demand from funds, and we’re excited for the journey ahead for BarnBridge.