BIP 41: Inaugural Badger Cetedel Product - Badger BTC Bridge Rewards

Category: Other / New Product
Scope: Launch the Badger Bridge with rewards to incentivize users to bring additional native Bitcoin onto Ethereum and our Setts
Status: Accepted

Objectives

Obtain community approval to launch Badger Bridge under The Badger Cetedel Program. Bringing $500B of Bitcoin to DeFi | by Badger DAO 🦡 | Feb, 2021 | Medium. Also to incentivize Native Bitcoin minting to wBTC or renBTC via Badger Bridge by allocating up to 25,000 $BADGER and 100 $DIGG tokens and requiring users to deposit their newly minted tokens into vaults to be eligible for the rewards program. The program is proposed to last 3 months with an option for the core team to extend the program by duration.

Overview

Badger has amassed ~$2b in TVL over the course of 3 months. However, most of the TVL was achieved through BTC variants (wBTC and renBTC) that already existed on Ethereum. With the Badger Bridge, BadgerDAO will now be introducing a clean UX for minting and releasing BTC between Bitcoin’s blockchain and Ethereum’s blockchain.

The Badger Bridge integrates Ren Project’s RenVM, and we’re more than excited for the additional volume and revenue (details below) that this will bring. This is a monumental step forward in enabling BadgerDAO to be the one-stop shop for Bitcoiners on DeFi.

Details

Badger Bridge Market Sizing

Based on on-chain and off-chain data analysis, there’s been ~$12b in wBTC and renBTC minted in the previous 6 months. Over that period, mint volume grew exponentially, so as an estimate, we’ll assume this volume grows by a multiple of 4 during the next 6 months, leading to an estimated $48b of total renBTC and wBTC volume. At one point, BadgerDAO held 30% of all renBTC on Ethereum, so as the go-to spot for Bitcoin on DeFi, we will conservatively aim to capture 10% of this future volume over the next 6 months. This results in a rough opportunity estimation of $4.8b in transacted volume over the next 6 months which roughly translates to ~$7.95m in revenue.

Badger Bridge Rewards Program

To incentivize the launch of our Badger Bridge, I propose we allocate up to 25,000 $BADGER and 100 $DIGG tokens from the treasury towards a rewards pool. Badgers that cross the BTC bridge (Removed text: with a transaction minimum of 0.1 BTC) within the first 3 months of launch will be eligible for an airdrop from this rewards pool. The rewards pool will be released by transaction volume milestones. If this program proves effective, the core team reserves the right to also extend this program’s duration.

Rewards Program Release Schedule

Badger Incentive DIGG Incentive
For each $500m transaction volume milestone, up to $5b 2,500 Badger 10 DIGG

Users will receive this bonus paid in Badger and DIGG at the end of the Rewards Program. The goal is to incentivize users to bring additional Bitcoin onto Ethereum and to learn how to interact with our Badger Bridge. We believe that this incentivized education will also have ripple effects for user adoption rippling over months/years as well.

Badger Bridge Revenue/Fee Structure Breakdown:

Minting Process* Burning Process*
RenVM Fee (100% to Ren Project’s RenVM Darknodes) 0.25% 0.1%
Badger Fee (60% to DAO, 40% to Integration Team) 0.25% 0.4%
Bitcoin Fee (The fee required by Bitcoin Miners to move BTC) 0.001 BTC (~$50) 0.001 BTC (~$50)
Ethereum Gas Fee variable variable

*For wBTC transactions, there is a marginal swap fee and slippage as the minting mechanism routes through Curve.fi. Ultimately, this routing is actually beneficial for BadgerDAO and Badgers as it further supports the revenue of Curve Liquidity Providers.

Based on Revenue Sharing in the Badger Developer Program. A program to fostering an environment… | by Badger DAO 🦡 | Medium article and with similar structure to how fees are shared with strategists for Sett vaults, revenue will be split 60/40 between BadgerDAO and the Integration Team. Although the developers had originally agreed to a 50/50 split at time of scoping/project planning, they’ve agreed to reduce this original arrangement to provide a greater revenue lift to Badger and to further increase the sustainability of the DAO. This compensation is for the design, development, test, deployment, continued maintenance, and future enhancements to the Badger Bridge product.

Badger Bridge Profit Forecasting

Over the course of the 3 months, we will determine the effectiveness of this program. Although we have no intention for doing so, we will reserve the right to adjust the framework (minimum reward, maximum reward, square roots, cube roots, or other mechanisms to ensure a fair distribution). We will only look to make these adjustments if we detect malicious behavior.

Given the sections above for opportunity assessment and rewards release schedule, for each $500m of volume we transact via the bridge, BadgerDAO will generate ~$795k in revenue. Accounting for the incentive program, this results in ~$270k in profit per $500m volume transacted. In total, $7.4m in profit over the course of just this program up to the $5b incentivized, not including future volume.

Badger Bridge Governance

As we evaluate the efficacy of the initial Badger Bridge economics, we will also look to adjust fees as necessary for the Badger Bridge. Similar to how the Ren team at Ren Project controls their fee model, we’d like to reserve fee change decisions to the core team in order to allow adequate time to measure price elasticity and to gauge the reaction to our incentivization model for the duration of this program. As we wrap up the Badger Bridge Rewards Program, we will then allow for fee adjustments to occur according to the governance process laid out via BIPs.

Other

As a little added bonus: we’d like to express intent on rewarding a unique Badger Bridge NFT to 100 random addresses that mints >0.05 BTC (edited from original 0.1 BTC due to community feedback) during the period of this program. This NFT will be eligible for potential future benefits in the badger ecosystem.

Implementation

If you are in support of this proposal vote “For”; if you don’t support this proposal vote “Against.”

Vote in favor of the structure laid out above and allocate up to 25k $Badger and 100 $DIGG to rewards pool (unlocked in increments laid out above)
  • For
  • Against
  • Abstain

0 voters

7 Likes

Two questions:

  1. assuming that rewards are weighted/distributed based on deposit size?
  2. large whale makes 500m desposit can take all rewards for that period? (FREE WILLY)

thanks as always!

2 Likes

Dumb question, but have we done the analysis to see if someone sends things in a circle enough times through the bridge, whether or not they would be profitable with this with regards to the rewards? In other words, someone could eat up all the rewards and still make a profit on top of the fees?

1 Like

Totally agree on the value an incentive program brings - strengthens Badger’s overall importance in the ecosystem while still being profitable

How did you arrive at 0.1 BTC as a minimum? It seems kind of arbitrary to me, and given the price of BTC these days, would price a lot of people of out participating for rewards, no?

2 Likes

That’s the intention. As mentioned in BIP, we reserve right to make slight adjustments if we detect malicious activity

We’ve considered this and would like to allow users to determine themselves whether wash mint/burns are profitable for their own individual needs.

Appreciate the support!

It’s more of a recommendation than it is a requirement. Low volume bridging transactions tend to be disproportionately costly for users moving smaller volumes.

4 Likes

The BIP is well-written and motivated. In general I am for, except that this BIP does not mention how the rewards will be calculated.

I believe this formula and parameters to be used to ensure fair distribution should be part of the BIP and agreed upon beforehand (of course giving the team leeway to modify if needed based on the effectiveness of this program).

3 Likes

lol you are right knowing how distibution will work and how we ensure fair distribution is important for bip i agree with you lol

Thank you for the proposal.

I appreciate that the developers have changed from a 50:50 split with the DAO to a 60:40 split but this still seems like a lot to allocate for the Bridge Team at 4.9M over the course of this program. Is there any estimation on the amount of hours required to develop this?

2 Likes

I think it would be better to educate or recommend users through the UX and UI, but allow smaller (<0.1 BTC ) transactions to still be eligible for the airdrop, to help smaller holders that still want to get involved but may be on the limits of a small DeFi account.

Of course we should encourage users to be mindful of gas costs and bitcoin network fees. Do you feel without this criteria too many small holders will be negatively effected because they do not check the unit economics?

Hi DefiFrog,

Is there a way to know exactly how many rewards you would get based on a 0.1 BTC deposit?

I think the minimum should be 0.05 BTC

I think there should be no minimum for the Bridge Rewards.

Why would we need to put a minimum in the first place?

People should be made aware of the costs and fees (if they use the Ren Bridge, costs are clearly displayed before proceeding - probably Badger Bridge will be similar).

It is up to them if they want to proceed.

Let’s look at a bit of the smallest value to get rewards. Can reduce to avoid the giant whale?

This looks great and bringing BTC to Ethereum is one of our core mandates. Excited to see this proposal.

For the minimum amount required to bridge, I say let users do what they wish. We have all seen what even $1k can do if played well so let’s not stop people from having access.

As for the distribution, is there a way to give larger portions to those who come and use our products for certain time periods?

that’s great I support

1 Like

Good comments/questions. We’ll release a user guide with the launch of the product which should help clear this up.

No, because we are unable to predict the actual total volume.

I think there’s been clear commentary around removing this minimum. I think that the rationale that @cryptomooniac provided makes sense, so I will update the BIP to remove this minimum. Thanks for the feedback everyone.

What do you have in mind?

4 Likes

It’s more of a recommendation than it is a requirement. Low volume bridging transactions tend to be disproportionately costly for users moving smaller volumes.

For instances where people want to withdraw their BTC out of the system, could there be efficiencies found in having some sort of lockup period before it’s withdrawn? I say lockup period for lack of a better term. Maybe once or twice a day (or whatever is deemed appropriate and reasonable), the BTC that has requested withdrawal could be batched into one transaction so as to reduce transaction costs. What do you think?

It could be done using something similar to @jonto 's stake days formula. Users that bring Bitcoin via the bridge and interact with our products could receive a larger share of the total reward system, say 10%.

This 10% could be further divided based on what products are used, higher payout to Native Setts vs. BTC Setts. And the longer they’re staked, the higher their individual share.

We’re already going to be giving out rewards for the bridge, if we can use a portion of it to capture users/fees, that’s a huge win for the DAO.

4 Likes

Agreed! I am in.
Well wrote.