# xBOND Refresh

With the BarnBridge DAO set to be redeployed on mainnet with the launch of FIAT II, we have the opportunity to revist the implementation of xBOND.

This document proposes a continuation of xBOND, but as a vault based on multiple dynamic liquidity strategies.

## Landscape Survey
DeFi protocols have experimented with various different configurations of the concept of governance token staking. The general options are as follows:

- **Stake, no receipt token**
- **Stake, receipt token**
- **Provide liquidity, then stake, no receipt token**

The first category represents the lowest risk approach for both stakers and the issuing protocol. At the same time, it leads to a high opportunity cost for committed capital and can even contribute to unwanted secondary market volatility. **Examples include $CRV and $YFI.**

The second category purports to unlock capital efficiency for staked capital by offering stakers a receipt token. In practice, these receipt tokens suffer from shallow markets and do little to address the aforementioned secondary price volatility. **Examples include $SUSHI and $MPL.**

The last category has grown in popularity as it allows protocols to bootstrap secondary liquidity alongside their existing staking programs. But by relying on a specific liquidity pool token as the unit for protocol governance, these efforts tend to result in service provider lock-in, as well as forcing pool design choices that may not prove pragmatic in all market conditions. **Examples include $BAL and $LIT.**

With xBOND, we have an opportunity to innovate along this spectrum and address the shortcomings present in the third category, in particular.

## xBOND: Dynamic Liquidity Vault
This document proposes a model in which xBOND represents a vault comprised of multiple strategies for providing $BOND secondary liquidity. It builds on the precedent set by veBAL and borrows from the designs of Yearn's yETH and GMX's products.


In short:
- **Users deposit approved assets into the xBOND vault contract**
- **xBOND governance approves permitted liquidity strategies**
- **Gauges determine allocation across strategies**
- **Vault shares represent claim on $BOND and paired assets**

The below sub-sections walk through the different elements of the specification.

### xBOND Vault Contract
Upon deployment, users will be able to stake their $BOND in exchange for a vault share, xBOND. The vault will have no corresponding liquidity strategy at this time, and so the $BOND will sit inert in the vault.

Holders of xBOND will then begin to accumulate multiplier points at a rate instantiated upon vault deployment. Multiplier points serve as a mechanism to boost yield payouts for long-term stakers of $BOND. Please see [GMX documentation](https://gmxio.gitbook.io/gmx/rewards#multiplier-points) for further details as to how such a mechanism can be implemented.

### Approving Liquidity Strategies
Once a certain quorum of xBOND stake has been reached, holders of xBOND will gain the ability to add liquidity strategies to the vault. The approval of a liquidity strategy results in the deployment of both a corresponding smart contract as well as a governance gauge.

Example liquidity strategies are:
- **Arrakis v2 PALM: $BOND / $ETH**
- **Balancer 80/20: $BOND / $wstETH**
- **yvCurve-crvBONDFIAT-f: $BOND / $FIAT**

While it is likely that a handful of strategies will attract the bulk of xBOND liquidity, we should expect that new strategies will still be deployed over time as new liquidity venues emerge or as different base asset pairings become attractive.

### Vault Liquidity Allocation
Once multiple liquidity strategies exist for xBOND, holders of xBOND will gain the ability to vote in favor of their preferred strategy on a regular basis. A user's voting power is a function of their xBOND holdings as well as their earned multiplier points.

Constraints would need to be enforced such that a single vote can only change the net composition of the vault by a certain threshold. This is to avoid any undue slippage caused by a vote in which a leading strategy was largely abandoned for other alternatives. Ensuring that only a certain amount of vault holdings can shift in a given voting cycle, or spacing out voting cycles such that there is enough time to spread out larger reallocations, are two options available to us.

External parties can choose to influence these votes by targeting aligned voters with subsidies.

### Distribution of Proceeds
xBOND can earn revenue on its liquidity provisioning through a number of pathways:
- **Trading Fees**
- **Platform Emissions**
- **Lending**
- **BarnBridge Emissions**

Such proceeds are to be harvested into the Yield Buffer smart contract, as indicated in the above diagram, and then distributed to xBOND holders as a function of their outright position and accumulated multiplier points.

A number of outstanding questions remain as to how to go about distribution:
- **What should be denomination of payouts?**
- **Should BarnBridge emissions be a separate discussion?**
- **How often should payouts occur?**

It is worth considering that improper governance of liquidity strategies can result in losses to xBOND holders. Aligning payouts with outcomes will be critical in mitigating poor governance decisions.

### Exiting xBOND
The composition of xBOND is likely to change over time. First from the active allocation of $BOND deposits across strategies, and then from regular reallocation of liquidity across strategies.

Users who want to withdraw from it will thus have two options to do so:
1. **Immediate:** User burns xBOND and multiplier points in exchange for a proportionate withdrawal of solely $BOND
2. **Delayed:** User burns xBOND and multiplier points in exchange for a proportionate withdrawal of a target non-$BOND asset over a set period of time

A redemption fee could be implemented to further dissuade delayed redemptions. These mechanisms would need to be further paired with clear communications that set expectations for what xBOND represents and what the risks associated with liquidity strategies are.

## Benefits and Disadvantages
The rethinking of xBOND as a vault rather than as a pool would grant BarnBridge the largest degree of optionality. It avoids locking in its governance module to a specific service provider, asset pairing, or market making strategy, while reducing the opportunity cost of staking in general.

Examples of the flexibility it can provide are as follows:
- **Opportunistic Emissions:** Strategies can be added and allocated to within xBOND whenever new AMMs or farming platforms launch with subsidies
- **Intra-Market Cycle Calibration:** Slightly altered strategies can lean into periods of higher or lower volatility to return profit to stakers.
- **Inter-Market Cycle Calibration:** Allocating to strategies with volatile asset pairings in bull markets, and vice versa in bear markets, can play a role in xBOND outperformance

With these benefits, however, do come drawbacks. xBOND stakers risk smart contract vulnerabilities, market underperformance, and unpredictable exit liquidity. That said, alternatives have proven themselves to be no more conducive to out-performing $ETH, and it is clear that this is the benchmark we will be held to.

## Next Steps
- Confirm whether contributors are interested in this model
- Determine whether GMX-style multiplier point system is appropriate
- Understand the state of Gauntlet's Aera product or Primitive's portfolio solution
- Finalize technical spec