CIP 18 - Single Asset Yield Bearing Index with diversified pools on BNB Chain

Status: Proposed
Discussion link: Single token yield bearing indexes
Created: 2/19/22

Executive Summary

BNB Chain is an open, programmable smart contracts platform designed to help decentralized applications scale and process transactions more efficiently.

Backed by the renowned Binance exchange ecosystem, the BNB Chain (formerly Binance Smart Chain (BSC), was launched in September 2020 as an alternative to the Ethereum Network. While it is a more centralized network, the BNB Chain has gained critical acclaim from blockchain experts for its speed, cross-chain functionality, and significantly low transaction costs.

In addition to the efficiency of the BNB Chain, another crucial attractive feature of the BNB Chain is the availability of a wide-range of stablecoins. As a matter of fact, 4 of the top 5 of the world’s largest fiat-based stablecoins (US dollar-pegged) by market cap are available on BNB.

Problem Statement

There are many benefits to holding a fiat-based stablecoin. But despite their liquidity and relative price stability, every individual stablecoin carries a few inherent risks.

Counterparty risk:

In most cases, third-party merchant companies that issue stablecoins often operate a fractional-reserve system. And this means that any significant negative market event triggers a massive sell-off, the company might not be able to cough up enough dollars to meet the demand. Such a classic “bank run” case could cause the price of the stablecoin to drop dramatically. Example of such an event occurred with the IRON stablecoin on the Iron Finance/Titan token platform in June 2021.

Centralisation risk:

Companies that issue stablecoins are often centralized. Consequently, there is a risk of the accounts getting embezzled, hacked, or blocked by government agencies for varying reasons. Centralisation risks could also exist in the form of traditional monetary policy issues that fiat-currencies face when the Central bank (Fed Reserve) suddenly decides to print more money. This can potentially lead to hyperinflation and cause the stablecoin to lose value especially if the coins are fully cash-backed.

Algorithm manipulations:

As most stablecoins live within smart contracts in protocols like Ethereum or BNB, there’s an inherent risk the algorithm which keeps the currency stable could fail. In some cases algorithms could even be manipulated by a third-party bad actor.

Unstable APY:

In terms of passive income, Lending protocols allow stablecoin holders to lend their coin to the platform or other users in exchange for a percentage annual fee called APY (annual percentage yield). However the APYs for each individual stablecoin asset are relatively unstable.

Proposed Solution

To create following Single-Token Indexes on BNB chain with yield generated from protocol-diversified pools.

  • Yield Bearing BNB Index
  • Yield Bearing USDC Index
  • Yield Bearing USDT Index
  • Yield Bearing BUSD Index

Rationale

Creating a single token yield bearing index with diversified lending protocol can help stabilize the yield APY and mitigate single protocol risk. In the meantime, the yield bearing single token index makes it easy for holders to understand and use.

Spec

The new Indexes are:

  • Yield Bearing BNB Index
    • Components: vBNB (BNB deposited in Venus) and ibBNB (BNB deposited in Alpaca)
  • Yield Bearing USDC Index
    • Components: vUSDC (USDC deposited in Venus) and ibUSDC (USDC deposited in Alpaca)
  • Yield Bearing USDT Index
    • Components: vUSDT (USDT deposited in Venus) and ibUSDT (USDT deposited in Alpaca)
  • Yield Bearing BUSD Index
    • Components: vBUSD (BUSD deposited in Venus) and ibBUSD (BUSD deposited in Alpaca)

Allocation of each component in each protocol should be 50/50.

2 Likes

I see the benefits of this and it would be nice to have stable APY.

1 Like

I am in for this. BNB and all of these stable coins are my safe zone. Lower risk and more stable for sure.

1 Like

We need single-token Indexes on BNB chain with yield generated from protocol-diversified pools to stabilize the yield APY and mitigate single protocol risk