How does the income stratification agreement Gro realize the high and low risk structure products?
The stable currency income agreement Gro currently provides low-risk savings products PWRD and high-risk products Vault, and will use the stable currency provided by users to obtain income from the third-party DeFi agreement. The difference is that Vault needs to underwrite PWRD while enjoying high returns. people.
As the DeFi market gradually returns to rationality from its initial frenzy, and the high volatility that encrypted assets have not been able to shake off for a long time, farmers have to start looking for a more “firm” shovel. Because of this, mining based on stablecoin revenue has become the new favorite of the market.
Today, Lianwen will introduce the stable currency income stratification agreement Gro, which introduces products with higher fit for two types of investors with different risk preferences. Among them, investors of the high-yield product Vault need to bear the additional low-risk product PWRD The risk of loss is similar to the traditional hierarchical fund structure, and the two products are driven by mutual coordination through the income sharing mechanism to achieve a balance.
Currently Gro is still in the Beta testing stage and has been integrated into Argent and WalletConnect. The previous restrictions on investor Degen Score have been removed, and the Vault lock-up hard cap has been increased to 10 million U.S. dollars, and the PWRD lock-up hard cap has been increased To 6 million US dollars, the current agreement lock-up volume has reached approximately 6.65 million US dollars.
What is Gro?
Founded in August 2020, Gro is a stable currency income aggregator. According to its layering mechanism and matching users’ personal risk preferences, Gro provides services with different risk levels and yield rates. It currently provides low-risk stable currency savings products PWRD It is two complementary products with the high-risk stable currency income product Vault. Because Gro adds a risk stratification and benefit sharing mechanism, this means that the benefits will be shared and distributed between Vault and PWRD, and Vault can get higher benefits while having high risks.
Although the Gro team is not anonymous, the main members of the team have not yet been disclosed. However, the Gro technical documentation shows that it plans to update the team page on its official website later, and is still recruiting senior developers and engineers. Currently, Gro has passed the security audit conducted by PeckShield and Fixed Point solutions (Kurt Barry).
In addition, Gro also completed a $7.1 million seed round led by Galaxy Digital and Framework Ventures in March this year. Participants include Variant, Northzone, Nascent, a_capital and 3AC.
Gro product operation mode
Gro’s product operation model is that users only deposit DAI, USDC or USDT stablecoins into PWRD or Vault, and then Gro will use these funds to use other third-party DeFi protocols to increase revenue, and the revenue is shared and distributed between the two products.
Vault will need to bear all the risks of Vault and PWRD products while obtaining higher returns. PWRD is a low-risk savings product. After depositing the above three stablecoins, users can receive token shares called PWRD. On the other hand, PWRD can also be sent and consumed as a medium of exchange like other stablecoins.
Due to the collaborative and interactive nature of Vault and PWRD, the following will explain PWRD’s low-risk guarantee method, PWRD and Vault’s income strategy, PWRD stable currency mechanism, and the risk layering characteristics of Gro.
How does PWRD guarantee low risk?
The low risk here can be specifically described from two aspects. Considering the user’s principal assets, users only provide stablecoins and will not be affected by large fluctuations in the market.
More importantly, PWRD also provides a deposit protection mechanism that can prevent the risks of stablecoins or smart contracts. Of course, this mechanism has another purpose to incentivize riskier Vault users.
In other words, if any of the DAI, USDC, or USDT stablecoins fails or is disconnected from the U.S. dollar, or the third-party DeFi protocol used fails, or the Gro protocol uses a third-party DeFi protocol to record a loss, the Vault holder will Bear the loss to provide protection for PWRD, but at the same time, if you can get a lot of benefits, Vault users can also get higher benefits. For this reason, Gro products also set a hard cap for lock-up volume.
Sources of revenue for PWRD and Vault
Gro will use the third-party DeFi agreement to obtain income from all the funds deposited in the two products, and the income mainly comes from three aspects: loan income, transaction costs and agreement rewards, specifically:
- Funds are put into loan agreements such as Aave and Compund to generate interest;
- Deposit automatic market making agreements such as Uniswap and SushiSwap to provide liquidity and earn transaction fees;
- DeFi protocols such as Curve and Balancer are used to earn token incentives, and Gro is converted into user income after claiming these rewards and selling them.
In addition, long-term participating users of Gro products will also get another part of the income, that is, when users withdraw funds from Vault or sell PWRD, they need to pay 0.5% of fees to other holders, which not only attracts users to participate In the medium and long term, it can also maintain the user’s lock-up amount to a certain extent. In addition, Gro currently does not charge performance fees, which may change due to governance in the future.
So how to allocate assets and balance risks among third-party DeFi agreements? Gro will regularly update the DeFi revenue strategy. Another prominent advantage is its proprietary Risk Balancer, which is a module that automatically balances asset portfolios and integrates with the deposit and withdrawal mechanism of the Gro protocol, allowing Gro diversifies risks and obtains diversified risk exposures between stablecoins and multiple DeFi protocols that are sources of income. It also distributes returns between PWRD and Vault through a risk and return stratification mechanism.
The high-yield product Vault obtains part of the revenue from PWRD depending on the utilization rate (the ratio of the PWRD lock-up amount to the Vault lock-up amount). The higher the utilization rate, the higher the revenue. Specifically, when the utilization rate is below 80%, Vault holders can obtain a basic rate of 30% of the PWRD user income, plus 3/8 of the utilization rate, that is, 30% + 3/8*utilization If the utilization rate exceeds 80%, you will get a basic rate of 60% plus twice the utilization rate minus 80%, that is, the calculation formula is: 60% + 2 (utilization rate-80%).
For PWRD, after depositing DAI, USDC and USDT stablecoins in the product, the PWRD stablecoin is displayed. The PWRD stablecoin has a Rebase mechanism. When a rebase occurs, if the income generated by the protocol strategy exceeds a certain threshold, PWRD’s The supply will be increased through the algorithm and automatically allocated to the wallet of the PWRD holder. As mentioned in the previous section, if there is any potential loss, the Vault will first be borne by it.
How does Gro achieve risk stratification?
As mentioned earlier, the risks and benefits of PWRD and Vault are different. In addition, Gro also allows users to further layer their risks, that is, allow the benefits of one product to be transferred to another product in exchange for More protection or benefits. Although the two are not available at the same time, the acceptable risks and benefits can be managed according to user preferences. This means that when the ratio (utilization) of the PWRD lock-up amount to the Vault lock-up amount is low, the lower protection cost PWRD is more attractive, and when the utilization rate is high, the higher yield Vault will be more popular.
Compared with other income agreements in the current market, Gro has greater advantages in terms of risk stratification, diversification of investment portfolios, and deposit protection mechanisms. It is conceivable that as more assets are deposited in PWRD, Vault will gain more revenue, and when more funds are deposited in Vault, PWRD can enjoy better protection. The user of this Vault product acts as the protector of PWRD and the synergistic and complementary characteristics of the two products may enable Gro to develop further.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/how-does-the-income-stratification-agreement-gro-realize-the-high-and-low-risk-structure-products/
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