Collaboration Proposal Badger + UMA + SUSHI

Summary

Badger DAO and UMA protocol are collaborating to enable users that have their WBTC/ETH Sushi LP or Badger (Currently about $325M worth) positions staked in the Badger Sett Vaults, to mint synthetic stablecoins (we call them sCLAWS and bCLAWS). We like to partner with Sushiswap for this new product initiative with the purpose of giving Sushi LP’s the ability to borrow against their positions while earning interest. The intention is for this to be the first test of this with subsequent similar launches to follow.

We are going to create an exclusive liquidity pool on Sushi for each CLAW paired with USDC. There will be subsequent incentivized vaults on Badger for users to deposit those SLP tokens with active strategies.

Badger and UMA are splitting LP incentives for this initiative and we are proposing Sushiswap joins us as an equal partner. Weekly incentive of SUSHI for each of these pools would be higher than the current Onsen program permits. Through Badger vaults, any Sushi that is earned by the LP’s will automatically be staked for xSushi and distributed back to the users in that token.

We believe through this collaboration together we could create the largest LP pools available on Sushiswap while bringing a unique product offering that drives new value for DeFi participants. We anticipate 100m’s in additional liquidity and trading volume along with the subsequent fees.

Our intention is to move forward with this initiative quickly as the underlying technological requirements are almost complete.

Sushi + Badger Background

Badger launched on December 3rd 2020 as a DAO focused on building the products needed to accelerate BTC in DeFi. Similar to Sushi, it is community owned from day 1 with a fair launch. Today we have over $1B deposited in our core product, Sett Vaults to which $275M of that are Sushi LP tokens.

As part of that launch Badger airdropped 15% of it’s supply to users that had previously participated in DeFi or decentralized governance. One of those user groups was anyone that voted in Sushi governance.

Today our Badger/WBTC and DIGG/WBTC pools are the two highest liquidity pools on Onsen with subsequent vaults in the Badger app that we incentivize + take any Sushi rewards and stake for xSUSHI before distributing to users.

Badger would like to further its collaboration with Sushi with the launch of it’s stablecoins (CLAWS) and dedicate all of the liquidity for this product to Sushiswap.

Motivation

Today there are limited use cases for tokenized Bitcoin in DeFi. Sushiswap is one of the more popular places to put it to work. After it’s deposited for liquidity in most cases that’s where the utility ends. Apps like Badger allow them to further earn a return by depositing their LP tokens with us but that’s the extent of options in the market.

We want to enable the liquidity providers of WBTC/ETH SLP and all of our Badger vaults to unlock that deposited value and continue participating in DeFi. By enabling them to borrow against their vault position they can do that. Either for the purpose of LPing with those stablecoins on Sushiswap and in turn depositing in the vaults for further return. Or simply trading it through a deep liquidity pool for USDC and continuing their journey where USDC can be leveraged.

Badger would also like to further align with Sushiswap to help them capture more market share. By opening up the ability for users to provide liquidity in the WBTC/ETH pool, deposit in Badger to earn 70% APY and then borrow against it (essentially at no cost due to the yield), I believe that this will give Sushsiswap a unique competitive advantage.

To do this we need to ensure the incentives (APY) for leveraging our vaults meet a certain threshold. Both Badger and UMA are committing to provide equal incentives (in the form of Badger, DIGG, UMA) but to ensure an adequate APY for LP’s we would need a larger sum of Sushi than what the current Onsen parameters support.

Specification

Currently there are $234,000,000 of WBTC/ETH SLP and $89,000,000 of Badger deposited in our vaults.

Without withdrawing from the vaults users will be able to collateralize using these positions at a 200% ratio to mint “limited edition” stablecoins (sCLAWS, bCLAWS). We call them limited edition because they only have a 8 week life cycle before they are discontinued (expire). If all existing Badger users with these 2 vault positions mint CLAWS then there would be a total of $161,500,000 in circulation. This does not include new LP’s that would be interested in participating. I’m not saying this would happen but for modelling purposes only it enables us to visualize.

We then will have 2 liquidity pools on Sushiswap (bCLAWS/USDC and sCLAWS/USDC) where users can deposit their newly minted CLAWS. To do so that would involve adding the other side as well (USDC) which would bring the total liquidity to $323,000,000.

On Badger there will be 2 available vaults for depositing the sCLAWS/USDC and bCLAWS/USDC SLP tokens. In doing so users would earn Badger, DIGG, UMA and xSUSHI.

As part of the active strategy on the vaults we would stake SUSHI rewards for xSUSHI along with taking 25% of all rewards, selling them for s or bCLAWS and USDC + reinjecting them back into the SLP position of the users. Which further increases liquidity and trading in those Sushi poolS.

What are the appropriate incentives for these vaults/liquidity pools?

Each vault would have a cap on the maximum amount of capital allowed and life cycle of each vault (8 weeks). For the sCLAWS/USDC SLP that would be $250M and for the bCLAWS/USDC SLP that would be $75M. By doing this we can create a floor for the minimum amount of APY users would receive.

Important to note: Having caps on the vaults doesn’t mean there wouldn’t be more than that minted in synthetic stablecoins. I foresee users minting for the purpose of converting to USDC in the highly liquid Sushiswap pool. Further increasing trading volume and fees for Sushiswap.

Based on our experience, to incentivize these vaults to reach capacity we feel 25% APY on sCLAWS/USDC SLP and 50% APY bCLAWS/USDC SLP would potentially accomplish this.

Another driving force for this is the fact that the SUSHI pools will be primarily 2 stablecoins on each side which would mitigate Impermanent loss implications and further attract LP’s.

Badger, UMA, SUSHI would split these rewards evenly 3 ways. To achieve the above APY targets we would need;

  • $1,201,923 weekly rewards for the wbtc/eth SLP collateralized vault (sCLAWS/USDC)
  • $480,769 weekly rewards for the Badger collateralized vault (bCLAWS/USDC)

With a 3 way split among collaborators that would mean;

  • 48,858 SUSHI (@$8.20/SUSHI) rewards per week for the wbtc/eth SLP collateralized vault (sCLAWS/USDC)

  • 19,543 SUSHI (@$8.20/SUSHI) rewards per week for the bBadger collateralized vault (bCLAWS/USDC)

This weekly rewards would be up to a maximum of 8 weeks.

Sushiswap Benefits

  • Large inflow (potentially 100’s of millions) in new liquidity from USDC/CLAWS.
  • Attracting new LP’s for the WBTC/ETH pool that are looking to borrow against it for CLAWS.
  • Potentially large trading volume on the USDC/CLAWS Sushiswap pools.
  • Competitive advantage due to the exclusive nature of the collaboration and uniqueness of using lp positions as collateral.

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9 Likes

It’s so nice to see a Major LP stepping in and working within the ecosystem to make new products and grow together.

My only question is how the CLAW coins would be “stable” if they are in a sushiswap AMM with USDC. I’d think everyone would want to trade their CLAW tokens for USDC in order to use them to make other investments, and I don’t see how CLAW could maintain any sort of peg with tons sell pressure at the beginning of the 8 week rolling period and tons of buy pressure at the end.

Can someone clarify how this would work?

5 Likes

Does it matter if they are stable? AMM will allow for fair price discovery and Sushiswap will benefit from the added TVL and volume.

2 Likes

good for Sushi, good for Badger, good for DeFi. count me in.

8 Likes

It seems a win-win proposition and also paves the way for broader application of borrowing against pool positions. It also could give Sushiswap a point of differentiation versus Uniswap and others.

3 Likes

This is an amazing proposal!!!

2 Likes

I’ve been in Badger since the airdrop and proud to say I’ve not sold a single Badger over that time. Love the proposal but my only point of feedback would be on the naming convention.

I really think stablecoins on Badger have the chance to be a staple of the DeFi ecosystem if done correctly and I think a naming convention such as USDB or something similar would be something that, in hindsight, looks more professional and encourages usage by those new to the space. Minor point I know but wanted to mention it.

6 Likes

I am For this proposal! This is what open finance was supposed to be. 3 protocols, 3 different communities, coming together to build cool shit.

This is the way.

Not only is this product exciting as is. But just visualizing what doors open with this collab and the future products this could lead to could really be a massive value proposition for all three projects.

1 Like

Clearly this is at the bleeding edge of defi but that’s where Sushiswap has been from day one!

I don’t quite understand the 8 week life cycle. Is it because 8 weeks is the onsen period?

Sounds like a very good symbiotic proposal.

3 Likes

There are 2 things to do with your CLAWS.

LP them with USDC and then deposit that SLP token in our vaults for increased APY.

Convert for USDC.

The folks that want to LP but don’t have CLAWS would be the buyers.

Along with the need to buy the CLAWS back at expiry to redeem their collateral. Think about it as a 8 week fixed term loan with zero interest

1 Like

8 weeks the stable coins expire. Think about them as a 8 week fixed term loan with zero interest. Actually paying you 60% interest to take them out lol

4 Likes

Yes but then the risk (it not even a risk, it will happen) is that all users will buy Claws at the end of the 8 weeks. So i’m also a bit worry about that.

So is the idea to farm like crazy during 8 weeks, and be liquidated at the end ? But gain more during 8 weeks so it will compensate ? It a risk we should keep in mind.

2 Likes

It seems like there is little to no risk due to the 8 week expiration. Minters of CLAWs will have to buy back, creating worst case scenario at net 0 effect on buy/sell pressure by the end of 8 weeks. If anything I think CLAWs > USDC near expiration due to the fact that buybacks will have to happen if you want access back to your collateral.

Edit: CLAWs > USDC because traders might try to game the system for short term profit.

This is a very well written proposal, which explains with great detail how everything will work together and the clear benefits for all parties involved, especially for Sushiswap.

It is clearly a win-win for everyone and as a member of both communities, I am excited to see this relationship / partnership between BadgerDAO and Sushiswap growing and consolidating.

4 Likes

That would be nice. But why is it designed that way?

@spadaboom as mentioned earlier, this is good for everyone. but to @cryptochristo point, using a naming convention like USDB over CLAWS might be better from an adoption standpoint. wondering what your thoughts are about that.

1 Like

This is incredibly exciting for both communities at Badger and Sushi – not to mention the rest of DeFi. Let’s get this done!

We thought it was better to start with this battle tested code base before moving to the non expiring version which is a new protocol from UMA. This will be the first up to bat

3 Likes

How much of a risk do you think there will be for the price of claws rising significantly at the end of the eight weeks as people buy back?

2 Likes

Good initiative badger team, Defi needs things like that.

2 Likes