Synthetic Bitcoin is coming says Badger DAO founder Chris Spadafora

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Badger DAO founder Chris Spadafora is taking the long-awaited product to market and preparing for the future.

The launch of Badger DAO’s DIGG, a synthetic rebasing commodity intended to watch the price of Bitcoin, is one of the most highly awaited product launches in recent DeFi memory—but the person most excited to see DIGG reach the market may not be a trader, but instead, Badger DAO founder Chris Spadafora himself.

According to community-minded Spadafora—who would be swift to note that despite its technological reality, he doesn’t care about the “founder” label—anticipation for the launch has led to more than one ‘badgerous’ enquiry aimed at him on Twitter.

“You’ve probably seen it… ‘When $DIGG, when $DIGG’ — it’s constant,” Spadafora sighed.

However, with all the hype, the precise date of the launch is still uncertain. In an interview with Cointelegraph on Tuesday, Jan. 5, Spadafora said that DIGG was scheduled to release “within a few days.” But, on a Friday group call, he put that timeframe back, saying that users should expect DIGG “sometimes next week”—a series of delays that just stoked the Twitter crowd’s passions.

Still, Spadafora has generally stayed good-humored about ‘badgering,’ although he realises it is rooted in an excited audience ready to play the next algorithmic asset challenge.

He’s also excited about the launch for another reason, however: he claims that when all of the upcoming stabilisation mechanisms are ready, DIGG will become more than just another spin at the rebase casino, and could even become a fully synthetic bitcoin asset.

Keeping a proper peg

It’s a tough task to accomplish. So far, algorithmic properties, such as algorithmic stablecoins, have proved to be excellent ways for skilful game theoreticians to enrich themselves, yet inefficient when it comes to holding their expected pegs.

To this end, Spadafora and the rest of the team were inspired by previous re-basing studies such as Ampleforth.

“We think the secret sauce is learning from what AMPL has done about liquidity, and then adding automated vaults to the top,” said Spadafora.

Ampleforth’s model is a time-tested model (at least by DeFi standards) that has undergone over 600 rebases to date. Its popularity was greatly accelerated until the “Geyser” was created, in which users could deposit their AMPL into a liquidity pool in order to receive additional token returns.

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The inclusion of vaults on top of that is a novel step, though, which can offer advantages for both the stability of the peg and the customer.

“What we really want to do with our vault scheme is to be large-scale, let’s name it the ‘buy-and-sell’ dictators. So, through automatic methods, we will purchase when the time is right and sell when the time is right to maximise the return for consumers.”

Effectively, the DIGG vault will instantly and programmatically play token economic ‘games’ with other algorithmic asset ventures expecting users to play with bonds or coupons. Currently, Badger’s vaults are worth $700 million—a huge reservoir of digital 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 will hopefully launch “a few weeks” after the launch of the DIGG token, and that other stability steps, such as vault incentives that fluctuate based on how close the DIGG is to the peg, are also in the works.

N The end, though, is that the group itself is the best weapon that Badger DAO could offer to the stabilisation effort. Spadafora said that the DAO would have the ability to tweak mechanics, such as rebasing time, or even to create a totally new concept for the token, if the team’s plans on the table were not working. These community-based operating activities have proven popular in initiatives such as 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.”

High supply?

Even, even though DIGG continues to watch Bitcoin’s price well, it’s an open question as to how much consumer demand there is for more Bitcoin on Ethereum. The ETH BTC has outperformed in recent weeks, stalling below 150,000 total BTCs following parabolic advances over much of 2020.

The introduction of DIGG is projected to add an eventual amount of 4000 BTC to the market, but according to Spadafora only 15% of the supply will be available on day 1—about 580 tokens. Half will be transferred to the Badger treasury, and another 30% will reach the market in a multi-week liquidity mining event. But does anybody want to see another source of Bitcoin on Ethereum?

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Ok, Spadafora says so. He thinks of Bitcoin as “the ultimate collateral,” and says that one long-term target is for Badger to ‘flip the stack’—instead of Badger becoming the end point in a cycle of smart contract transfers (wrap BTC, pool WBTC with Ethereum, deposit pool tokens to Badger for yield), it will 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 would achieve this would be by enabling users to borrow funds against staked liquidity pools and vault positions—probably a stablecoin named $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 goods to the DeFi community is a developmental burden, but Spadafora claims the responsibility of nearly a billion dollars in overall value locked is what weighs more on it than fatigue.

“The last five weeks have probably been the most stressful five weeks of my life,” he admitted.

After all, it’s hard to sleep because “you don’t know what you don’t know” and you’re creating a massively popular project in a room packed of hacks, exploits, and weaknesses. In addition, the difficulty inherent in Badger’s interactive systems—farms, vaults, rebasing tokens, liquidity pools, etc.—provides layers of smart contract danger.

To that end, the Badger DAO team is leading the way with a range of protection processes that Spadafora hopes will become the norm.

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.”

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Some of the latest vulnerabilities over the last few months have seen the same half-dozen to a dozen white hat hackers coming together to try to duplicate, and then mitigate, recent contract exploits. The goal of the “War Room” is to get the ad hoc party in operation from the beginning, with a contract management and contract archive framework making it easier to unravel future exploits.

In addition, Spadafora says that the team has incorporated all of the participants in the War Room into Badger’s networks, pre-built a test area, and developed several contact channels and a plan for who will be awake and ready to respond to the attack.

It’s a machine built with realism in mind because it’s difficult to anticipate where the next exploit could come from, but it’s designed to help analyse and hopefully minimise the damage that such exploit might cause.

In spite of the fact that the project has been alive for scarcely more than a month, the success is noteworthy. At the end of the day, though, Spadafora hopes that it will all help to build a new, viable niche in DeFi:

“I think it will change the way people think about algorithmic stablecoins.”


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