Key Performance Indicator (KPI) options are now live for SMART Alpha! This post will provide an overview of how you may have already earned an airdrop, how you can earn more options between now and November 2nd, and what potential payout looks like.
Please refer to the original announcement for a more detailed background on what KPI options are and how they work.
What are the Programs?
Two KPI option programs will run in parallel: one for the ETH (USD) pool, and one for the BTC (USD) pool. Each will have 5,000 KPI options associated with them.
- A maximum of 5,000 BOND are set aside for both
- Outcome of the program will be assessed by UMA on November 3rd, 2021
- 30% of each program’s supply is reserved for airdrop recipients
You will have qualified for the airdrops if you were either:
- A SMART Alpha participant in either Epochs 1, 2, or 3 for either pool
- A BarnBridge DAO staker as of September 27th, 2021
Airdrop distribution will be addressed over the coming weeks.
How Do I Earn KPI Options?
3,500 of each KPI option supply will be emitted via a liquidity mining contract hosted on the BarnBridge interface here. Emissions will go from now through November 2nd, 2021.
To earn ETH (USD) KPI options, you will need to deposit the Balancer Pool Token associated with it.
- This is the Balancer pool: https://pools.balancer.exchange/#/pool/0xc4e5e56110ea66963ae59d18df9f30ac960fea18/
- This is the Balancer Pool Token: https://etherscan.io/token/0xb17f52e389c66e96c2da4c7b5f9bfd2f7fd37ec1
To earn the BTC (USD) KPI options, you will need to deposit the Balancer Pool Token associated with it.
- This is the Balancer pool: https://pools.balancer.exchange/#/pool/0x86859d09d5fd6bdbab2db4f0073ddadaa57018b1/
- This is the Balancer Pool Token: https://etherscan.io/token/0x68ef294f5c1214a7f7ba30c6c378d29aa27b7b89
At the end of the KPI option program, you will be able to redeem these options for an amount of BOND per token determined by the following function:
TVL of the SMART Alpha Pool at Epoch Advancement on November 1st * Average Epoch Score
Let’s break that down:
- TVL of the SMART Alpha Pool at Epoch Advancement on November 1st: The cumulative amount of dollar-denominated value between the junior and senior side of the pool at 10:00 AM EDT on November 1st, 2021.
- Average Epoch Score: Each epoch is scored between 0 and 2 depending on how far away from 50% the junior dominance of the pool was. If junior dominance is lower or equal to 50%, the epoch score is calculated by multiplying the junior dominance share by 4; if junior dominance is higher than 50%, the epoch score is calculated by multiplying senior dominance share (this is 1 minus junior dominance share) by 4.
This function is bound between outputs of 100,000 and 19,900,000:
Here are some examples of how this could play out:
- TVL for the last epoch advancement is $10,000,000 and the average epoch score was 2| KPI Option = 1 BOND
- TVL for the last epoch advancement is $10,000,000 and the average epoch score was 0.5 | KPI Option = 0.4 BOND
- TVL for the last epoch advancement is $15,000,000 and the average epoch score was 1 | KPI Option = 0.6 BOND
How Do the Balancer Pools Work?
The Balancer pools are composed of three assets each:
- The underlying asset (WETH or WBTC)
- The junior version of the asset (junior_WETH-USD-1w or junior_WBTC-USD-1w)
- The senior version of the asset(senior_WETH-USD-1w or senior_WBTC-USD-1w)
Half of the pool is represented by the underlying asset always, while the other half is split between the junior and senior versions of the asset. Each week, the split between the junior and senior sides are recalibrated to mitigate potential downside caused by junior volatility. This is done as a function of junior dominance.
The goal of Balancer pool reweighting is to ensure that the assets gained by the senior side cancel out those lost by the junior side at the senior downside protection limit. What does that mean?
- A specific epoch advances and has a confirmed junior dominance
- This junior dominance determines how much downside protection seniors receive and how much juniors will give up in the underlying asset at that point
- You can then calculate the ratio between the two sides that keeps it even, with a bias to the senior side
This allows for impermanent loss to remain in the single digits, even when juniors bear high volatility moves to the downside. For this pilot, a core team multisig will be updating the weights on an epoch-by-epoch basis. Should longer KPI option programs be pursued in the future, a keeper network would be utilized.
Understanding the Risks of the Program
Before participating in the mining portion of the program, please make sure you understand the following risks:
- Initial Volatility: Junior and senior positions can only be minted once a week, while Balancer pools allow for single-sided deposits. This could result in senior and junior positions trading at a premium in the initial week or two of the program as people just deposit WETH or WBTC.
- Expected Discount: In an equilibrium state, you would expect both junior and senior positions to trade at a discount to their contemporaneous value. This discount would be largest at epoch beginning, and converge on 0% toward epoch end.
- Impermanent Loss: Should one or more assets in the pool severely decline in value, you are at risk of losing other pool assets. To calculate how this would play out under different circumstances, we recommend using https://baller.netlify.app/.
- Smart Contract Risk: To participate, you will be interfacing with smart contracts from BarnBridge, Balancer, and UMA.
- Payout Risk: If the program doesn’t end anywhere close to its goal TVL, your KPI options will be worth less BOND.
With that said, see you in the pools!
UMA builds open-source infrastructure for “priceless” financial contracts on Ethereum. Specifically, this is two things:
- Priceless financial contract templates used to create synthetic tokens
- Decentralized Oracle Service used to manage and enforce contracts on UMA
Together, these two technologies enable the creation of fast, efficient, and secure derivatives on Ethereum.
Key Performance Indicator (KPI) options are synthetic tokens that will pay out more rewards if a project’s KPI reaches predetermined targets before a given expiry date. Every KPI option holder has an incentive to improve that KPI because their option will be worth more. This is intended to align individual token holder interests with the collective interests of the protocol.
Using UMA’s Long Short Pair (LSP) contract template and Optimistic Oracle, any project can create their own KPI Option tokens. These can be backed by any approved ERC-20 token and can be valued against any KPI that a project wants to improve!
Keep up to date with the UMA community via the following channels:
BarnBridge is a suite of risk tokenization protocols for DeFi. Its applications allow users to select from opposing pools and take positions on risk factors like interest rates or asset prices. Its first application, SMART Yield, offers fixed and levered variable yields on stablecoins deposited into underlying lending markets like Aave, Compound, and C.R.E.A.M. Finance. Its application suite has expanded to include SMART Exposure, a position rebalancing solution, as well as SMART Alpha, which allows users to calibrate their exposure to price movements in an underlying digital asset. BarnBridge is currently live on Ethereum, Polygon Network, Binance Smart Chain, and Avalanche, with deployments on Arbitrum and Optimism all on the horizon.
Keep up to date with the BarnBridge community via the following channels: