BakerDAO System Upgrade Scheme V1.0
BakerDAO System Upgrade Scheme V0.8 (Draft) （https://docs.bakerfi.com/bakerdao/blog/blog-8）since we sought for opinions to community, the draft has been widely discussed and recognized. In consideration of the opinions, we have released the official version and started to develop and launch it step by step. BakerDAO is an upgraded version of MakerDAO, which innovatively optimizes the original problems of MakerDAO and will definitely surpass MakerDAO to become a decentralized stablecoin giant.
Decentralized stablecoin issued by BakerDAO borrow system
BakerDAO's decentralized governance token
The name of the issuance protocol of the decentralized stablecoin BAI
BAI Liquidation Pool
Staking BAI to participate in liquidation and share liquidation income
BAI Stable Pool
Support low slippage exchange of BAI and other assets
BAI Repurchase Pool
Use BKR to buy BAI for $1
Support BAI to redeem collateral at a price $1
Staking BKR to get rewards system income
Pools Participants receive additional BKR rewards
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.
In the BakerDAO system, auction mechanism is adopted for liquidation, with no restriction on the lowest bid. Hence, when there are a small number of people involved in liquidation, some of them can liquidate the holder's treasury assets at a very low price, resulting in the system deficit. Obviously, the system will make up the deficit through profit later. At present, BakerDAO has a debt of 73,453 BAI, which exerts little impact on the stability of the system, but more loopholes may be appear in the future, so this problem should be urgently solved.
The large market fluctuation causes that the price of collaterals in some vaults may be lower than that of BAI obtained. Consequently, holders would better sell BAI to retain their incomes, which will result in BAI price decline, insufficient collateral value and system deficit.
BAI adopts the mechanism of soft anchoring to the U.S. dollars. In the Borrow system, BAI is considered to be 1 U.S. dollar at any time. Holders can lend and return their loaned BAI at 1 U.S. dollar and participate in liquidation, regardless of the price of BAI in the external market. This mechanism is extremely crucial, which can guarantee the stability of BAI to a great extent, but still cannot effectively avoid fluctuations.
When liquidity mining began, the selling climax of BAI led to BAI price decline. We suspended the liquidity mining of BAI LP in time, which eased the situation and gave some compensation.
Later, we performed two governances and raised the stable fee rate, but only obtained non-ideal outcomes under the stimulus of the high yield of liquidity mining. The price of BAI still fluctuates between 0.6 and 0.9, so this problem always exists, which should be urgently solved.
Since BakerDAO launched online lending and liquidity mining via CertiK auditing, the total value locked (TVL) has topped over 30 million U.S. dollars, BKR price has topped over 600 U.S. dollars, and the number of token-holding addresses has exceeded 7,000. However, BKR price declined in a spiral way, from nearly 700 U.S. dollars to less than 4 U.S. dollars under the influence of the broad environment, which exerted a great effect on the belief of BakerDAO community. This is absolutely a common problem in all liquidity mining projects. Later, our team anatomized the causes of the decline, and introduced the Stepped Rate Scheme for Single-Currency Liquidity Mining to limit the mining, withdrawal and selling of single-currency mining users, which was also strongly supported by the community. We hope that everyone can hold BKR for a long time along with the long-run development of the community and team, which is in line with the purpose of the liquidity mining, that is, liquidity mining enables more people to hold BKR and contributes to the development of BakerDAO. The introduction of the scheme made BKR price tend to be stable and avoided a large-scale decline, but it still did not bring much demand and failed to make BKR price rise sharply.
After discovering the above problems, our team began to study and discuss solutions, and some holders in the community also gave very good suggestions. So far, we have worked out solutions to the above three problems, which are divided into the following five parts: liquidation module optimization, liquidation pool, BAI stabilization system, BKR pledge pool and BAI repurchase system.
At first, we will optimize the liquidation module and improve some parameters and restrictions in liquidation, so as to solve the above problems in the liquidation process and enable the community to share the liquidation income:
►BUSD mortgage rate adjustment: 101% mortgage rate means that the upper limit of BAI price is expected to be 1.01 U.S. dollars, and it tends to result in surrender of pledge of assets to trigger the short-selling of BAI;
► Adjustment of stable fee rate in time: Raising the stable fee rate will reduce the supply of BAI, which is conducive to the upvaluation of BAI. After the value of BAI stabilizes at 1 U.S. dollar, the stable fee rate will be reduced to increase the supply of BAI and lower the price expectation of BAI;
► Collateral adjustment for obtaining the upper limit of BAI: control the amount of BAI that collaterals can produce, and control the supply of BAI to regulate its price; Increase restrictions to liquidation price, and do not allow ultra-low price liquidation;
► Increase restrictions to liquidation participants, only allow liquidation pool (which will be explained in detail later) to participate in liquidation, and withdraw the liquidation right;
► Liquidation income sharing: The liquidation income will be distributed to the liquidation pool (which will be explained in detail later) and the project team at the ratio of 7: 3;
► Shorten liquidation cycle and improve liquidation efficiency.
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:
► Holders deposit BAI into the liquidation pool, share the system liquidation income and participate in liquidity mining;
► 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 liquidation pool will be rewarded with the governance token BKR.
The BAI stabilization system, also known as BAI hard anchoring system, is designed for holders to arbitrage to keep BAI anchored to 1 U.S. dollar when it deviates from this price, so as to ensure the stability of BAI. Similar to the stable currency exchange, this system adopts a lower slippage and a smoother curve to enable everyone to trade BAI and other assets.
► Liquidity providers provide stable assets such as BUSD and BAI as trading pairs;
► Arbitrators can carry out arbitrage when the price of BAI deviates from 1 U.S. dollar;
► Liquidity providers can be rewarded with handling fees and BKR.
If the original mechanism of the system and the above-mentioned BAI stabilization pool do not play up to expectations, and BAI still seriously deviates from 1 U.S. dollar, the BAI repurchase pool will repurchase BAI using BKR by bidding.
► BAI holders deposit BAI into the repurchase pool and choose an appropriate bid;
► Part of BKR used for ecological rewards is deposited into the repurchase pool;
► The repurchase module will repurchase BAI using BKR according to the bid of holders;
► The repurchased BAI will be locked for a period of time, and will continue to be used to support ecological projects after the price of BAI is stable.
An open vault refers to a redeemable vault. Any holders can redeem the equivalent collateral in the vault with BAI (the price of BAI is fixed at 1 U.S. dollar) by paying handling fees.
Holders can choose whether the vault is open when creating it;
Collaterals in the open vault will be uniformly distributed to the open vault pool;
The open vault possesses the same characteristics as the original vault, and the owner of the vault can freely mortgage and return BAI;
When holders use BAI to exchange collaterals, they return an equal proportion of BAI to all open vaults and deduct the corresponding collaterals, thus obtaining the share of the handling fee.
A liquidity scheme will be launched to regulate the liquidity of BKR and BAI and allow holders to trade them outside the system.
l Use system incomes and part of BKR to provide liquidity for related transaction pairs in DEX such as Pancakeswap;
l Put BAI and other stablecoins into decentralized stablecoin exchanges to provide liquidity and help stabilize the price of BAI to 1 U.S. dollar.
System incomes will be used to repurchase and destroy BKR, so as to reduce the circulation of BKR and maximize the interests of BKR holders.
Due to the high complexity of the system involving multiple related subsystems, an aggregation platform will be designed to allow holders to achieve one-click operation and maximize the incomes.
The above-mentioned solutions are designed for liquidation, BAI instability and BKR instability under the new market environment, which show great achievements in innovation relative to the original system. In the future, the economic model will be updated and the implementation details of each optimization will be released. This draft is not the final version, and we will seek for opinions of the community within three days, and release and implement the final draft next week with consideration of all suggestions. In the processes of design and implementation, we will communicate with the community in time to solve the problems found, and finally we will stabilize BAI at 1 U.S. dollar. The community will definitely witness the prosperity of BAI ecology in the BSC. In years to come, we will head towards the prosperity of BAI ecology on multiple chains through multi-chain deployment.