Radix DLT - Gro Protocol - DeFi Savings with deposit insurance
Primer: Gro Protocol offers a DeFi savings account with deposit protection. Graadient, Founder of Gro Protocol, explains why this innovation is helpful to the burgeoning DeFi space, their other products, and their plans for the future. He also shares about his experience with DAO governance.
Gro Protocol
A product suite containing:
PWRD — a stablecoin that serves as a high yield savings account with deposit protection
Vault — Leveraged product that offers protection to PWRD in return for higher yield
There’s a symbiotic relationship between both products
The concept is similar to securitization and tranching of bond yields in TradFi. There are different tranches, each with different levels of risk and yield
Why Is The PWRD Stablecoin An Important Product?
A year ago, Graadient left his job at Revolut and was looking at the DeFi landscape
DeFi offered pretty spectacular returns
To outsiders, the high yield in DeFi seemed to have high risk because the market is efficient and risk is priced into the yield. He does not think that this is the case
Offering a lower risk option that comes with protection would help onboard people familiar with TradFi into DeFi
Vault
Both the risk and the yield is tranched
A portion of the yield generated for the lower risk tranche is forwarded to the higher risk tranche
The yield given to the higher risk tranche is a function of utilization similar to interest rate curves on Aave or Compound
Their protocol cannot issue more of PWRD than Vault, as more of the latter is required to protect the former
As the utilization of PWRD relative to Vault increases, more yield is forwarded to Vault
The term “leverage”, in the context of Vault, is not in the sense of borrowing assets and leveraging up on them
The term “leverage” refers to all of the assets, whether they are coming from PWRD or Vault, being pooled into one place and distributed across 7 strategies. The yield from those strategies flows back into the system as per the utilization rate between the two products
What Kind Of Strategies Are Used?
3 sources of yield:
Lending income from lending protocols
Market making income from AMMs
Governance token incentives that are offered by some protocols
What Are The Main DeFi Platforms That They Are Using?
Their DApp shows the exact allocation to the stablecoins and protocols that they are using
At a systemic level, they are not overexposed to a particular stablecoin or protocol. This allows them to handle the failure of components
Does Their System Automatically Rebalance Equally Between The Assets Regardless Of What Asset Comes In?
At the moment, yes
What Happens If One Of The Stablecoins Blows Up?
Assuming that there’s an equal amount of capital on PWRD and Vault, 2/3 of the capital inside Vault would be forfeited while PWRD will be unaffected
When Was Their Launch?
Around 3 months ago
They launched the core protocol without any governance token. Their aim was to focus on the protocol first
Thought that there would be demand for PWRD from retail investors. Instead, people in DeFi are risk hungry and there was a lot of demand for Vault
Will be marketing PWRD as a money market product to treasuries
Building another product, Labs, to tap on to even more aggressive yields in other places (Labs are now available since the publishing of this podcast episode)
Utilization Of PWRD And Vault
Are at 67% utilization
20 million on Vault
~18-19 million on PWRD
Have another 57 million in their pools. This is part of a staking program that they have where users lock their assets for governance token incentives
Pitching The Selling Point Of PWRD And Vault To DeFi Users
It’s important to look at the 2 parts of yield:
Base yield
Governance incentive yield on top of the base yield
At best, base yields are in the low double-digit range for stablecoins. This was before the launch of the DAO
When the DAO launched, the Gro DAO token was offered, resulting in very high APYs
Labs
A leveraged product. It is a managed leverage position that LPs with a volatile asset
It is available on Avalanche
There will be 3 Labs, one for each of the major stablecoins (USDC, USDT, DAI)
Users deposit stablecoins and the strategy borrows AVAX from Alpha Homora. The asset that is deposited into Labs and the borrowed AVAX is put into an AMM on Avalanche to earn trading fees and governance incentives
Labs does the rebalancing for users once the price moves to certain boundaries, turning it into a market neutral position
It has a pretty high APY and users do not need to take a long or short position on the asset
Is Labs A Change In Strategy For Gro?
Labs is a staging ground where strategies that are working well can be voted in by the DAO into Vault
This could also be done on Ethereum Mainnet if the DAO wants it to be
Governance And The DAO
At the start, users of Gro Protocol were given a prototype token called xGRO, which they could vote on whether they wanted to launch the Gro DAO, the governance token, and how to do it
“So the Gro DAO basically got to create itself.”
- Graadient
Ran “emoji governance” on Discord. Things were formalized into a forum proposal
Set up a forum and Snapshot voting
Their Snapshot is integrated with Gnosis Safe, where transactions can be executed by voting
Wanted their governance tokens to be in the hands of long-term holders who are engaged with the protocol
The governance tokens could be claimed from the vesting contract. Those who claim it ahead of the one year schedule would get the vested portion of the governance tokens, with the remainder forfeited into a vesting bonus pool
Those who have decided to stick around are able to claim their pro-rata share of the vesting bonus pool every 20 days
“You get this kind of Squid Game-like mechanic where the people who leave are giving up a portion of the governance to those who stick around. And those who come back every 28 days and claim their share of the vesting bonus, they get a larger stake and larger say in the protocol.”
- Graadient
One of their recent votes involves reviewing the Gro tokenomics. The community voted to allow:
Holders to claim 30% of their tokens immediately and forfeit the remaining 70% to the vesting bonus pool, or
Lock 100% of their tokens
This provides optionality to both short-term and long-term people
What Have They Learned About Governance?
Things take longer when you're aligning with a much larger stakeholder community
Have to ensure that the DAO is properly informed and can actually understand different complex matters, especially the strategies, where they get more technical
Have They Experienced Two Camps In Their Community That Have Strongly Held And Opposing Views?
Had a vote recently where the options that were put up ended up being quite binary
When they started, votes were structured in a more binary way (i.e. either it happens or it doesn’t happen). This would result in the happiness of one group of stakeholders and the unhappiness of the other group
A vote could also be structured as a weighted average of its options. Hence, no group becomes unduly happy or upset
Where Can Listeners Go To Find Out More?
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