BLIP - Expanding The Native Yield Infrastructure

[Telaga]

BLIP - Expanding The Native Yield Infrastructure.

One of the pioneering features of Blast is the native yield system. It’s a significant jump in efficiency that allows Blast dApps to create better user experiences and incentives systems.

Executive Summary: We explore the potential for new allocations of bridged stablecoin and ETH assets that can produce higher yield to increase network utility. We recommend that Blast should encourage submissions from stablecoin and ETH yield infrastructure protocols to the governance forum to pitch for the deployment of bridged assets. The benefit to Blast would be seen as a higher on-chain yield for USDB and ETH. We also suggest that higher yield should be utilised to enhance demand for the BLAST token through a buyback mechanism.

Motivation: We (Fenix Finance) are submitting this proposal as we believe that bridged assets should be leveraged to ensure that they are generating the maximum possible yield (provided that risk parameters are met), to improve the native yield infrastructure, rates, whilst simultaneously providing demand for the BLAST token.

Proposal Details:

Phase One:

1. Forum assessment and discussion of different yield infrastructure protocols.
2. Call for bridged asset deployment proposals from protocols.
3. Establishment of a committee and/or risk criteria.

This could follow a similar route to Ethena governance where different protocols pitched their right to be allocated a percentage of cash from the RWA reserve fund [1]. This involved the selection of a risk committee of 5 members from well known industry risk and advisory firms, and following their vote on proposals the Ethena Foundation approved the implementation.

Whether we would want to adopt the same structure we leave up to community discussion. We would be happy to propose a process and to encourage submissions from yield infrastructure protocols.

Phase Two:

1. Whitelist protocols that fulfil the risk criteria and or have achieved committee approval.
2. Selection of allocations to approved protocols.
3. The Blast Foundation signs off on the final implementation.

Are we upgraded to SKY?

As it stands today, bridged stablecoins are converted to DAI and deposited into sDAI, accumulating yield based on the MakerDAO savings rate (5.5% or 6.5% if upgraded to SKY). Similarly, bridged ETH is deposited into Lido to generate yield (~3%).

1. Has the MakerDAO allocation been converted to SKY for the higher yield?

If not, we believe that this should be done as soon as possible to ensure that we are maximising yield opportunities within the ecosystem.

Using higher yield to drive BLAST utility

The approximate marketcap of USDB is ~$220,000,000 and ETH ~$330,000,000 [DeFiLlama]. This puts around $500M worth of assets that are yielding around $11,000,000 and $18,000,000 per year respectively. If we focus on stablecoin yield for the sake of making the proposal shorter, there are two avenues that we think should be explored to benefit Blast.

To us an avenue that could be used to drive higher yield would be Ethena. Ethena has made strides towards increasing the robustness of USDe (which becomes at risk from negative funding rate environments), including establishing a diversified reserve fund and a separate RWA-backed stablecoin to mitigate risk [2], [3].

The APY for staking USDe on Ethena is averaging 12% APY. The question is then what should we do with the higher yield rate. One option would be to pass this directly to the native yield infrastructure to drive usage on Blast (seems reasonable). We’d like to propose that a percentage of native yield should be allocated towards a BLAST token buy back mechanism.

BLAST Buybacks

We believe that any sourced yield from bridged assets that is above the SKY savings rate (currently 6.5%) should be used to buy back the BLAST token.

As noted above, the percentage of bridged stablecoin assets that could be securely allocated to Ethena (which has a higher yield rate than Sky) remains to be decided. However, if we assume that 50% is on SKY and the other 50% on Ethena we can model some outcomes for the buyback mechanism.

Over the course of 1 year this would buy back $5,500,000 of BLAST.

Whether this should be a buyback and burn or buyback and incentivise should be up to community discussion.

Buyback Mechanism

At Fenix, we take the approach that a buyback and incentivise approach is best. We buy back the FNX token and then allocate rewards to users and protocols who deposit incentives on the platform and/or lock FNX. This allows us to reward positive-sum outcomes for the protocol.

What outcomes could be incentivised with bought back BLAST?

As the BLAST token is operating as a commodity, then buybacks coupled to the enforcement of scarcity (locking or burning) also seems attractive.

In fact, we recently wrote an article that proposed the creation of a marketplace for bridged assets, governed by the BLAST token through a vote escrow system based on the ve(3,3) design, that would increase network utility and value accrual by allowing stablecoin yield and ETH staking providers to compete for bridged assets [4].

After more consideration we felt that whilst this could be beneficial, the incentives deposited would be at the expense of received yield. Therefore, it would be better to seek higher rates of yield to drive more utility for the network (this proposal).

Summary:

We believe that forum discussions, proposals and Blast Foundation led governance could lead to bridged assets being better utilised to access higher yield to increase network utility.

Our focus on this proposal was stablecoins, where we propose that a 50% allocation to Ethena would increase yield from bridged stables (currently 12% APY).

We also propose that yield sourced above the SKY savings rate should be used to buy back the BLAST token. This will ensure that USDB holders earn the gold standard DeFi yield rate, whilst increasing the scarcity of this network commodity to increase the capacity of BLAST to attract liquidity and drive protocol usage through Blast Gold.

[BowTiedFarming]

As a major user of Blast and top 150 gold participant for season 2 I think this is a wonderful proposal. The truth is Blast has done a masterful job of creating an incentives program which encourages users to try different apps, play games and engage in socialfi much more than any other chain. However as with any incentive program there is an issue with what are the rewards paid out in and this brings us to the Blast token.

As much as I like Blast as a chain, I don’t see any rational reason to ever hold the Blast token. You really don’t need to use it on chain, very few apps encourage its use and even then you only need to temporarly exchange it to pay a fee or purchase an item. “Governance” is not much of a usecase, as Pacman has admitted himself in the end its the founder who leads the chain and the Blast team remains in charge of the the most important subjects like the development of the mobile app and the distribution of Gold. I think this is a rational choice, as the founders need to have the freedom to move fast and innovate. However in my view it also shows that governance is not the base usecase for the Blast token and if want to increase its adoption we need to come up with new solutions.

What the Fenix team suggests addresses this issue directly, by transforming the Blast token into a revenue producing asset, something that is very rare in crypto. Furthermore it adds value to the governance usecase as it allows users to lobby for proposals that will affect them directly and creates an incentive for large holders to get involved and pitch their best ideas. Personally I believe Blast is one of the few blockchains that have found product/market fit and has a strong ecosystem of apps that have already survive the fading of a hype cycle. However there is no real way of me investing on that, besides buying the Blast token and hoping the sentiment from frustrated airdrop farmers changes on Twitter. If holding (or staking) the token allowed users to participate in the success of the chain we wouldn’t have to worry about the token price and could instead focus on holding or utilising it in DeFi, while recieving passive rewards that could be used to buy more Blast.

Blast is an unique layer 2, which stands out amongs its competitors in terms of activity and engagement in its ecosystem. Our apps our profitable, games are sustainable and unlike season 1 nobody is burning their money in hopes of earning a quick profit. The last thing we are missing is an unique token, that does more than the governance tokens of Arbitrium, Optimism and others. At the time when everyone is launching an l2 and every l2 has a token we need to do more to stand out and this is a great way to do it.

[gwr]

I think BowTied said it best. Imho, Blast just needs something.

There is absolutely zero reason to buy or hold the coin. Zero. Oh sorry, 2x points and maybe some scratch tickets. LOL

Even Pac said it shouldnt be about incentives. People should use the dapps etc because they want to. Maybe he should follow that same logic with the 6M Gold for Blur, but thats another topic.

Im not a fan of some things mentioned like buyback and burn cause scarcity alone doesnt = demand. Never has, never will. Also not a huge fan of buyback and use as incentives. Does that really work? Ive not looked at the historical Fenix coin price. Maybe it does.

I participated in Ethena for their first couple seasons, and I liked what they were doing. In general I try to avoid stables like the plague. Cause, what are we doing here, why not just hold fiat under your mattress and buy t-bills.

Yet. With all that said, I still agree that this is better than nothing. And nothing is what we have right now.

[Jamie]

Ethena is launching a L2 chain with “natively yield bearing assets” as their value add, directly competitive to Blast. They’ll also have a user-first mobile app and exchange. Literally many of the teams building on Blast have been courted to build on Ethena instead

Agree however that exploring new backing assets is a good idea. IMO we should vote to approve new backing assets, once that’s done we analyze available options and composition

[JasonKan]

agree with the general idea of the post, especially buy backs using yield. blast needs some bold experimentation to turn it around, the default is a slow decline, something novel even if risky, still gives it a fighting chance.

[BowTiedFarming]

I’d also like to point out, that having this yield functionality would create a really good incetive / user expierience for the Blast app. Now its only usecase is tracking your wallets and scratch off tickets, which realistically, most people aren’t interested it. I know the app is undergoing a transformation and will support a lot of new functionality, but I think there is no better user expierience than being able to claim Eth and USDB every day or every week. I think if users associate the Blast app with a constant crypto cashflow it create a very positive association and may encourage them to use these assets on Blast. The Blast token would give users a near gas-free functionality, as the Eth they claim would often be enough to pay for their gas fees. I think it would be awesome if a lot of heavy Blast users decided to buy a lot of the token so that they don’t have to worry about resupplying their wallets with Eth.

[jenn]

This is a really exciting proposal to go through.

With more chains deploying with native yield- it feels like a good time to reassess the yield infra that Blast has had to date, especially as we gear up for the large mobile push slated soon.

Personally, I need to look a bit more into Ethena’s infrastructure around USDe - however it is nice to see that it’s already 2x what users are earning on yield from MakerDAO today.

The one thing I would want to be slightly careful of here is how new USDe is, it just launched a few months ago where we know MakerDAO and DAI is battle tested.

Wondering if it would make sense to potentially have multiple sources of yield to de-risk there.

The only other concern I would have if we don’t pass the additional yield directly to users and have a buy back program are the regulatory risks/limitations but I am not a lawyer and will leave that to the foundation’s legal folks to weigh in. Excited to see what other folks think!

[Telaga]

Thanks for your comment Jenn. I think the overall reception to the proposal has been largely positive. The benefits laid out here resonates with the community.

Ethena has made several strides towards increasing the robustness of their stablecoin, but I also agree that SKY/MakerDAO is the most battle tested DeFi product. A part of their risk management strategy has been to to allocate their reserve funds to Blackrock, Sky, Mountain and Superstate. Now, whilst these other protocols are very well designed, their yield rates (bar SKY which we are already a part of), are lower than SKY. Therefore, there has to be an element of risk adoption to increase yield rates.

We’ve spoken to Usual, Ondo, Mountain, Frax, Anzen and others who would be very interested in pitching for the allocation of bridged assets, which we can use to diversify the pool. We feel like there needs to be more foundation led governance to invite these proposals and they will come. There might be better sources of rewards for Blast users that are not immediately obvious.

I think of benefit to Blast will be to get the ball rolling. That is, lets ask the Ethena what they think and what they would need to support. I think it makes sense for them to provide engineering resources to integrate stablecoin bridged assets into sUSDe staking and to pass on the yield to Blast. In return, we could provide them with BLAST rewards.

As to whether the buyback programme has legal risks well then the legal team needs to weigh in. We’re very happy to dedicate our time and resources to make these proposals move foward. I’m happy to submit something to the Ethena forum, but we need more input and open or private conversation so that the eventual outcome is something that benefits Blast as a whole.

[Burn]

I fully support this. As things become more competitive, blast should always lean towards providing what’s the best option with security in mind.

It would even be more attractive for current/future dapps to utilize the yield in their growth development plan, such as predict is doing.

[Burn]

I would like to add that rather than redistributing the excess yield to users or directing it solely towards buybacks, I propose allocating a portion of the excess yield to support and incentivize dapp developers in need of financial resources.

Given that the recent Big Bang competition attracted over 250 applicants, a steady inflow of yield into the treasury would position Blast as the premier platform for developers, without factoring in the other benefits of building on blast. I believe this approach would have a more positive, long-term impact, and it would be beneficial for token holders as they have a voice in this allocation strategy.

[unbanksy]

@Telaga thank you for this thoughtful proposal.

Blast is facing increased competition from L2s so the path of least resistance is key. This is why I’m hesitant on exploring new yield sources, but think BLAST buyback idea has merit.

Regarding introducing new yield sources: I worry this will lead us down a governance blackhole that will result in marginal improvements. For instance, even if we’re quick to implement Phase One and Two, we’re still at the mercy of Ethena’s governance cadence (same applies to Usual, Ondo, Mountain, Frax, Anzen and others). We will need to solicit their community for opinion, discuss risk parameters, and lobby for engineering resources. This process can easily take months and, worse, be derailed due to lack of interest.

Regarding BLAST buyback: the general idea is sound, impactful and immediately actionable. At Baseline, we think buybacks are the solution, but have a different idea of how to make it work. I’ll reach out in DMs; let’s jam together.

I think a new proposal focused on BLAST buyback alone can accelerate results and restore Blast mindshare.

[BowTiedFarming]

After discussing in private with some of the people who have posted here, I’d like to share my idea for a potencial implementation:

• ETH yield remains untouched
• any USD yield above 5% gets distributed to Blast stakers
• stablecoins are deposited into Ethena, as Telaga has outlined in his proposal
• Blast can be staked and unstaked (with a 2 week delay)
• stakers can claim USDB yield each month

Here are my reasons for thinking staking is the best solution:

• distributing yield directly is 4.4x times as efficient as buybacks (for the current holders). as some people have previously mentioned, buying back tokens simply wouldn’t have that much impact. the FDV on Blast is 974 million today, meaning if we used the yield earned to buyback tokens (30 million), it would only result in a net 3% benefit for the holders. if 30 million was given to the current Blast token holders (219 million marketcap), assuming they all staked, it would result in a 13.2% APY
• staking excludes short term traders, exchanges and people using Blast for transactional purposes (like buying in-game assets). it also gives the flexibility to the foundation to either stake and earn USDB yield and fund its operations without selling Blast. it can also decide not to stake its tokens in order to make Blast a more attractive asset to own for the users
• Thruster Finance has proven that introducing staking can result in very high real yields for users. Currently 89% of liquid Thrust is staked, earning 88% average APY. This represents just 12% of total Thrust FDV. If the revenue was instead used for buybacks it would result in just 10.5% of all tokens getting bought.
• staking creates an efficient market for measuring the success of Blast as a native yield layer. if Blast manages to attract a lot of deposits, but the token price stays flat, because some X personalities enjoy pointing out its flaws, users would be rewarded with higher yields. instead if the Blast token went up in faster than the deposits it would reflect the expectations for growth from market investors
• i think other people may be more qualified to discuss the tradeoffs of Ethena, however I’d just like to add that its clearly the most successful application of native yield in crypto, both in terms of valuation and real adoption, so I think it would be smart to make them our allies and allow their success to benefit us, rather than compete with them in a market where the basis trade is highly likely to be profitable
• i believe if this change was implemented it would make Blast the most unique Layer 2 token, with more attractive economics than many of the L1s. usually to justify the yield for stakers they need to maintain high inflation, often accruing to even vested investors. Blast doesn’t need to mint any new tokens to create value for its holders, instead users can benefit from native yield and earn their share in the success of the blockchain

P.S. I think there can likely be more intelligent design the distribution of the stablecoin yield, however I just wanted to present the general idea of using the USD based deposits as a yield source for token holders, while leaving enough to apps, so that they can offer attractive native yields to users.

[Bras]

Great idea. I´m in favor of the burn option because the narrative of a deflationary token attracts new investors and creates a bullish sentiment.