《BakerDAO System Upgrade Scheme V1.0》development plan and system design(August 7, 2021)

Saturday, August 7, 2021

Introduction

Since the BakerDAO System Upgrade Scheme V1.0 (https://docs.bakerfi.com/bakerdao/system-upgrade-scheme) took shape, the team has begun to design the system and conduct feasibility verification. As the contract involves many innovations, the team has to be very cautious during the development, and after completion, the contract audit must be performed before the launch. This article will reveal the development plan of the scheme and the system design of the first launch.

Glossary

Name	Description
BAI	Decentralized stablecoin issued by BakerDAO borrow system
BKR	BakerDAO's decentralized governance token
LBAI	The LP received by the participants of the BAI liquidation pool is not locked and can be exchanged for BAI at 1:1 at any time.
SBAI	The LP received by the liquidity providers of the BAI stabilization pool is not locked and can be exchanged for assets at any time.
LBKR	Holders of locked BKR can share DAO pool rewards and participate in governance voting.
Borrow System	The name of the issuance protocol of the decentralized stablecoin BAI
BAI Liquidation Pool	Staking BAI to participate in liquidation and share liquidation income,LP is: LBAI
BAI Stable Pool	Support low slippage exchange of BAI and other assets stablecoin,LP is: SBAI
BAI Repurchase Pool	Use BKR to buy BAI for $1
Open Vault	Support BAI to redeem collateral at a price $1
DAO Pool	Lock BKR to get rewards such as system income, LP is: LBKR
Yield Farming	Participants of the above pools can get LBKR rewards through the farming pool

Problems

Based on Ethereum's MakerDAO, BakerDAO has optimized the economic model, hoping to generate another decentralized stablecoin in the Binance Smart Chain (BSC), and realize billions of U.S. dollars in BAI circulation, hundreds of millions of U.S. dollars in annual income and billions of U.S. dollars in market value. At the initiation phase, in order to realize the decentralization of BKR, BakerDAO launched liquidity mining since June 19th, 2021, and BAI price fluctuated less than 1 U.S. dollar the next day. After that, all liquidity mining activities related to BAI limited partner (LP) were immediately suspended to prevent speculation for BAI arbitrage. Later, the market was tumbling, which caused three problems in the system, namely, collateral liquidation, instability of BAI, and BKR price decline. These problems during the execution of the project should be tackled by innovative solutions. This project mainly aims to stabilize BAI at 1 U.S. dollar, and more ecologies could support the application of BAI. The problems and solutions are elaborated as follows.

Launch plan and system design

To address the above problems, the team released the BakerDAO System Upgrade Scheme V1.0 last month and received widespread acclaim from the community. At the same time, the team conducted a preliminary feasibility analysis and demo. After thoughtful consideration and discussion, we decided to use three versions to launch the content of the upgrade scheme in stages. The detailed plan is as follows:

► V0.9: to be launched in September 2021, including liquidation module optimization, BAI liquidation pool, BAI stabilization pool, DAO pool, and liquidity mining; optimization and development of the next version will be carried out in Q4 2021;

► V1.0: to be launched in Q1 2022, including open Vault and repurchase program;

► Aggregation platform: to be launched in Q2 2022.

This document mainly provides a detailed description of the V0.9 version that will be launched in September 2021. The goal of V0.9 is to build BakerDAO from a simple stablecoin issuance protocol to a MakerDAO +Liquidity+ Curve complex to ensure the stability and liquidity of BAI and the stability of BKR, and to initially anchor BAI at USD 1. This will form the foundation to build a BAI ecosystem. After that, we will consider the deployment of multiple chains to realize a prosperous multi-chain BAI ecosystem.

1. Liquidation module optimization

This version will optimize the clearing module, improve some parameters and restrictions in the clearing, to solve the problems in the previous clearing process, and let the community share the benefits:

a) Adjust the BUSD mortgage rate. The 101% mortgage rate means that the upper limit of the BAI price is expected to be $1.01, and it is easy to give up the mortgage assets and short BAI;

b) Increase the liquidation price limit, do not allow low-price liquidation, and ensure that the system has no deficit caused by liquidation;

c) Increase the restrictions on clearing participants, and only allow the clearing pool (explained in detail later) to participate in the clearing and withdraw the clearing right;

d) The liquidation income is shared, and the liquidation income will be distributed to the liquidation pool and the project team in a ratio of 7:3;

e) Shorten the clearing cycle to 2 minutes and improve the clearing efficiency;

f) Adjust the stable rate in a timely manner. Increasing the stable rate will reduce the supply of BAI, which will help the price of BAI. After the price of BAI stabilizes to $1, the stable rate will be reduced to increase the supply of BAI and lower the expected price of BAI;

g) Adjust the upper limit of the BAI obtained by the collateral, control the amount of BAI that the collateral can produce, and control the price of BAI by controlling the supply of BAI.

2. BAI liquidation pool

The BAI liquidation pool system is designed to encourage more holders to mortgage to generate BAI, keep the stability of BAI and reflect the value of BAI, which allows holders to mortgage BAI to obtain liquidation income,and participate in BKR farming:

► Users uses the collateral to borrow BAI from the Borrow system;

► Users mortgages BAI to the liquidation pool, shares the system liquidation proceeds, and obtains LP: LBAI

► Users can pledge LBAI to the liquidity mining pool to receive LBKR rewards, and LBKR holders will share the DAO pool rewards.

► The system withdraws the liquidation right through the above-mentioned fixed addresses, and the liquidation pool shares 70% of the liquidation income according to the different proportion of BAI deposited;

► The rewarded LBKR can be unlocked after a period of time into BKR in the DAO pool, but the user will no longer receive the DAO pool rewards after unlocking.

3. BAI stabilization pool

In order to improve the liquidity of BAI and ensure the stability of BAI, when the value of BAI deviates from 1 U.S. dollar, users can arbitrage to keep BAI anchored at 1 U.S. dollar. The BAI stable pool is specially designed, which can also be called BAI hard anchoring system. , This pool allows users to trade BAI and other stablecoin assets with a lower slippage and a smoother curve. The initial stablecoin support: BAI, BUSD, and USDT.

► The liquidity provider provides BAI, BUSD, USDT as pools, and obtains LP: SBAI;

► Liquidity providers can pledge SBAI to the liquidity mining pool to receive LBKR rewards, and LBKR holders will share the DAO pool rewards;

► Users can buy and sell BAI for arbitrage when the price of BAI deviates from $1

► Liquidity providers can get a 60% reward of transaction fees;

► The rewarded LBKR can be unlocked after a period of time into BKR in the DAO pool, but the user will no longer receive the DAO pool rewards after unlocking.

6. DAO Pool

In order to better reflect the value of BKR, make more community users willing to hold BKR for a long time, and contribute to the development of BakerDAO, it is planned to share 40% of the system revenue with BKR holders, and the remaining system revenue will be used to maintain System stability, specially designed DAO pool, can also be called BKR pledge pool:

► The user locks BKR to the DAO pool, and obtains different amounts of locked BKR according to the lock duration: LBKR;

► The DAO pool will reward 40% of the system stability fee income according to the proportion of users holding LBKR;

► The LBKR rewarded by other pools is equivalent to the BKR that the user has locked in the DAO pool and is entitled to the same rewards;

► The LBKR can be unlocked after a period of time into BKR in the DAO pool, but the user will no longer receive the DAO pool rewards after unlocking.

To better understand the design logic of V0.9, see the following two diagrams: