SMART Yield
Bonds

BarnBridge is a cross-platform risk management protocol that aims to reduce the risks associated with DeFi. By letting users select a risk profile, BarnBridge can redistribute risk via tokenized, liquid tranches.

BarnBridge’s SMART Yield allows users to hedge against interest rate risk in existing DeFi markets.

SMART Yield cross-platform risk management protocol

What Is SMART Yield

SMART Yield allows users to mitigate the variable yield volatility of other projects, such as Aave or Compound, by introducing senior and junior tranche derivatives.

Users are able to mint junior or senior tokens which represent accordingly-tranched deposits into the underlying protocol. Junior token holders provide the liquidity necessary for senior bond investors to be able to receive fixed yield. The risk present is that, should the underlying variable rate annuities fall below the level necessary to meet senior debt obligations, junior yields and potentially even principals would be algorithmically reallocated to cover.

At the same time, juniors will benefit from the extra yield generated by senior deposits in cases where the variable rate of the underlying debt pool (including any associated token subsidy rewards) are higher than the weighted average guaranteed yields of current seniors. It is expected that the junior positions will have more capital in a given pool than the senior ones.

Download Our PDF Guide

Are you an instituional investor looking for the full SMART Yield specifications and models? We have you covered in this PDF Guide.

Risk and Loss Scenarios

Pooled junior and senior collateral is deposited into lending protocols or yield generating contracts, and the yield will be bundled up into different tranches and tokenized. So users can buy exposure to senior tranche and get a lower yield but have a much lower risk profile. SMART bonds are a way to buy and sell risk on yield with all of the pricing driven purely by the market.

User journey

Pools are designed in such a way that anyone can invest in them. Users should know the risk parameters and choose the tranche to start using SMART Yield.

Users

100

300

600

+Senior tranche sToken

+Junior tranche jToken

+Senior tranche sToken

Pool #1 params

Receives USDC deposits
Compound USDC supply
Holds the cUSDC (the compound interest bearing token)
Sells COMP governance rewards to increase the junior APY
Issues junior bb_cUSDC ERC20 tokens
Issues senior Bond NFTs
Junior liquidity used to guarantee for senior rates
Senior Liquidity leveraged by juniors
Juniors have 2 options when exiting, to insure they collateralize senior positions
Seniors can choose different maturity dates and have different guaranteed rates based on the composition of the pool, size of deposit and maturity date when they enter

t1: 1000 coin

Compound

Scenario 1

Assume the entire loan has an interest rate of 10%. The senior tranche tokens are sold for a fixed interest of 5%, with the junior tranche having a variable interest rate. Assuming the entire portfolio has a return rate of 10%, for a total of 100 DAI, after repaying the senior tranches 5% interest on their investment of 700 DAI first (35 DAI) we have 65 DAI of proceeds for the juniors tranches => 21.6% APR on their investment of 300 DAI

Scenario 2

Assume the entire portfolio now has an interest rate of 3%. The interest to be distributed is for a total of 30 DAI - so after repaying the senior tranches 5% interest of 35 DAI we have - 5 DAI losses that the junior tranches have to support => -1.6% APR on their investment of 300 DAI, which is now at 295 DAI.

SMART Yield
Bonds

What Is SMART Yield

Download Our PDF Guide