HomeCoinsBarnBridge (BOND)$BOND on Balancer and Olympus’s Flex Loans | by Pavlo Bendus |...

$BOND on Balancer and Olympus’s Flex Loans | by Pavlo Bendus | BarnBridge | Nov, 2022

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BarnBridge DAO recently deployed a weighted pool on Balancer with a 50/50 distribution of $BOND & $OHM tokens. This injected $1M in $BOND/OHM liquidity on mainnet and will ensure that the market makers could act as takers on DEX’s to make markets on CEX’s across the mainnet and rollups for $BOND.

With the pool 2 rewards coming to an end, $BOND will no longer have incentivized liquidity on the mainnet. We had the liquidity incentivized ONLY for two years from the launch of the $BOND token as we believed that we should be fairly distributed when that period ends. But, it is now evident that we need more time to see that happening.

So, we decided to deploy additional liquidity through Olympus’s Flex Loan Program and take advantage of its $ gOHM-backed loans. $OHM is an extremely liquid on-chain asset, so an $OHM/$BOND pairing would ensure we had prolonged on-chain liquidity and over a period of time the BarnBridge DAO would end up owning this liquidity.

This is why the DAO swapped ~$500k worth of $BOND for $gOHM to hold as treasury holdings and paired it against $OHM in an $OHM/$BOND Balancer Finance pool.

Back in 2020, the newly launched $BOND needed deep and decentralized on-chain liquidity in order to thrive as an asset. To make that happen, we went down the Pool 2 road, a novel and groundbreaking concept at the time, and launched an incentivized liquidity program on Uniswap v2.

After running this incentivized liquidity program for over two years, we have realized that the acquired liquidity is short-lived and is a recurring liability for a treasury.

In a nutshell, Pool 2 incentives are destructive to a protocol’s treasury.

Correlation between total liquidity and treasury balance for a protocol running a Pool 2

If this mechanism does no good then why do we have most protocols and treasuries using it? Because the high incentives offered on these pools draw immediate liquidity creating the delusion that a token is sufficiently liquid (which is true only for a very brief moment of time). Furthermore, the DeFi space didn’t know of a superior alternative to this damaging liquidity mechanism.

Introduced by Olympus, Flex Loans are interest-free loans for protocols to grow self-owned liquidity. Whitelisted protocols can swap their native tokens for $gOHM which can be used to avail a non-liquidating, up to a 100% LTV loan in $OHM from Olympus. The borrowed $OHM is then paired with a protocol-owned asset and deployed in a liquidity pool.

This is a better-suited approach for our protocol because:

  • The protocol owns this liquidity so no more hopping off.
  • LTV continuously decreases for $gOHM collateral due to rebasing rewards earned in $OHM.
  • It adds diversity to our treasury holding and to some extent prevents insolvency.
  • We get to pay back the loan whenever convenient for us.

Hence, we swapped $500M worth of $BOND for $gOHM & borrow against our $gOHM to acquire $OHM (we see this as being safe since $gOHM eats any $OHM inflation (which was just reduced).

We set higher than standard parameters (long-tail).

Since $BOND & $OHM have similar depth in liquidity we decided to set up a Balancer pool with a 50/50 distribution between the two tokens.

We reviewed the contracts & worked with the Olympus team to execute everything.

We now have $1m of depth in liquidity on Ethereum Mainnet (as we move our existing POL to Arbitrum).

This ensures market makers can act as takers on DEX’s to make markets on CEX’s across mainnet + rollups.

We’re also expecting the majority of 1inch orders to route through Balancer once we port the Uniswap pools to Arbitrum (likely onSushiSwap).

So, it’s no surprise why we chose the $OHM token to pair with given the depth of pairings that Olympus has built out in DeFi.

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