BakerDAO's Economic Model 2.0
BakerDAO, a decentralized stablecoin issuance protocol, has been deployed and BAI, a decentralized stablecoin, has been issued on the Binance Smart Chain (BSC). The V1.0 version has been launched, including two systems: Borrow and BKR liquidity farming. A total of 1 million BKRs, BakerDAO's governance token, have been issued. The first round of liquidity farming was completed in July 2021, releasing 80,000 BKRs, or 8% of the total. The three problems encountered after launching, namely liquidation, BAI stability and BKR stability, made the BakerDAO team think further about the system. Hence they introduced the BakerDAO System Upgrade Scheme V1.0, stating that the system would consist of six major components — Borrow system, BAI liquidation pool, BAI stabilization pool, DAO pool, BKR farming and aggregation platform —, the liquidation module of the Borrow system would be optimized, and the existing vault would be upgraded to an open one. In addition to the system itself, the team has also conducted in-depth thinking and research on the economic model. Now BakerDAO's economic model 2.0 is released to better match each component of the BakerDAO's system and achieve the three ultimate goals: anchoring BAI at USD1, returning profits to BKR holders, and creating a prosperous multi-chain BAI ecosystem.
The total issuance of the BakerDAO's governance token, BKR, is 1 million, 55% of which will be distributed in a fair manner: farming, to reward participants who contribute to the system. The specific distribution method is as follows:
Distribution | | Proportion | Description |
团队 | Team | 17.5% | Linear release in 2 years |
生态 | Ecosystem | 10% | Used to support BAI ecosystem construction |
融资 | Investment | 17.5% | Linear release in 6 months after investment |
挖矿 | Farming | 55% | Distributed to system participants |
Compared with the originally designed economic model, the 2.0 model increases the proportion of BKRs distributed to the investment part, because the team realizes that with a strong financial foundation, they can build products more quickly and promote the construction of the BAI ecosystem. Therefore, the team will have more contact with the capital subsequently. Unfunded BKR tokens after two years will be transferred into the farming part and distributed to system participants. The proportion of farming is changed to 55%, and in addition to the early rewards of external BKR and BAI liquidity, it is more important to provide rewards from internal systems such as the BAI liquidation pool, DAO pool, and BAI stabilization pool. In terms of release method, it is changed to linear release in two years for the team's share, and linear release in six months after investment remains for investors' share.
Regarding the ecosystem, as we all know, BAI ecosystem is an important symbol of BakerDAO's development progress, so BakerDAO reserves 10% of BKR to support the ecosystem projects. For example, this portion can be used to support BKR farming of ecosystem project tokens. Similarly, the ecosystem projects need to airdrop a certain percentage of tokens to BKR holders as rewards for this support. The ecosystem projects planned by BakerDAO include stablecoin trading protocols, lending protocols, decentralized exchanges, etc. The ecosystem will grow with the development of BakerDAO, and the ecosystem projects include both the existing or new ones.
BKR farming is designed to reward BakerDAO system participants and BKR and BAI supporters. BakerDAO internal systems such as the BAI liquidation pool, DAO pool, and BAI stabilization pool, as well as BKR and BAI liquidity providers will be rewarded to encourage users to further participate in the BakerDAO system, maximize the fair distribution of BKR, expand the BKR holder base, and guarantee the interests of BKR holders. In the future, BakerDAO will be deployed on multiple chains, and BKR farming will be launched on multiple chains at the same time. The proportion for BKR farming is 55%: 550,000 BKRs, including 64,000 released in the first round of farming and the remaining 486,000 to be distributed as shown in the table below.
Distribution | BSC chain farming % | Other chain farming % |
Rewards to BakerDAO internal systems (BAI liquidation pool, DAO pool, etc.) | 40% | 40% |
BAI liquidity (BAI stabilization pool and external BAI liquidity, etc.) | 5% | 5% |
BKR liquidity | 5% | 5% |
BKR farming will be divided into several stages. The first stage has ended, with 80,000 BKRs released, which account for 8% of the total BKR issuance. The second stage will start in September 2021 with the upgrade of the BakerDAO system. It will last for three months and a total of 122,000 BKRs are expected to be released. Subsequently, we will continue to plan the next third, fourth, and fifth stages according to the development of BakerDAO, and distribute BKRs to system participants and supporters in a fair manner to build a strong community consensus on BKR.
BakerDAO V1.0, the Borrow system, was launched in June 2021, and we conducted the first round of BKR farming (which lasted for a month and had ended), to reward BKR external liquidity providers with a total of 80,000 BKRs, or 8% of the total BKR issuance, of which 16,000 were awarded to the team and 64,000 to BKR liquidity providers. The first stage of BKR farming lasted for 30 days, and later the team released the "BakerDAO System Upgrade Scheme V1.0", and planned to start the second stage.
The second stage of BKR farming will start in September 2021 with the upgrade of the BakerDAO system. Farming in the BakerDAO 2.0's BAI liquidation pool LP (LBAI) and BAI stabilization pool LP (SBAI), and farming by BKR external liquidity provider will be supported. This stage will last for three months, and the monthly BKR reward will be reduced to 80% of the previous month. The detailed scheme is as follows:
BKR farming pool | The first month | | The second month | | The third month | |
LBAI pool | 40,000 | Sep. 10 - Oct. 10 | 32,000 | Oct. 10 - Nov. 9 | 25,600 | Nov. 9 - Dec. 9 |
BKR liquidity pool | 5,000 | To be determined | 4,000 | To be determined | 3,200 | To be determined |
SBAI pool | 5,000 | Sep. - Oct. | 4,000 | Oct -Nov | 3,200 | Nov - Dec |
Later, the output of each farming pool and whether to open more farming pools will be determined in the third stage according to the market situation. In addition, during the multi-chain deployment of BakerDAO, multi-chain BKR farming will be enabled at the same time. In summary, the objective of BKR farming is to reward users of the multi-chain BakerDAO system and the BKR and BAI liquidity providers to ensure the healthy and stable operation of the BakerDAO system and the fair distribution of BKR to the largest extent.
The BakerDAO V2.0 system has three sources of proceeds: the stabilization fee from the Borrow system, the liquidation proceeds from the BAI liquidation pool, and the handling fee from the BAI stabilization pool. In order to better ensure the interests of BKR holders, we will share most of the proceeds with BKR holders by putting it in the DAO pool or buying back BKRs to encourage everyone to hold BKR in a long run. Some proceeds will be distributed to the team to maintain the system stability and project operation. The specific distribution method is as follows:
Distribution | Stabilization fee - Borrow | Liquidation proceeds - Liquidation pool | Handling fee - Stabilization pool |
BAI liquidation pool | -- | 50% | -- |
DAO pool | 40% | -- | -- |
BAI stabilization pool | -- | -- | 50% |
BKR repurchase program | -- | 30% | 30% |
Team | -- | 20% | 20% |
In conclusion, the economic model is an important indicator reflecting the project's benefits and shortages, and an important means for the team to protect the interests of BKR holders and ensure the healthy development of the system. The upgrade to BakerDAO's economic model V2.0 will guarantee the utilization rate of the system and the interests of BKR supporters through two major channels: BKR farming and proceeds sharing. Some content in the economic model that cannot be determined at present will be determined later with the development of the project, and the economic model will be continuously iterated, updated, and optimized to help BakerDAO achieve the three ultimate goals: anchoring BAI at USD1, returning profits to BKR holders, and creating a prosperous multi-chain BAI ecosystem. It will become the leading decentralized stablecoin project and a strong competitor of MakerDAO.