How does Badger DAO empower BTC?

This article was published on Crypto Valley Live, author: Steve Walters, translation: Li Hanbo, Jeremy.

Decentralized Finance (DeFi) grew at an astonishing pace in 2020 and entered 2021 with incredible momentum and a plethora of interesting and useful projects.

One indicator that clearly shows how popular DeFi is and the extent of its growth is the Total Value Locked (TVL) in DeFi projects. As you can see from the chart below, the TVL grew significantly in 2020, and in 2021, it has strongly maintained above $40 billion.

One particularly interesting project among them is Badger DAO and its BADGER Token. What sets this project apart is its use of Bitcoin in DeFi, which we haven't seen in many other projects.

Badger DAO also drew inspiration from Yearn.finance in some ways, following a "fair token distribution" model when launching the BADGER Token. This model gave the community ownership of the project from the very beginning, rather than selling tokens to investors who had no real interest in the project beyond profit potential.

Additionally, the increasing demand for Bitcoin on the Ethereum blockchain (the previously mentioned wrapped Bitcoin) has also helped in this DeFi space.

In just a few months after its launch, BadgerDAO's TVL exceeded $40 billion. Image from DeFiPulse.com

Many blockchain supporters claim that Bitcoin is the soundest form of currency ever. They believe it is both the soundest collateral and the best medium of exchange. However, the use of Bitcoin in DeFi has been limited to a small Bitcoin ecosystem, at least until it became possible to wrap Bitcoin in ERC-20 tokens for use on the Ethereum network.

Since the invention of Bitcoin-backed tokens, we have seen a sharp increase in the number of Bitcoins on the Ethereum network.

While this has been helpful in some ways, it is certainly not ideal, especially since the infrastructure for using Bitcoin on Ethereum is still new and relatively underdeveloped. This means that minting Bitcoin-backed tokens still relies on centralized platforms and all the custody, trust, and KYC requirements that come with them.

The good news is that you can use Bitcoin in DeFi, as many lending and borrowing protocols use synthetic Bitcoin as collateral; however, the bad news is that there are few large liquidity pools to trade this synthetic Bitcoin.

Therefore, with the growing DeFi landscape and the challenges faced by all Bitcoin holders wishing to participate in DeFi, the team behind Badger DAO is motivated to find a better way to integrate Bitcoin into the DeFi revolution. Let's take a closer look at how it works.

What is Badger DAO?

You may already be familiar with the term DAO, which stands for Decentralized Autonomous Organization. Thus, Badger DAO was created with a decentralized governance structure, allowing the community to take control of the project from the very beginning.

Moreover, Badger DAO is trying to build the necessary infrastructure to accelerate the use of Bitcoin in decentralized finance, as well as its use on Ethereum and other blockchains.

Badger DAO aims to bring Bitcoin into DeFi. Image from YouTube

The initial Badger DAO development team designed it as a complete ecosystem that would allow any DeFi protocol project to collaborate and build joint products. Because Badger DAO was created with a DAO governance structure, developers can align their incentive mechanisms with decentralized governance, regardless of what project they are working on. Our idea is to create a spirit of collaboration in the DeFi ecosystem rather than a spirit of competition.

Additionally, one of the main goals since the project's inception has been to ensure that Badger DAO is community-led and governed from the very beginning. Community governance will make decisions regarding new products, and it will be responsible for ensuring the fair distribution of BADGER Tokens to all participants. All of this reflects the founders' commitment to community priority, ensuring transparency and fairness for everyone.

The key to the project's success will be how well they attract all the necessary liquidity, not to mention the content creators and coders needed to keep Badger DAO moving forward.

A larger number of participants and a broader range of technical talent will greatly benefit the project and everyone involved. Moreover, the success of the project is most closely tied to the community members, as the revenue generated will create profits that will be distributed to those who contribute the most to the development of the DAO.

How does DAO work?

A few years ago, DAOs were quite rare, but as projects saw that community-led governance was preferable to centralized governance, the formation of DAOs has increased. To some extent, this has led to a shift of governance tokens towards a new utility token.

What a DAO structure looks like. Image from Dev.to

When designing a community-led DAO, there is an ideal; however, in the real world, DAOs often do not attract much community participation. There are a variety of reasons, including the GAS fees associated with on-chain voting.

In many cases, the lack of participation is simply because people feel a lack of ownership or responsibility towards the DAO. Voting and community participation are great ideals, but when most people ignore them, or worse, when proposed changes are rejected outright, voting and community participation become useless. If voting doesn't matter and the chances of change are slim, people will quickly lose interest.

Attempts at DAO

The founding team of Badger DAO believes that the most active DAOs can be seen in the attempts of DAOs. It seems clear why this is the case, as these types of DAOs are responsible for all aspects of the business and platform, and they are also motivated to see the protocols and products perform well. DAOs that focus more on products can learn from DAOs how to maintain an engaged community and share the value created by products.

While creating a DAO is trendy, Badger DAO did not decide to create a DAO just to follow the trend. They have a genuine desire to build a community that fosters a collaborative environment, and to share their goal of fully integrating Bitcoin into the DeFi ecosystem. They aim to be more than just a legally established organization or a typical DAO that claims to cultivate a community but seems to lack the ability to build one.

Part of the DAO structure. Image from LinkedIn.

This is why the team considers shared ownership of the platform as one of its cornerstones, and why all products will be launched by community members. Furthermore, any value created through fees and revenue will also flow back to the product creators and holders of BADGER Tokens.

One issue is that sometimes the distribution of rewards may not be entirely clear. For example, there may be questions about which community member first proposed certain ideas. Or suppose a product is fully funded by a DeFi protocol, including providing developer talent for the project. In this case, some accounting of the resources allocated to the project will be needed, and appropriate rewards will need to be determined.

It may not be entirely clear now, but we are in the early stages of Badger DAO's development, and many issues are likely to be resolved in a suitable manner that is acceptable to the majority of the community.

Badger Developers

Badger developers are the lifeblood of Badger DAO. This is a group of community members who collaborate with other developers to create new products within the Badger DAO ecosystem. Badger developers do not necessarily have to be individuals; they can be a group of developers or even an entire company.

Anyone can become a Badger Builder. Image from Badger Blog.

For Badger developers, the biggest benefit is that there are no participation requirements to benefit from the DAO. Anyone who wants to become a Badger developer can do so, leveraging their skills to help create something great with open-source code and a small amount of governance tokens.

Proposing Products

It's not just the creation of products that is open to anyone. Any community member can freely propose new product ideas in the Badger DAO Discord channel. They will receive feedback on their ideas and can find partners for collaboration.

If a proposal is put forward and the community shows interest, the proposal can be further developed and then undergo off-chain voting to decide whether to push the idea to the entire community. If the decision is made to proceed, the final step is on-chain voting to obtain project approval.

Whenever a project is approved, the development team will get involved to help fund the project, build it, and then market it. Off-chain voting in Telegram and Discord channels is used to determine solutions to any product or operational-related issues. This governance design is intended to ensure that individuals proposing ideas are not isolated. Instead, we hope contributors can come together to create some of the best DeFi products ever.

Collaboration

The developers at Badger DAO are really just waiting to collaborate with anyone who has ideas, which could lead to a cool and potentially profitable project. As the project gains momentum, they hope to see not only individual developers join but also entire DeFi protocols.

This type of collaboration is exactly what the DeFi ecosystem needs to discover the best products. This is also why Badger DAO remains open to participation from any individual, developer, team, or company. Every product released will be transparent, fair, and hopes that everyone involved in its creation can benefit from it.

Collaboration is expected to help Badger Builders achieve great things. Image from IvanonTech.com

The Badger DAO team has a sincere belief that a community can come together to create products that are better than anything a centralized organization could produce. Additionally, the Badger DAO treasury provides funding for new projects, and BADGER Tokens can be used to incentivize new users in any post-launch phase of a project.

BADGER Token Launch

When Badger launched their token, they took the same approach as Yearn.finance, clearly stating that the BADGER Token has no monetary value and is strictly for DAO governance. Like Yearn, the BADGER Token was also launched with fair liquidity mining.

This means that there is no centralized control over the protocol at any time. There are no early investors, no venture capital funds, and no anonymous supporters who could potentially crash the token in the future if they choose to sell all their holdings.

All of this means that Badger DAO has avoided many of the bad examples and mistakes of blockchain projects that launched in a rudimentary environment or handed over more than 90% of the project token control to founders, advisors, and early investors. Additionally, all smart contract code and systems have undergone comprehensive audits by the third-party auditing firm Zokyo to ensure they are secure and free of vulnerabilities.

There is no anonymous hidden team. They are completely transparent and public. They hold 10% of the token supply to maintain their connection to the project. Another 35% of the token supply is held for community allocation decisions. These funds can be used for collaborative incentives, operations, more liquidity mining, or many other things, but must be used after community voting and approval of the token's purpose.

Because the control of the project and token was handed over to the community from the very beginning, you will not find one thing on the Badger DAO website: charts and tables showing the allocation to VC funds, angel investors, early advisors, etc. Instead, the community will decide from the start how to use the Badger Token. Given that the token has risen about 600% since its launch, this may have been the right decision.

Time-Locked Founder Rewards

As mentioned above, 10% of the total BADGER supply is allocated as founder rewards. These tokens are intended to incentivize the success of the founding members and will be gradually distributed to a public wallet.

Additionally, the founder rewards have a 1-year time lock, with tokens released weekly over a 52-week period. This is to prevent founders from dumping a large amount of BADGER tokens on the market all at once, which could significantly lower the price.

Badger DAO's SETT Vault

The badger is an animal that fiercely protects itself and its family from larger predators. So, Badger DAO chose this name to advocate for this fierce desire for unity and creation. Real badgers build their homes with leaves and grass, which are called Setts. They are durable and can provide a home for generations of badgers over decades of use.

Badger DAO aims to provide a home for the cryptocurrencies held by users, so the first product created is SETT, an automated DeFi aggregator. Because Badger DAO is built around Bitcoin products, the SETT vault is modeled after Yearn.finance vaults, but they only use tokenized Bitcoin. SETT also plans to be the only way for users to earn BADGER tokens, although this may change with governance layer voting.

Like any other DeFi vault setup, users can deposit assets and earn yield returns. These assets are placed into smart contracts, which then execute various strategies to make the assets work within the DeFi protocol universe. This allows Bitcoin holders to maximize the yield on their tokens without having to engage in the mental gymnastics and effort required for manually executing typical yield farming strategies.

For an unspecified limited time, users can deposit into the SETT vault to earn yield and BADGER tokens. Those who stake long-term enjoy the benefits of having multipliers applied to their rewards.

Currently, withdrawing funds from the vault incurs a 0.5% withdrawal fee, but there is no lock-up period. Additionally, there is a 4.5% extra fee on any profits. These fees are to cover transaction fees and gas costs.

Issuance of Badger DAO SETTs

At launch, five SETTs were created. Four of them are compounding strategies: Curve-SBTC, Curve-RENBTC, Curve-TBTC, and Badger-WBTC. In addition to these four, there is a fifth SETT strictly for staking BADGER to earn more BADGER.

Since then, six more SETTs have been added, including one for staking DIGG to earn more DIGG.

The SETT vault is only a few months old and is still in a very early stage of development. But it seems quite certain that as the community continues to grow, new strategies and innovations will emerge rapidly.

There is no telling what the next steps will create, but some possibilities include single-asset vaults with multiple strategies, native Bitcoin deposits, other compounding strategies, and strategies that help mitigate Bitcoin price volatility.

Badger DAO DIGG

The second product launched by Badger DAO is a community project called DIGG. It adds to the list of synthetic Bitcoin assets, but unlike other platforms, it is non-custodial.

Essentially, you can think of DIGG as a stablecoin because it is an elastic supply cryptocurrency pegged to the price of Bitcoin. Every day, the supply of DIGG is adjusted across all wallets holding the token. These adjustments are based on the value of DIGG against the dollar and Bitcoin.

In practice, this means that when the price of DIGG rises relative to Bitcoin, the number of DIGG tokens in each wallet will increase. Conversely, if the value of DIGG falls relative to Bitcoin, the number of DIGG in each wallet will decrease. Additionally, a price oracle is summoned daily to determine whether to increase the supply of DIGG to lower the price or decrease the supply to raise the price of DIGG.

The goal of the DIGG project is to eliminate centralized control over synthetic Bitcoin assets, deploying elastic parameters as an alternative means to maintain the peg. The protocol's role goes beyond simply maintaining the peg. It can also add new incentives to influence the price and push it higher or lower, and it can redefine the benchmark for each block.

The DIGG token also has a SETT vault where users can stake to earn more DIGG.

Of the tokens not distributed during the liquidity mining process, 50% are controlled by Badger DAO. Through their first product, $BADGER token holders will manage parameters such as token supply, future smart contract changes, marketing decisions, and the protocols for current and future projects built by the DAO.

bBadger Token

When staking BADGER, users receive bBADGER tokens, and bBADGER tokens are a synthetic yield farming token. Additionally, staking rewards are delivered in bBADGER, allowing the staking rewards to be automatically compounded. This should encourage a larger lock-up of tokens since staking does not require gas, but unstaking does. In fact, since the DAO passed the decision to allow bBadger to auto-compound, the lock-up rate for bBADGER has exceeded 90%.

Currently, the Badger DAO team is working to increase the utility of bBADGER tokens by integrating them as collateral types for other DeFi protocols. This will allow users to mint stablecoins on UMA and earn additional yield. It has also seen the token added to the CREAM platform, which will allow users to borrow assets using bBADGER as collateral. This effectively allows speculators to leverage long/short positions on bBADGER.

There is also a proposal to create a liquidity pool for CLAWS on the Sushi platform and to create additional Sett vaults for SLP tokens that will be created as collateral for stablecoins.

Basically, all current proposals related to bBADGER are ways to increase yield based on yield. The goal is to leverage the composability of bBADGER to create a passive income machine with a wide range of income sources.

CLAWS

While CLAWS is described by some as a stablecoin, it is essentially a "yield dollar" rather than a stablecoin. Essentially, a yield dollar is a collateralized asset with an expiration date. Once the yield dollar expires, it can be redeemed on the UMA protocol as collateral worth $1. Before expiration, the market determines the price of the asset—but generally, as the expiration date approaches, its price should be close to $1.

Yield dollars like CLAWS are collateralized assets. This means that when users withdraw some collateral according to the set loan-to-value ratio, they are minted. In the case of CLAWS, there are two types of collateral that can be used to mint tokens—bBadger and wBTC/ETH SLP tokens. This will be the primary method of obtaining CLAWS tokens, although they can also be purchased on the open market. However, if purchased on the open market, speculators need to be cautious, remembering that as the expiration date approaches, the token will be close to $1.

One of the wonders of DeFi composability is the ability to earn multiple forms of yield on the same underlying asset—maximizing your potential returns. CLAWS falls into this category. Once users mint CLAWS tokens, they will be able to deposit their CLAWS into a Sushiswap liquidity pool and receive CLAWS-SLP tokens in return. These CLAWS-SLP tokens can then be staked in a dedicated Badger Sett vault to earn additional rewards (in the form of extra UMA, xSushi, bDIGG, and bBadger).

The CLAWS Sett vault has nearly 10 sources of income in total—making it a diversified passive income basket in itself. Ultimately, the CLAWS Sett vault will change the yield farming game by providing a stable asset with multiple income streams.

Badger DAO Team

Since the project is under community control and management, there is not a huge focus on the founding members. That said, there are four founding members who brought the Badger DAO project to life, working to integrate Bitcoin into the DeFi revolution. These four are:

• Chris Spadafora is the Head of Operations. He is a serial entrepreneur who has founded multiple companies over the years. His latest project before Badger DAO was Alwayshodl.com. He is also a partner at Angelrock, a company that provides strategic consulting for long-term cryptocurrency holders.

• Ameer Rosic is also a member of the Badger DAO operations team. Another serial entrepreneur, he is the founder of Blockgeeks.com. He is also part of Dollarcake, a browser extension that can be used for social media network monetization.

• Albert Castellana is the co-founder and CEO of Stakehound.com and serves as a product advisor for Badger DAO.

• Alberto Cevallos is the technical advisor for the project. He also consults for Travala and is the founder of Metl, a company focused on creating monetary internet infrastructure.

Conclusion

As with any blockchain project, proving whether it is viable or just another existing project will determine its adoption. In the case of Badger DAO, this will largely depend on the community and the team's ability to foster collaboration, which is crucial for the platform. It needs developers and content creators to release applications and other content, such as videos, memos, and art, but it also needs the community to consume these products.

Looking at the development of the token and the total locked value of the project, it seems to be successful, but it is still very new. A few months of history is certainly not enough to know what the long-term future holds. As for Badger and its fully decentralized DAO governance model, you can't even rely on project leaders to make the project successful because there are no leaders.

Badger DAO has a great start, and if it can continue to maintain the momentum it has generated, it may find itself among the top DeFi projects. Of course, there are enough users who can benefit from this platform, bringing DeFi more comprehensively into the Bitcoin ecosystem.