BadgerDAO Launching Curve Optimizer Vaults in Collaboration with Convex Finance

6 min readJun 18, 2021

Overview

Much of current Ethereum L1 yield farming is based on the long term CRV emission plan by Curve.fi. The original BTC-only Badger Setts are strategies that collect and sell CRV for more of the underlying which is different from how we treat other tokens earned via strategies (ex.taking Sushi earned and staking it for xSUSHI before distributing to users). In the 6+ months since launch Badger has been finding its place in the market as a partner-first aggregator of products and services supporting BTC in DeFi and we think now is the time to take the effort to make a change to these vaults. With these changes we intend to commit to supporting the Curve protocol in collaboration with Convex.

Why Partner First?

Badger is focused on bringing BTC to DeFi and bringing the best of what DeFi has to offer to our users. To do this we work closely with all types of projects building in the space. While everything is open source and open access there can still be benefits in collaborating directly with teams and communities. The badger team thinks that going the route of engaging with projects that we build strategies with to find a mutually beneficial management of reward assets will yield the best results long term for Badger, the partner and our users. We have already taken this approach with other partners, we now want to shift to do the same with Curve and Convex.

We are deploying new Curve strategies that will:

Only sell 20% of the earned CVX and CRV rewards for BTC and the rest is staked.
Lock 80% of all CRV earned for veCRV (in the form of cvxCRV).
Optimize yield on CVX and CRV by staking rewards and supporting the Convex protocol.

Convex

Convex protocol (www.convexfinance.com) allows users to deposit www.curve.fi LP tokens to receive boosted CRV rewards. With over $3.9B in TVL and one of the largest veCRV holders, they’ve quickly accelerated as a new DeFi protocol.

New Curve Optimizer Strategies

We have engaged with the Convex team and have worked out a strategy that we think will bring the best balance of returns to vault depositors and supportive behavior. We will be rolling out strategies for all BTC based curve pools of sufficient size that will do the following.

Deposits in the strategy will receive CRV and CVX

10% will be sold for the underlying BTC asset and compounded to the pool
The remaining CVX and CRV will go towards optimal auto compounding as staked positions that will be distributed to the depositors directly and earn additional yield via cvxCRV, CVX, CRV & 3CRV rewards.

Depositors will receive

Higher yield through auto-compounding into crvBTC position
Staked CVX
Staked cvxCRV (CRV staked in Convex)
Boosted yield due to staking CVX and CRV on the users behalf.

BadgerDAO Treasury receives

30% performance fee

10% will be sold for a BTC equivalent and added to the BadgerDAO treasury
20% in staked CVX + staked cvxCRV (which will over the long term help badger strategies earn higher yields)
0.20% Withdrawal fee

By building up these staked positions BadgerDAO will, over time, gain higher yield for its strategies and more influence in the CRV and Convex ecosystems. These are long term focused strategies and it will take some time for the benefits to be fully realized. To balance this out we will be evaluating performance and proposing emissions boosts if appropriate.

We don’t want to just make the switch immediately with the existing vaults so we will be launching 5 new vaults through a guarded launch with the identical strategy implemented.

oBTC
hBTC
bBTC
pBTC
Tricrypto

Once those vaults have been live for a sufficient period and the migration proposal passes we will then migrate the existing vaults to using the new convex strategy.

renBTC
sBTC
tBTC

Fees

As the Badger protocol matures the community is going to continue to optimize fees to best suit the needs of its users and token holders. To best determine the fee structure that works we think it makes sense to test different fees on vaults live in production for a period of time to collect more concrete data. This will enable the community to make more informed decisions when addressing protocol fees in the future.

Due to the nature of a fee change there will be a subsequent governance vote before implementing these new vault fees.

Introducing Helper Vaults

All of Badgers strategies to this point have either had a BTC or Native (BADGER/DIGG) component. In the spirit of optimizing returns we are also looking to launch 2 helper vaults which will allow Badger to bootstrap its influence in the Convex and Curve systems and ultimately bring better yields to the BTC strategies.

CVX: Deposit your CVX, BadgerDAO will stake it and handle autocompounding of all rewarded assets
cvxCRV: Deposit your CRV, Badger will stake it and handle autocompounding of all rewarded assets

There will be just a 10% performance fee and 0.1% withdrawal fee on these vaults. They will earn some BADGER rewards and might be eligible for reduced contribution to a users’ native balance in badger BOOST.

Badgers intention is to use the rewards in these vaults to vote in Convex governance to increase incentives for BTC pools and in turn increase yield for Badger depositors.

Unaccounted for Assets

BadgerDAO is accumulating balances in CRV and CVX (in their staked forms) because it can bring greater long term benefit to the DAO and users of its products. For the pBTC vault and oBTC vault PNT and BOR tokens will also be earned. There is not a strategic reason at the moment to maintain these assets in the treasury as we intend to do with cvxCRV/CVX so we will be proposing to sell 30% for BTC (performance fee) and distribute the rest to users directly (much like how we distribute xSUSHI).

We are open to talking to anyone from these teams if there’s a more mutually beneficial way to manage the assets.

Transition and Security

With Badgers continued focus on security we will have a roll out schedule for these new strategies.

1. Begin with a guarded launch for up to 7 days for HBTC/OBTC/PBTC/BBTC/Tricrypto vaults. These will have a deposit cap per address and total cap for the vault.

2. Remove guards for the 5 new vaults and begin migration of the current renBTC/sBTC/tBTC vaults to the new strategies.

These strategies use mostly the same building blocks used for all of Badger’s existing strategies so full audits will not be needed before the gated launch. All strategies will still go through the review board and extensive testing before release. Details around exact launch time frame for phase 1 will be shared shortly.

Conclusion

Collaborative strategies take more work to build and maintain but our infrastructure is improving. The more vaults we are able to roll out and we are excited for what may be achievable with this approach and structure. If you are a project or know of one that can offer attractive yields on BTC equivalents and would like to work on a partner vault structure don’t hesitate to reach out.