Defiant Degens: How to Master Tranche Lending and Farm Yield on BarnBridge

degen

We will be hosting a weekly tutorial on the most compelling opportunities to consider yield farming, written by our friend DeFi Dad, an advisor to the Defiant and the Chief DeFi Officer of Zapper. The goal is to expose more Defiant readers to new DeFi applications and their associated liquidity mining programs.

Background on Protocol: In TradFi, fixed rate yields are a popular product. It allows investors to commit capital with a guaranteed return, often locked up for a set period of time. In comparison, DeFi has mainly structured products that offer competitive variable rates, with the ability to withdraw whenever you like, which has attracted those of us seeking the highest returns.

As the DeFi landscape matures and becomes more liquid, we’ll need to replicate products that allow investors to commit capital with a lower risk profile. DeFi newcomers from TradFi will undoubtedly seek opportunities like tranche lending that offer sizable returns when benchmarked against what they bought and sold on Wall Street.

BarnBridge has made waves launching their first tranche lending product just over a month ago and since then have attracted a little over $52M TVL, aside from the hundreds of millions deposited prior to this as part of a liquidity mining program for their governance token BOND. BarnBridge describes itself as the most advanced “fluctuations derivatives protocol for hedging yield sensitivity and market price.” But what exactly does that mean for us DeFi users?

Pooled collateral (ie USDC or DAI) is deposited by BarnBridge into lending protocols or yield generating contracts like Compound or Aave, and the yield is bundled into different tranches and tokenized. This allows one to buy the most senior tranche with a fixed interest rate locked in for up to 1 year, at a lower yield with a much lower risk profile while those in the junior tranches get higher yield, at a variable rate, can withdraw whenever they like, and have a mucher higher risk profile.

Here’s the rates today but I have seen Junior APY over 20% and Senior APY up to 14%.

The real upside for junior tranche holders is they benefit from the extra rewards generated by liquidity locked in the seniors whenever the variable APY of Compound (including the COMP rewards) is higher than the guaranteed yields of current sBONDs. However, in the event of falling lending rates on Compound, the returns of Juniors not only go down but if need be, their locked funds will be used to pay for the guaranteed returns of senior tranche lenders.

To jumpstart liquidity and incentivize junior tranche lenders given this risk of having to use funds to pay senior fixed rates, there is a SMART Yield pool, where a junior can stake their holdings and earn BOND through a familiar yield farming program. Above under Junior APY, the smaller number in the BarnBridge UI indicates that Juniors are earning 45.57% APY in BOND in the Smart Yield Pools.

Altogether, Juniors are clearly earning a substantial amount compared to Seniors and that’s what we’ll cover today!

Opportunities: BarnBridge offers 4 tranche lending products for stablecoins and 3 farming opportunities to earn BOND. Be aware all these estimated rates change constantly, unless you purchase senior bonds and get a guaranteed fixed rate for the life of the bond.

  1. 4.52% APY -> USDC Senior
  2. 6.78% APY -> DAI Senior
  3. 4.47% APY -> USDC Junior
  4. 6.68% APY -> DAI Junior
  5. 45.57% APY -> SMART Yield staking (for USDC Juniors only)
  6. 54% APY -> Staking BOND in BarnBridge DAO
  7. 133% APY -> Staking BOND/USDC LP

Time to Complete: 10-15 mins if paying the recommended FAST gas price on gasnow.org

Gas + Protocol Fees: Based on the FAST gas price on gasnow.org currently between 100-200 Gwei, I would estimate paying the following gas fees.

  • Depositing into tranches = $100-$150
  • Depositing into SMART Yield Pool = $30-$100
  • Staking BOND = $30-$100
  • Becoming a BOND/USDC LP = $60-$100
  • Staking BOND/USDC LP = $30-$50

Risks: As always, this is not financial advice and you should do your own research.

  • Smart contract risk
  • Oracle failure
  • Liquidity crisis
  • Financial incentive failure
  • Systemic risk in DeFi composability
  • Estimated APRs can go up or down with the price of BOND, pool liquidity, and lending rates on Compound
  • If I become an LP for BOND/USDC, I’m likely to experience impermanent loss.

Tutorial:

To get started using the junior or senior tranches, I would first ask myself “is it worth locking up USDC or DAI to lock in the fixed senior rate and if so for how long up to 365 days?”

  1. From there, go to the BarnBridge SMART Yield app.
  2. Choose to deposit either DAI or USDC.
  3. Choose senior to lock in a fixed rate for up to 365 days but the drawbacks are:
    • I cannot withdraw until the bond maturity date I set.
    • I pay 5% of my gains as a fee.
  4. If I choose junior, I can potentially earn higher rates on my stablecoins but I run the risk of having my money used to subsidize seniors if the Compound interest rates fall below what senior tranches have locked in for their fixed rates.
  1.  Next up whether I’m going junior or senior, follow the prompts to specify how much to deposit and you’ll then have to Enable Token to give permission to spend stablecoins on BarnBridge.
  2. Then Click Deposit to follow the prompts on MetaMask and you’re now in a tranche!

If one chose junior tranches, continue below for how to earn more yield.

  1. Now head to the SMART Yield Pool page to stake and earn more BOND as a junior tranche holder.
  2. Do the same as before to Enable Token first.
  3. Then specify staking all of the bb_cUSDC token to start earning 45.57% APR in BOND tokens.

Lastly, continue if one wishes to put that BOND earned from junior tranches to work farming!

  1. I can then either stake BOND in the BarnBridge DAO to earn about 54% APY in BOND or use it to add liquidity to the BOND/USDC and stake the LP to earn 133% APY in BOND rewards.
  2. If I stake BOND at 54% APY in the DAO, go to the BarnBridge DAO to Deposit (first Enable Token and then Deposit to continuously earn more BOND). One can track their staked BOND in the BarnBridge DAO at zapper.fi.
  3. Alternatively, if I’m keen to earn a higher APY as a BOND/USDC LP (while accepting the likelihood of impermanent loss), I can go here on Zapper to add liquidity via a single asset deposit using my BOND in 2 transactions.
  1. Lastly, go back to the Yield Farming tab in BarnBridge app to stake this BOND/USDC LP and start earning more BOND. You’ll have to Enable Token and then Deposit.

About Author: DeFi Dad is a DeFi super-user, educator, and investor. You can subscribe to his YouTube channel at defidad.com. Disclosure: DeFi Dad is a BOND token holder in the BOND staking pool. This is not a recommendation or endorsement to buy BOND.

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