The launch of Badger DAO’s DIGG, a synthetic rebasing asset meant to track the price of Bitcoin, is one of the most eagerly anticipated product releases in recent DeFi memory — but the person most excited to see DIGG hit the market might not be a trader, but instead Badger DAO founder Chris Spadafora himself.
According to community-minded Spadafora — who would be quick to note that he doesn’t care for the “founder” label despite its technical truth — anticipation for the launch has led to more than one ‘badgering’ inquiry directed at him on Twitter.
“You’ve probably seen it… ‘When $DIGG, when $DIGG’ — it’s constant,” Spadafora sighed.
For all the excitement, however, the exact date of the launch is still unknown. In an interview with Cointelegraph Tuesday, Jan. 5, Spadafora said DIGG was set for release “within a few days.” However, on a Friday community call, he pushed that timeline back, saying users could expect DIGG “sometime next week” — a series of delays that have only stoked the Twitter crowd’s passions.
Still, Spadafora has largely remained good-humored about the ‘badgering’, as he knows that it’s rooted in an eager community ready to play the latest algorithmic asset game.
He’s also excited about the launch for another reason, however: he believes that when all of the forthcoming stabilization mechanisms are ready, DIGG could become more than just another spin at the rebase casino, and it might even evolve into a true synthetic Bitcoin asset.
Keeping a proper peg
It’s a difficult goal to reach. So far, algorithmic assets such as algorithmic stablecoins have proven to be great ways for savvy game theoreticians to enrich themselves, but inefficient when it comes to keeping their intended pegs.
To this end, Spadafora and the rest of the team have taken inspiration from previous rebasing experiments such as Ampleforth.
“We think the secret sauce is learning from what AMPL did around liquidity, and then adding the automated vaults on top,” said Spadafora.
Ampleforth’s model is a time-tested one (at least by DeFi standards) which has undergone over 600 rebases to date. Its success was markedly accelerated once they developed the “Geyser” in which users could deposit their AMPL to a liquidity pool in order to earn additional token yield.
The addition of vaults on top of that is a novel move, however, which may yield benefits for the stability of the peg as well as users.
“What we want to do with our vault system is really at large-scale be the… let’s call it the ‘buy-and-sell’ dictators. So through automated strategies we’re able to buy when the time is right and sell when the time is right to optimize return for the users.”
Effectively, a DIGG vault would automatically and programmatically play the tokeneconomic ‘games’ other algorithmic asset projects expect users to play with bonds or coupons. Currently Badger’s vaults are worth $700 million — a massive pool of automated yield-generating liquidity that could be brought to bear to keep DIGG’s price tied to BTC.
Spadafora told Cointelegraph that the DIGG vaults and their strategies would ideally launch “a few weeks” after the DIGG token launch, and that additional stabilization measures, such as vault rewards that fluctuate depending on how close DIGG is to the peg, are also in the works.
In the end, however, the best resource Badger DAO might bring to the stabilization effort is the community itself. Spadafora said that the DAO will have the power to tweak mechanics such as rebase time, or to even develop an entirely different model for the token if the plans the team brings to the table aren’t working. Such community-run operational efforts have proved successful with projects like Synthetix.
“We are putting all paratmeters of DIGG and control of DIGG into the hands of the BADGER token holders. So any and all parameters — you want to switch to a different model, you want to change the rebase time, you want to do anything associated with that — that’s in control of the community to decide.”
Still, even if DIGG manages to properly track the price of Bitcoin, it’s an open question as to how much market appetite there is for more Bitcoin on Ethereum. BTC on ETH has topped out in recent weeks, stalling below 150,000 total BTC after a parabolic advance throughout most of 2020.
The DIGG launch is expected to bring an eventual total of 4000 BTC to the market, though according to Spadafora only 15% of the supply will be available on day 1 — roughly 580 tokens. Half will be allocated to the Badger treasury, and another 30% will come onto the market in a liquidity mining event over a multi-week period. But does anyone even want another source of Bitcoin on Ethereum?
Spadafora thinks so. He thinks of Bitcoin as “the ultimate collateral,” and says that one long-term goal is for Badger to ‘flip the stack’ — instead of Badger being the end-point in a cycle of smart contract transactions (wrap BTC, pool WBTC with Ethereum, deposit pool tokens into Badger for yield), it would become more of a base layer.
“When groups like us are able to say, “Oh, you can unlock this illiquid position, and borrow against it so you can go and take additional strategies, lever up and buy more Bitcoin, provide that stablecoin as liquidity somewhere, or just re-invest that into our vaults and increase your APY in the Badger App, that’s where it gets interesting.”
“Once those things start opening up, I can see a lot more people wanting to bring more tokenized Bitcoin to Ethereum because they will have more use.”
One way they will accomplish this will be by allowing users to borrow assets against staked liquidity pool and vault positions — likely a with a stablecoin called $CLAW.
As a result, already a few clever Badger DAO fans are looking past DIGG and to the potential of taking out stablecoins against their position locked DIGG vaults. The question for them, now, is “Wen CLAW?”
Long term security
Bringing all these new products to the DeFi ecosystem is a developmental load, but Spadafora says that the responsibility of nearly a billion dollars in total value locked is what weighs on him more than the exhaustion.
“This last five weeks have probably been the most stressful five weeks of my life,” he admitted.
After all, it’s difficult to sleep when “you don’t know what you don’t know” and you’re building a wildly successful project in a space rife with hacks, exploits, and vulnerabilities. Additionally, complexity inherent in Badger’s interacting systems — farms, vaults, a rebasing token, liquidity pools, etc — provide layers upon layers of smart contract risk.
To that end, the Badger DAO team is leading the way with a variety of security processes that Spadafora thinks will become the standard.
First, Spadafora says that the team conducted what he calls a “non-smart contract security audit.” This includes internal policies regarding how developers handle updates, make changes to the web app user interface, and mitigate things like spear phishing attacks — but the most important development coming is the “Badger War Room.”
Many of the recent exploits over the past few months have seen the same half dozen to a dozen white hat hackers convene to try and replicate, then mitigate, recent contract exploits. The “War Room” aims to have that ad-hoc group in place from the start, featuring a contract management and contract repository system making it easier to untangle possible exploits.
Additionally, Spadafora says the team has onboarded all War Room participants to Badger’s systems, pre-built a test environment, and established multiple communication channels and a schedule for who would be awake and available to respond to an attack.
It’s a system designed with the reality in mind that it’s impossible to predict where the next exploit might come from, but constructed to better analyze and potentially reduce the harm such an exploit might cause.
Considering the project has been live for barely more than a month, the progress is remarkable. In the end, though, Spadafora hopes it all might help create a new, sustainable niche in DeFi:
“I think it will change the way people think about algorithmic stablecoins.”