The Rebirth of bZx Protocol
tokentuesdays.substack.com26 Aug 2020 | 04:06 am
Yield farming is all the rage. Every project is now incentivizing liquidity and this trend is only going to get 10x more competitive in the coming months. However, there are a select few projects approaching token distribution and liquidity mining in a sensible fashion. One of the biggest things missing from this new wave is a lack of focus on security and long-term sustainability. To this end, we want to spotlight bZx Protocol - a financial primitive for shorting and lending behind Fulcrum and Torque. bZx is fueled by a native token BZRX which made a big splash in it’s Initial DEX Offering in July. While talk of the token has somewhat died down in DeFi circles since the launch, we’re here to shine a light on why the token has grown steadily since distribution and how the upcoming protocol relaunch is poised to capture a new wave of value for protocol users and tokeholders alike. Special thanks to bZx for sponsoring this post to make it free to read! Token Picks are normally for subscribers only, so be sure to sign up for articles like this delivered right to your inbox every Tuesday! bZx currently offers two flagship products: Fulcrum - For tokenized lending and margin trading Fulcrum - For tokenized lending and margin trading Torque - For fixed-rate loan origination Torque - For fixed-rate loan origination Users can lend any crypto asset, more in line with Aave’s wide-set approach than Compound’s conservative listing strategy. The ability to take out leveraged positions like 3x longs on supported assets offers another layer of composability for traders to collateralize positions with extra leverage.This goes to show that bZx is more than just a lending protocol, and is one which is likely to add more products to its stack in the coming months. It’s tough to discuss bZx without shining light on the attacks that plagued the protocol in February. While we won’t go too deep into this, the protocol suffered serious losses which have resulted in the inability for users to borrow or trade over the past 6 months. What’s worth noting is that bZx compensated every affected user out of pocket, along with a buyback program for iETH LPs who faced illiquidity following the protocol being restricted. Now, bZx is gearing up for a relaunch that has undergone extensive auditing. This includes a lean, elegant product experience that is twice as efficient on gas costs. Here’s what you need to know. The relaunch of bZx will feature a new and improved Fulcrum 2.0 along with an updated version of Torque featuring Flash Loans. Alongside the protocol upgrade are new incentives and features like: Sustainable Yield Farming Sustainable Yield Farming Collateral Management Collateral Management Gas Token integration Gas Token integration Order Histories Order Histories Liquidation Engines Liquidation Engines The takeaway here is that the protocol will become drastically more efficient, opening up value capture mechanisms to both arbitrageurs and tokenholders alike. Outside of the classic DeFi narrative of earning tokens for using the product, bZx’s approach to liquidity mining feels much more sustainable. “Each time a user pays a fee, 50% of the value of the fee is refunded to them in the form of BZRX.” - BZRX V3 This rebate-like model is drastically different from other liquidity mining opportunities where users earn exponentially more in token value than the amount of fees paid to the protocol. This is why Compound recursive lending + borrowing has gotten so extreme. Borrowers literally make a profit for spinning their assets to harvest governance tokens. “The bZx protocol is taking a slightly different approach by directing rewards toward active users” With this model, oracle-based pricing makes it so that liquidity mining is not exponentially profitable, rather a sustainable means of only distributing tokens to those adding more value to the protocol. Taking a quick look at what these fees are: Origination fee: 0.09% Origination fee: 0.09% Trading fee: 0.15% Trading fee: 0.15% Interest fee: 10% of interest paid Interest fee: 10% of interest paid As fees are accrued by the protocol, half go towards the DAO while half go towards an insurance fund until the DAO decides otherwise. These conservative rebates come in tandem with an attractive boostrap period in which 0.5% of the BZRX supply will be released per week based on the quantity of fees generated for that week. A total of 2% over the first four weeks, giving BZRX farming a competitive advantage over a project like Balancer in which only 0.145% of tokens are released each week. For BZRX token holders, collecting fees is as simple as staking to the DAO via the Staking Dashboard. More on BZRX staking here. What’s unique about bZx staking is users can enter the DAO with three different assets: BZRX - Vanilla tokens with 1:1 voting BZRX - Vanilla tokens with 1:1 voting BZRX LP/BPT - Liquidity positions in BZRX-based pools on Uniswap and Balancer BZRX LP/BPT - Liquidity positions in BZRX-based pools on Uniswap and Balancer vBZRX - Vested BZRX representing a claim on underlying BZRX vBZRX - Vested BZRX representing a claim on underlying BZRX This dichotomy of staking provides flexibility for every ecosystem actor to participate, something which many projects ignore when considering how investors and LPs are able to dually capture the upside of the project’s growth while adding value in other areas. Alongside the dashboard is a handy Staking Calculator, allowing users to track their monthly cash flows in different situations. BZRX holders can also redeem their tokens for insurance, a direct benefit of the protocol being battle-hardened to deal with crisis-level events. In recent weeks, the price of BZRX has been steadily climbing in anticipation of the protocol relaunch. We expect that the introduction of sustainable yield farming in tandem with a growing treasury will make bZx one of the more consistent players in the rising degen landscape of DeFi meme coins. Having undergone a crisis type event, we can rest assured that bZx is taking security extremely seriously, a major win in the land of unaudited smart contracts rising today. Backed by community insurance and a well-thought-out governance schema, we expect BZRX to quickly find its footing in an ever-growing DeFi landscape. With Aave just today topping the DeFi Pulse leaderboard, a community-operated lending, margin and borrowing protocol has endless upside in the midst of a DeFi bull market. To stay up with bZx, be sure to follow them on Twitter! Share Disclaimer: Fitzner Blockchain is long BZRX. All information in this newsletter is purely educational and should only be used to inform your own research. Token Tuesdays does not offer investment advice, endorsement of any project or approach, or promise any outcome. This is prepared using public information and does not account for anyone's specific goals or financial situation.