This is a guide on how to buy BOND from BarnBridge. BOND token is a native governance token of the BarnBridge protocol. Before we dive into the BOND token itself, it is useful to look at BarnBridge first.
What is BarnBridge?
Broadly, BarnBridge is a DeFi protocol for tokenized risk. It is a way to create derivative products on Ethereum where the risk-return profile is broken into tranches, so that different investors can buy exposure to the same underlying asset class at different risk profiles.
Confused? In a nutshell, BarnBridge automates the process of collateralized debt obligations (CDO)s for DeFi protocols. The underlying tokens can be yield generating tokens based on other DeFi protocols, such as DAI in Compound, or even plain old tokens.
Changing Risk Profile
At the heart of the BarnBridge protocol is the idea of different tranches with different risk-return profiles. The senior tranche would get the first preference and therefore has the lowest risk and thus a lower return. The “equity” tranche takes on maximum risk but also provides higher returns.
The big bet is that DeFi is mature enough to start supporting these tranches. The different tranches will appeal to different types of investors.
For example, if you want to use BarnBridge for interest rates on Compound, you’ll divide the returns obtained into tranches. Let’s say the senior tranche gets 3% fixed interest and the junior tranche gets the rest (for simplicity sake – in practice there can be many tranches).
Interest Rate Example
In the example above, the first 3% return flows to the senior tranche, and the rest to the junior tranche. If 200 DAI was split equally between the tranches, and the actual interest rate turned out to be 8%, then the total interest earned would be 200 * 8% = 16 DAI. Of this, 3 DAI goes to the senior tranche due to fixed 3% return on 100 DAI. The remaining, 13 DAI, goes to the junior tranche, thus providing a return of 13%.
As you can see, the risk profiles and returns are as follows:
- The senior tranche investor seeks safety of fixed yield. For this, they get 3% fixed. If the actual interest earned was 2%, they would still get their 3%. Thus they take on lower risk for more certainty of interest rate.
- The junior tranche investor seeks higher risk. They are betting that the interest rates in this case will be higher than 3% and are willing to ‘leverage up’ this bet. If they just put money into the protocol, they would have earned 8% but now they earned 13%. Of course if the interest rate moves against them, e.g. 1%, then they lose money.
In addition to the interest rate, you can use any underlying token. For example, if the underlying were LINK, you can either partially hedge your exposure to LINK via senior tranche or leverage up your LINK position for a more bullish position.
The big question is whether there is enough investor appetite for these tranches and whether the market is mature enough. There are already other ways to gain leveraged or hedged exposure, e.g. via options and other derivatives so investors have choices as well.
Finally, CDOs and CDO-like structures played a big part in the 2008 financial crisis. There is some irony to that, given DeFi wants to do better than the traditional financial system.
How to Buy BOND Token
Now that you understand BarnBridge, it is time to talk about BOND, the governance token. Before we proceed, know that a protocol like BarnBridge could be very promising but a token like BOND may not be able to retain value.
The BOND token has the highest liquidity on Uniswap via BOND/USDC pair. This is because this pair is used for the liquidity mining incentives currently in place. In fact, you can earn BOND via liquidity mining but be aware that you take on the risk of impermanent loss. Also, BOND liquidity mining incentive is strangely implemented by giving out weekly rewards which causes a sudden price dump when this is released.
With all these caveats, here are the steps to buy BOND token:
- Step-1: Convert ETH (or other tokens) to USDC via 1inch to get the best execution rate via multiple DeFi exchanges (1inch automatically routes your order via the best path).
- Step-2: Go to Uniswap for BOND/USDC pair and exchange your USDC for BOND.
And that’s it – you now have BOND in your Web3 or MetaMask wallet.