Over $1 billion in locked assets, understanding the rise logic of BadgerDAO

This article is from ChinaDeFi, authored by lris.

From 2019 to 2020, even though the number of BTC on Ethereum rose from 1,040 to 138,530, it only accounted for 0.705% of the circulating supply of BTC. As the services for BTC in DeFi continue to improve, this number is expected to grow significantly. BadgerDAO has the opportunity to become a one-stop "shop" for all BTC on Ethereum.

------lris

Just as we believe that the development of stablecoins will lead us to smart stablecoins and countless utilities, what may happen next is the utility development of Bitcoin on Ethereum. BadgerDAO is working to create a suite of products that accelerates the growth of BTC in DeFi. Its goal is to become a unified force that integrates BTC utility on Ethereum.

BadgerDAO is different from most other projects. Even before the fair launch began, security issues had already become a top priority for audits. So far, the community-driven approach and strategic initiatives have deeply penetrated the ecosystem. It has been able to gather a community of original BTC and DeFi users who care about enhancing the functionality of the industry's largest asset.

Why is Badger interesting?

The project is a pioneer, somewhat akin to a specialized Yearn, focused on maximizing utility for holders of the most valuable asset—Bitcoin.

BTC on Ethereum already has PMF. Its $TVL is larger than that of top dApps. From 2019 to 2020, BTC on Ethereum rose from 1,040 BTC to 138,530 BTC (an increase of 13,220%, with a market value of $5.2 billion). Currently, only 0.705% of the BTC supply comes from Ethereum. I believe that as the services for BTC in DeFi continue to improve, this number will grow significantly.

The core focus on Bitcoin allows BadgerDAO to concentrate on primitives to reduce barriers to entry. It aims to build better on/off ramps and strive to be more capital-efficient than other BTC solutions. BadgerDAO has the opportunity to become a one-stop shop for all BTC on Ethereum.

A unique approach so far:

*Targeting the right audience**---Retrospectively airdropping Badger to users who interacted with BTC-native products and active community members (Yearn, MetaCartel, Yam)

*High emphasis on DeFi integration**---This includes SushiSwap vaults, Keep incentives, KyberSwap incentives for BTC pairs, Nexus Mutual shield mining, and more.

*Public-facing team with strong market influence**---Transparent communication and Chris (the founder) is very active in media appearances (podcasts, news, etc.)

*Winning the community**---BadgerDAO encourages participation in Gitcoin Round 8 and rewards a portion of the supply to donors.

*Experimenting with NTS**---Collateralizing Badger and generating NTS to unlock more Badger rewards.

*Avoiding gamification**---Implementing Digg's root distribution and time-weighting while avoiding gaming.

BadgerDAO: Network Health

• Today, with many whales involved in BadgerDAO, such as 0x_b1, the demand for insurance has naturally increased. There are 15 cases with effective coverage amounts exceeding $250,000.

Many portfolios have attractive yields. Coupled with rewards for extending participation time to qualify for Digg, the TVL ranking has risen to the top 10.

Future Digg rewards will also be time-weighted based on user activity duration. Most distribution issuance times are long, indicating that these users are loyal. In 30-60 days, over 59% of addresses hold Badger (with 97% floating), indicating a high holding volume.

The number of unique addresses holding Badger increased by 48.5% MTD, indicating that the project far exceeds its fair launch in maintaining enthusiasm.

Product Line and Long-term Sustainability

One of Badger's main products today is Setts (similar to Yearn's vaults). Setts function as an automated DeFi aggregator focused on tokenized Bitcoin assets. The longer users collateralize in Setts, the greater the multiplier rewards.

When Digg? Digg is a new product from Badger, a non-custodial synthetic Bitcoin on Ethereum. It is an AMPL fork, an elastic supply cryptocurrency pegged to Bitcoin's price, eliminating the centralization concerns associated with other currencies. One downside of rebase tokens is the inability to effectively integrate across DeFi services. To address this, when users deposit Digg into Sett, they will receive bDigg, which represents their share in the vault. bDigg will not rebase.

Claw---A common issue faced by projects is the stickiness of TVL. Claw will become Badger's new stablecoin. With it, users can borrow stablecoins from vault positions to hedge against their existing LP tokens while earning yields, leveraging, and gaining more returns. This type of additional utility may help retain funds in Badger.

"Badger Level"---Proactivity at the intersection of DeFi + NFTs. Essentially, its goal is to reward loyal users with additional benefits within the ecosystem, such as increased APYs, reduced fees, and exclusive access to new products. It is evident that Rabbithole + BadgerDAO is very suitable here.

Over time, we may see more financing using BTC financial instruments on Ethereum. Other use cases may include BTC-neutral strategies, rebasing management, new portfolio strategies, leveraged trading, etc.

Based on the dollar value of Digg relative to BTC, these distributions will be adjusted between wallets. The first rebase will occur within 24 hours of launch. A rebase will happen every 24 hours. If the price on that day is higher than Bitcoin's dollar value, the rebase will be positive, and the balance will increase. If the price is below this value, the rebase will be negative, and the balance will decrease. 40% of Digg will go to the BadgerDAO vault; although this proportion is unstable, it can be used to further drive growth.

Once launched, there will be many ways to earn Digg as an LP of Setts (also known as vaults). All three can earn Badger and Digg. Based on the usage of Uniswap and Sushiswap, the issuance will dynamically change. I am not entirely sure how much Digg is actually needed and whether it can maintain its peg easily. However, if it can function as an unreliable yet relatively stable synthetic BTC, it can be integrated into many DeFi applications. The main issue with most wrapped Bitcoin today is the lack of trust. I really like that Digg has utility in Setts.

• Digg Sett - Collateralize $Digg to earn Digg rewards.
• Digg/wBTC Uni - Collateralize Digg and wBTC for Badger + Digg + xSushi rewards.
• Digg/wBTC Sushi - Collateralize Digg and wBTC for Badger + Digg + xSushi rewards.

Risks------ As always, there are risks associated with smart contracts, especially with such a high TVL. Notably, shield mining in collaboration with Nexus Mutual has already started, with 213,118 NXM staked on the Badger project and over $10.5 million in active investments.

Like most other projects, gas fees hinder cost-sensitive users, and if this continues, it may deter newcomers. Solutions for gas-intensive interactions may involve moving to L2.

How sustainable is the TVL? It remains to be seen how much of the $700 million TVL consists of short-term players merely waiting for the Digg airdrop versus loyal users hoping to see the project succeed. With the support of Digg + Badger, the brief issuance after Digg's launch should help maintain the upward trend of TVL. From a broader perspective, relying solely on liquidity mining is unsustainable. However, I believe it is a good short-term option to buy the team more time to execute the rest of the DeFi stack products. The idea is that the scale of fee generation should be large enough to exceed the demand for issuance, and by the way, issuance has been declining over time.

Conclusion

BadgerDAO has shown impressive appeal early on, thanks to a strong underlying community focus and a targeted approach to entering BTC. I believe that as significant opportunities materialize, more competition will naturally arise in this space. In the near term, the main catalysts I am watching are the level of community engagement post-Digg launch and the timely delivery of upcoming products on the roadmap, which will enhance the stickiness of TVL.

While I have not yet engaged with Badger, it has quickly become one of the most interesting projects in DeFi. With robust finances, a sharp founding team, and an active community, I am excited to see how the upcoming products progress, especially the new stablecoin. Building a suite of products that makes BTC on Ethereum more accessible and useful is an opportunity that should not be underestimated.

If users are already eligible for Digg or have wBTC on hand, providing traffic reserves for Setts with Digg, Badger, and Sushi combinations (depending on the selected set) is essential. I must remember that short-term-oriented Badger holders may liquidate their Badger and Digg positions for cash after launch. Given the project's strong fundamentals, it is crucial to monitor on-chain activity early after the project launches to understand the ratio of dumping to accumulation.