CRE8R DAO AMA with Gro Protocol
Primer: In this CRE8R DAO AMA, host Fugu speaks with Graadient, Joyce, and Jona from Gro Protocol. Gro Protocol is a risk tranching stablecoin yield protocol. The team goes in-depth into the various products that they offer, providing rich insights to listeners of the episode.
Background
Graadient
Previously, he led new market growth at Spotify
After that, he was VP Growth in Revolut
Started building Gro Protocol 1.5 years ago
Joyce
Was a management consultant
Subsequently, went to work in the credit card space
Enter the crypto space in 2018 when the markets started crashing. Left the space and came back in 2020. Met Graadient and joined Gro
Jona
Came from a payments background
Recently joined Gro
How Did Gro Get Started?
In DeFi summer 2020, the yields were bountiful
The high yields reflected the risk. However, for some cases, the risk was not properly priced in and the yields were higher than the risk should allow them to be
He wanted to create a high yield savings account with deposit protection
Realized that there’s no DeFi equivalent of deposit protection
There are insurance protocols, but the coverage is only for a period of time
Wanted to create a DeFi-native way of deposit protection
“And whenever we talk to people outside of DeFi about some of the yields, people always looked at it with a bit of disbelief. And like, yes, because there's a lot of risk in there and that's why the yields are high.”
- Graadient
One of the core mechanics of Gro Protocol is to split up their products into two categories — one having a higher risk while the other having a lower risk
The low risk segment is akin to a high yield savings account. It gives up some of its yield as payment for getting that protection
The payment is given to the high risk tranche, which has more risk, but also more yield
What Does Gro Mean?
It’s a Swedish word for grow
It’s also the French word for fat
Is Their Team Anonymous Or Totally Open?
They are a completely open team, which isn’t the norm in DeFi
Believes that a completely open team will give people more confidence and help them to build trust with their users
What Have They Learned From Building Gro?
They started off by building the protocol without any governance token or incentives. Their focus is on ensuring that their products work as expected
Thought that there would be people interested in low risk options. However, what they have seen is that people are quite risk-on and are interested in as much yield as possible
They are pitching their low risk product to DAO treasuries which have a more conservative risk profile
They are gearing their protocol towards higher yielding strategies with a more aggressive risk profile for users who are risk-on while making sure those who prefer lower risk can still use PWRD
What Products Does Gro Have?
Users will be able to deposit their stablecoins into their products
For users who are looking for lower risk, they could use the PWRD stablecoin, which has yield associated with it. It also comes with protection if any of the underlying stablecoins/protocols fail
For users who are looking for a higher yield, they have Vault for them
Their community wanted an even higher yield
Two months ago, they launched Labs on Avalanche. Labs is an automated leveraged yield farming product
What Assets Can Be Used To Earn Yield On Gro Protocol?
Stablecoins like USDC, USDT, or DAI
At the moment, they are a stablecoin protocol
Their PWRD stablecoin has a built-in yield while being shielded from protocol exploits or stablecoin depegging
“But for PWRD it has a built-in yield, so to speak, where you don't really need to think about it, you just hold it and then through a rebasing mechanism, you would get more PWRD over time.”
- Joyce Chin
How Does Gro Protocol Standout Amongst Its Competitors?
Gro is a risk tranching protocol
The risk tranching on top of the yield provides leverage
The leveraged option has a higher yield than if you have the same type of strategies without the leverage option
The leverage and protection built on top of yield generating strategies are unique products in the space
Labs contain a new set of strategies and some of those could be rolled into the main Vault and PWRD
ELI5 Version Of Risk Tranching
There’s $10 in this product
Someone who doesn’t want a lot of risks puts in $5
Someone who wanted risk puts in $5
There are 5 different strategies, with $2 in each strategy
One strategy gets exploited. If there’s no risk tranching, both the high risk and the low risk person would have lost $1 each
With risk tranching, the high risk person would lose $2 while the low risk person would not lose anything
Risk tranching works by allocating any losses to one side in benefit of the other side
How Does The Risk Balancer Work?
The risk balancer allocates as people deposit and withdraws stablecoins from the protocol
The protocol allocates those stablecoins to strategies and the stablecoins that are currently underweight
Withdrawals are made from overweighted stablecoins in the underlying pool in order to balance stablecoin proportions
Hence, the protocol is always driving towards a balanced distribution of assets into different stablecoins and protocols
How Can Damage Be Contained In A Black Swan Event?
Gro Protocol does not allocate too many assets to any given stablecoin or protocol
The concept is that risk tranching only works as intended if there are a pool of stablecoins and protocols involved
Otherwise, the failure of one protocol or one stablecoin will just wipe out both the low risk and high risk tranche
A portfolio that is split into multiple assets and multiple strategies allows for a complete failure of an asset or protocol and still maintain protection because the higher risk side can subsidize the losses of the lower risk side
One Of The Yield Sources Is Trading Fees From AMMs. Do These Strategies Expose Users To Impermanent Loss?
It depends on the strategy
For Vault and PWRD, their AMM strategies involve LPing on stablecoin pairs
The assumption is that the dollar prices of these assets are ~$1. Hence, there’s no impermanent loss as they tend to return to the peg
Their Labs product on Avalanche pairs a volatile asset with a stablecoin. Hence, impermanent loss becomes a very important thing to consider
Labs Product
Features
Labs product is an even higher yielding set of strategies
Currently, it’s on Avalanche
This product does not have risk tranching built on top of them
Labs accept deposits in USDC, USDT, or DAI
Stablecoin assets are used to borrow AVAX
The AVAX is combined with stablecoins that the user has deposited and added into an AMM pool at Trader Joe to earn fees and other token incentives
On a regular basis, these incentives are sold off and converted into more yield, allowing the yield to compound further
Impermanent loss becomes a challenge here. They tackle the problem by setting a price range of AVAX when the position is initiated. When AVAX price is out of that range, they close the position so as to avoid impermanent loss as AVAX price goes up or down
When users close their position, they end up having more or less AVAX than when they initiated the position. They have to sell off their excess AVAX or buy more AVAX with their excess stablecoin to pay off the loan
If users want to do leveraged yield farming, they need to manually do all this on their own. Labs monitors the exposure and automates all these operations for the users
The long-term yield is ~30-40% APY
Their strategy automates cutting loss when there’s a major pump or dump in the markets and reopening the positions when the price is back to trending within a more stable range
Token Gating
At launch, they have used 500 GRO tokens as a token gate
Wanted to make sure that the most committed DAO members get priority access to the high yields in Labs
Will be experimenting with different deposit caps for Labs
If Labs was open to all, they would hit a ceiling on the AVAX borrowing capacity. Currently, AVAX borrowing has a 90% utilization rate
There has to be a deposit cap because it will reach a point where there’s not enough AVAX to be borrowed and the remaining stablecoins will generate a lesser yield
Another point is that as the utilization rate goes up, the interest rate for borrowing AVAX goes up as well
How Did They Decide To Go With Avalanche?
Their community has been clamouring for Avalanche
One of their partners, Alpha Homora, is launching on Avalanche
Avalanche is EVM compatible as well
Already have exposure to Ethereum L2 through zkSync through Argent wallet. Users can access their Vault product through Argent wallet
What Security Measures Have Gro Protocol Taken?
Have done audits in the past and are planning more in the future
Have worked with PeckShield, KurtBarry, and Code Arena
They will be increasing their bug bounty at ImmuneFi and will be hiring Trail of Bits for auditing
Has integrated Chainlink to prevent Oracle price manipulation
PWRD Stablecoin
Features
A stablecoin that gives you yield with protection
Users can gain exposure to PWRD in two ways:
Depositing USDC, USDT, or DAI on their DApp
By swapping through a Curve pool with PWRD and the three major stablecoins
How Does PWRD Maintain Its Peg
The price peg in the Curve pool is maintained by arbitrageurs. 1 PWRD token can always be redeemed for 1 USD from their protocol
PWRD is overcollateralized by Vault to protect its peg
How Does PWRD Stack Up Against Competitors Like mStable?
For stablecoin swaps, there are 2 types of formulas:
1-to-1 swap using a constant sum formula
1-to-slightly less using a constant product formula
If there’s a failure of any asset in an AMM pool, the pool will be filled up with the broken asset
In Gro Protocol, different assets are compartmentalized and isolated from each other. Hence, they can handle the failure of assets
Vault
Strategies
Their strategies use 3 different yield sources:
Lending on Aave or Compound
AMMs through Curve
Getting governance token incentives
From a user perspective, the allocation will be the same, regardless of whether their deposits are in PWRD or Vault
The only difference is that when there’s a loss of funds event, only Vault depositors would be affected
Are They A Fork Of Yearn V2?
Some parts of their code are derived from Yearn
The way that capital is allocated between different strategies is different from Yearn
Yearn uses a greedy allocator algorithm that optimizes for yield. It doesn’t try to compartmentalize the different strategies
The Gro Protocol Vault are multi-asset with risk tranching and risk balancing
Their Integration With zkSync And Argent Wallet
The Vault product is accessible through the Argent zkSync mobile app
The product mirrors the price performance of the Vault on Mainnet
On a regular basis, the assets on the zkSync rollup are reconciled with the balances on Ethereum Mainnet
From a user perspective, they just need to connect to zkSync and deposit their stablecoins there
Users can connect their Argent Wallet to their DApp through WalletConnect on Ethereum Mainnet
GRO Token
Their governance token. Holders will be able to vote on the protocol’s future
Welcome everyone to provide feedback and raise new proposals on their community forum
Each token will be counted as one vote
Has received feedback from their community to change their vesting schedule
Previously, rewards gained from liquidity mining will be vested over 12 months. If the user decides to leave vesting immediately after they start, 10% of the rewards could be taken upfront and the remaining 90% distributed to other token holders
The community has requested features enabling higher short-term rewards if they do not want to vest (e.g. option to get 30% of rewards and give up 70% to other token holders)
Has incentives for people to hold GRO over the long-term. Every 4 weeks, token holders can claim from the vesting bonus pool that contains the tokens that were given up by people who wanted to exit the system
Currently, they are looking into introducing a performance fee for the yields generated in the protocol. The fees would be used to buyback GRO from the market and be deposited into the vesting bonus pool
G-Force
Community members are called Gromies
Observed some gromies interested in marketing and helping to start initiatives
Called these people G-Force, which is the marketing arm of their community
How Could Listeners Participate?
Join their Discord
Try out their app
Would love to hear more feedback from users
They will be looking into opening up the DAO contribution space further. G-Force is their first effort into doing that
What’s On Their Roadmap
Making Labs more broadly accessible
Core protocol changes next week — base APY and GRO tokenomics
Innovative approaches on how fiat can be managed
Will be publishing their roadmap
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