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0/ DeFi lacks tools that give investors exposure to the space's vast financial opportunities without having to stomach the insane volatility/risk of crypto markets
In today's Delphi Daily, I explore how this is changing with ideas like @barn_bridge https://www.delphidigital.io/reports/barnbridge-brings-structured-finance-to-defi/
In today's Delphi Daily, I explore how this is changing with ideas like @barn_bridge https://www.delphidigital.io/reports/barnbridge-brings-structured-finance-to-defi/
1/ There's been a lot of talk about Barnbridge and $BOND the past few days – a result of the project launching DeFi's latest yield farm
But speculation aside, Barnbridge is solving a real problem. One that can result in institutions taking a serious look at DeFi
But speculation aside, Barnbridge is solving a real problem. One that can result in institutions taking a serious look at DeFi
2/ Barnbridge creates permissionless CDOs. Simply put, you can put a bunch of different financial instruments into a single pool and cut it up into "tranches" with varying risk and reward
Senior tranches have low risk; low returns
Junior tranches have high risk; high return
Senior tranches have low risk; low returns
Junior tranches have high risk; high return
3/ This creates a structure where risk-averse investors can put their capital in a senior tranche to take part in crypto's upside without deviating from their risk profile or maximum desirable drawdown
4/ Consider an investment pool split into 6 assets, deployed on a number of platforms for yield. Through one tokenized pool, you're now diversified across 6 assets (3 of which are stables) and 4 DeFi protocols
Your risk is spread out across multiple assets and protocols
Your risk is spread out across multiple assets and protocols
5/ The above illustration is for @barn_bridge's "Smart Yield." There's also "Smart Alpha" that uses the same tranche structure to cut up exposure to a crypto asset like $ETH or $SNX
6/ For pure degens and retail investors playing with smaller amounts of capital, this may not seem too appetizing. After SUSHI and KIMCHI gave you 5 digit APYs, why would you care about diversified, single-digit yields?
7/ The junior tranche is the riskiest yet most lucrative tranche. Drawing on the above example of a Smart Yield portfolio, a mere 6% return on invested capital yields 19.5% for the junior tranche assuming fixed yields of 3% and 5% for the senior and mezz tranches respectively.
8/ This is just an example, but it highlights the opportunity for risk seekers (there are -'s too). It's not 5 digit APR yield, but it's sustainable and still fairly high.
But degens are plentiful. The real difficulty IMO is possibly finding people to invest in senior tranches.
But degens are plentiful. The real difficulty IMO is possibly finding people to invest in senior tranches.
9/ Consider this:
Loans on Aave and Compound bear smart contract risk; overcollateralization negates non-price financial risk
A 3-5% yield is no joke in today's environment
Senior tranch demand will come from institutions and conservative invstrs
But will demand come?
Loans on Aave and Compound bear smart contract risk; overcollateralization negates non-price financial risk
A 3-5% yield is no joke in today's environment
Senior tranch demand will come from institutions and conservative invstrs
But will demand come?
10/ Long story short: @barn_bridge and similar projects are pushing DeFi's limits by creating financial infrastructure that can put DeFi's risk efficiency on par with the legacy system
There are a few material risks wrt to adoption, but the project is overall on the right path
There are a few material risks wrt to adoption, but the project is overall on the right path
11/ You can check out the full post here! https://www.delphidigital.io/reports/barnbridge-brings-structured-finance-to-defi/
