Navigating ‘The Aggregator’ — BabelFish’s Balancing Curves Explained
With the resounding support for BIP-0007 (Balancing Curves) and BIP-0008 (Balancing Curves Update & Parameters Setup), BabelFish is entering an exciting new chapter. These approved proposals mark a significant stride forward, charting the course for the future of our platform. With the implementation of Balancing Curves, we are making our way into uncharted DeFi territories. Let’s break down the concept of Balancing Curves, what they mean for BabelFish, and how they’re poised to create new opportunities for all our users.
Central to BabelFish’s architecture is its aggregator, a dynamic hub that amalgamates stablecoins currently originating from Ethereum (ETH), BNB Smart Chain (BSC), and the native Rootstock blockchain and mints a meta-stablecoin known as XUSD, a digital currency synthesized from the pooled stablecoins. Within this aggregator, distinct pools of stablecoins take shape, each with its unique demand and usage patterns. BIP-0007 and BIP-0008 implement new guiding mechanism, steering these pools towards optimal equilibrium. This development underscores BabelFish’s commitment to accessible and balanced decentralized finance, reinforcing its dedication to creating a seamless and comprehensive ecosystem within the Rootstock blockchain.
You don’t need to be a math whiz to grasp Balancing Curves. While some may find the math equations fascinating, you can understand the concept without diving into them. If you’re curious about the math, you can explore our GitHub and forum for more details.
Imagine the Balancing Curves as a ship’s steering wheel that guides our ship The Aggregator through the open waters of decentralized finance. When users deposit stablecoins that are below the target weight, it’s like adding a bit more weight to one side of the ship. To bring the ship back to balance, the system rewards these balancing contributions. Similarly, if users withdraw stablecoins and the ship tilts away from the desired equilibrium, the ‘Conversion Fee’ serves as a nautical correction, gently steering the ship back to smoother waters. This dynamic balance ensures a steady and equitable journey for all people on board.
At the core of Balancing Curves, you’ll uncover the Reward Manager Smart Contract. This contract serves as a central point where all the Conversion Fees for imbalancing the stablecoin allocations are collected. It’s also responsible for distributing incentives to users who deposit stablecoins that are below their target allocation.
To set sail on this exciting DeFi journey, BabelFish is taking significant step towards fostering equilibrium within its ecosystem. To kickstart the Balancing Curves and incentivize users to contribute towards achieving optimal stablecoin allocations, we are injecting 10,000 XUSD into the Balancing Curves Reward Manager Smart Contract. This move ensures that users who deposit stablecoins below their target weights will be duly rewarded, with incentives reaching up to 2.5%, as outlined in BIP-0008.
When a user decides to withdraw stablecoins, shifting the aggregator away from the target weight, they will encounter a charge known as the “Conversion Fee.” This fee can go as high as 10% (as set in BIP-0008). The fees that are collected in this process are subsequently channeled into the Reward Manager Smart Contract.
On the other hand, when a user bridges or deposits into the system stablecoins that are below their intended target weight, they will be rewarded up to 2.5% (set in BIP-0008). These rewards stem from the pool of funds accumulated by the Reward Manager Smart Contract.
As stablecoin allocations in the BabelFish aggregator approach their targets, the magnitude of both rewards and imbalance fees diminishes. This reflects the system’s rewarding and penalizing mechanisms dynamically adjusting based on proximity to equilibrium.
Users also have the freedom to deposit stablecoins beyond the target weight if they choose to. However, it’s essential to recognize that no rewards will be attributed to these additional deposits. they influence other stablecoin pool weights and the overall balance.
Withdrawing stablecoins that surpass the predetermined target weight (like DLLR — Sovryn Dollar currently) won’t be subject to either rewards or penalties. Although these withdrawals may help nudge the aggregator closer to the target weights, they won’t trigger any direct rewards or penalties for the user.
Before the advent of Balancing Curves, the landscape within the BabelFish aggregator had a distinct pattern. Users, when entering the Rootstock ecosystem, explored all available avenues, making use of all bridgeable assets at their disposal. However, when leaving Rootstock, their preferred route leaned towards BabelFish and the BNB Smart Chain (BSC) blockchain. This preference was primarily motivated by the difference in fees. Bridging to BSC incurred a mere $3 bridging fee, a stark contrast to the tenfold higher cost associated with bridging to the Ethereum (ETH) blockchain. It is not a big issue for people handling greater amounts of stablecoins, but for smaller players it plays a significant role. This resulted in a notable trend among users, favoring the cost-effective route of BSC.
Our pursuit of balance is both ambitious and achievable. Achieving equilibrium comes with its set of challenges. Currently, a significant percentage of DLLR resides within the aggregator. BIP-0007 and BIP-0008 pave the way for change, aiming to balance The Aggregator. The goal is to allocate 50% of the aggregator to Rootstock-native stablecoins — DLLR, DoC, and rDoC — creating a more diverse landscape. Additionally, 5% is dedicated to bridged-to-Rootstock USDT (rUSDT), reflecting a broader perspective. Meanwhile, 30% is targeted to BSC stablecoins, thoughtfully spread among USDT, BUSD, DAI, and USDC. The remaining 15% is designated for ETH stablecoins, where an equal share is allotted to USDT, USDC, and DAI, signifying our strides toward balance. Time will tell if those parameters will work for us, but we believe that this is a good starting point.
Balancing Curves revolutionize stability and equity within BabelFish’s cross-chain stablecoin hub. Users collaborate, motivated by rewards and penalties, to attain equilibrium. Additionally, the protocol gains the ability to generate revenue, with potential applications ranging from rewarding FISH stakers to establishing an emergency insurance fund. The potential is expansive, and this journey has only just begun.
