BSCDEFI Update

BSCDEFI Update

PowerPool Report: BSC product update

This article is devoted to BSC product composition updates in line with new vision

Some time ago the PowerPool community approved a proposal for launching two structured investment products for the BSC ecosystem. Development of the BSC product has been somewhat delayed by the following practical considerations:

  • Technical integration of CVP into the BSC official bridge took longer than expected;
  • Our marketmakers required that the initial shortlist be only tokens listed on Binance;
  • It became clear that two different BSC pools would fragment liquidity too much;
  • The product will be more composable/hedgeable if agreed with partners;
  • The up-coming comprehensive new vision launch gives new perspectives

This article is merely an update on progress. The new BSC product will be put forward as a formal Proposal to the DAO before launch.

For the last few months, the Leadership Group led by Management Board members Vasily Sumanov and Dr Gonzo have been involved in defining a new vision for PowerPool and the Power Universe going forward.  The New Vision is comprehensive, and includes a clearer vision, value proposition, product positioning and organisational structure...all aligned. In addition, we have engaged legal advice to define a hybrid legal structure for the DAO anticipating future regulatory issues in various jurisdictions. A new member of the Management Board, Gordon Gekko, has spent the last month creating a comprehensive online collaboration Wiki encompassing all aspects of this New Vision and the implementation tasks open to community involvement.

The launch of the new BSC pool is the first of many up-coming new product launches and an opportunity to test Community understanding and acceptance of the New Vision. In essence, we propose to launch the new BSC product together with the New Vision. The new PowerPool Notion New Vision Wiki fills the huge gap between Discord and the Forum as an information sharing and collaborative workspace.  The Wiki is currently private, but anyone can apply for access (from Discord) to see what is proposed, why and how they might be able to contribute. We have already invited testers and the most active community members to provide feedback. In the near future, we will open the Wiki for everyone involved in the CVP community. Someday, it will become public.

Product Proposal to DAO: BSCDEFI

The new proposed BSC product is built on top of the New Vision and is a perfect ‘minimum viable product’ test case for an expanding Power Universe of thematic, hedgeable pools launched in collaboration with other DAOs.

Proposed initial composition

The initial composition of the BSCDEFI pool was defined by the team and CVP community members, with advice from the Binance Smart Chain team and our own Wintermute marketmakers. This composition and weightings are just a starting point, as the DAO will be involved in re-visiting both composition and weightings at regular intervals based on fundamentals tracking and flash-polling of sentiment changes, if any, among DAO members. The idea is to leverage ‘wisdom of crowds’ with analytical data and ‘skin in the game’ for xCVP stakers and BSCDEFI token holders.

Some of the considerations/filters applied in defining the initial shortlist include:

  1. Each project should meaningful TVL, user base, and history of operation
  2. Binance listing - a form of credential and a condition for efficient marketing and creating a hedgeable synthetic ‘mirror’ in collaboration with other protocols
  3. Protocol token should be insurable either on Nexus Mutual or Soteria
  4. Token should represent a thematic exposure to the future advantages/disadvantages of BSC

The initial composition is presented below:

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Note that there are 6 projects waiting to enter into consideration with zero weightings, mostly because they are not yet listed on Binance.  As and when they become listed, or when the Binance listing requirement is relaxed, the weightings of these projects will be reviewed.

PowerPool has learned from launching previous products that it is important to act in concert with other DAOs, especially synthetics and derivatives sites, as well as lending sites, to maintain composability and fungibility of the pooled token. One of the implications of this approach is that it becomes possible to launch not only long-only bullish tokens with rewards, but also to hedge the pool with inverse/short positions to create yield-oriented investments targeting only the rewards. Initially, individual token holders will decide the extent to which they will hedge, but subject to DAO approval, it is envisioned to offer ‘auto-hedged’ rewards-only farming tokens that protect capital on behalf of investors who do not want drawdown or downside exposure. Reducing the volatility of the hedged pooled token also helps make it more acceptable as collateral by lending sites, and saves investors from worry about the constant threat of liquidations.

In the case of the BSCDEFI pool, we propose to work together with Linear, a BSC-native synthetics platform, to jointly launch composable ‘mirror’ tokens, with PowerPool responsible for periodic DAO-driven maintenance of the composition and weighting.

Technical Implementation

We propose to implement this product not as an AMM pool that allows traders to swap assets, but as a basket of assets without swaps for the following reasons:

  1. avoid IL associated with an AMM, the “selling winners and buying losers” problem;
  2. avoid security risks of hacks in particular protocols leading to draining the pool;
  3. the composition and weights of this kind of pool change relatively infrequently.

Using a dynamic AMM can partly solve the first issue and the “circuit breaker” (a special mechanism for disabling swaps in case of a significant price drop for one of the assets) can solve the second one. However, since we are building this product with slow-changing weights and anticipating integration of a synthetic inverse derivative, using an AMM with swaps is not the best choice here.

It is much easier to track a static basket of assets with shares (weights) that are not changing often than the constantly rebalancing AMM pool. Therefore we recommend that technical implementation be done on top of the Balancer AMM pool with disabled joins, exits, and swaps. We propose to use this solution since our team has very good experience in building products on top of Balancer pools and it will save a lot of time on audits as well.

Users will be able to join and exit this pool (supply and withdraw liquidity) using ZAP (it will work similarly to YLA ZAP implementation). Since ZAP and the product operates on BSC with very low fees, ZAP can be designed to have batches for supply/withdraw assets much more frequently, for example, every 30 mins.

Rebalancing mechanism

We propose the rebalancing mechanism based on the auction. For example, the pool should be rebalanced in the following way based on community decision: decrease the share of token A, and increase shares of tokens B and C. In this case, the pool controller contract will start an auction for trading the necessary amount of A to B and C with a certain discount. If during time T nobody from an open market buys A for B and C, the discount increases by X%. We expect that such an approach will be more efficient for the pool capital than rebalancing by means of arbitrage traders. We are conducting simulations to prove that and will share results soon.

For running auctions, the system needs a reliable price feed. PowerPool has Power Oracle, a TWAP Uniswap/Sushiswap oracle, but we need an additional independent source of price feeds. We are talking with Chainlink now to establish a partnership and use Chainlink as the exclusive oracle provider for PowerPool, subject to DAO approval.

Synthetic hedging option

Subject to DAO approval, we propose to create a synthetic asset that will track the BSCDEFI basket of assets (with a shorting option) leveraging Linear Finance technology. Currently, we have started to work with Linear on developing a technical roadmap for the synthetic derivative product. We may also approach other derivatives/synthetics platforms, but the inter-DAO agreement of two protocols should encourage others to use the same composition/weights to boost liquidity and composability.

Conclusion

We will soon submit a formal proposal to the DAO to launch a revised version of the already-approved BSC thematic pool as a Power Universe token BSCDEFI. The composition and weighting will be actively managed by the PowerPool DAO xCVP staker community. It will be a basket of assets without swaps and it will include an optional hedging instrument provided by Linear Finance. This product design will allow BSCDEFI token holders to create partly or completely hedged baskets in a flexible way, receiving yield and governance value provided by assets from the basket, either with or without long-term upside associated with a favorable competitive environment on BSC DeFi.  We believe this will be the first structured investment pool offering diversified exposure to BSC DeFi, and definitely the first with composable ‘mirror’ tokens facilitating full or partial hedging.