Leveraging The Power Of BPTs
Preon: Balance Your Aura with The Power of Three
Preon, the Sphere Ecosystem’s CDP lending protocol, is our most ambitious project to date and will have multiple distinct features that will position itself as a powerful and unrivaled CDP protocol within the DeFi space.
And with the launch of Preon being just around the corner, more and more of those features will begin to be revealed.
In a recent Twitter post, Sim announced that users will be able to use Preon Finance to leverage certain BPTs (or Balancer Pool Tokens). Let’s break down this process and summarize what this means for the protocol and for you, as a user.
What Is A BPT?
First, it is essential to clarify what a BPT is.
BPT stands for Balancer Pool Token, which is a receipt token that you receive when depositing liquidity into Balancer, a decentralized portfolio manager that allows for weighted pools and offers unique boosted pools.
Let’s illustrate what this would look like with an example.
Imagine that you wanted to deposit $stMATIC and boosted Aave v3 $wMATIC into the Balancer pool to earn incentives as a liquidity provider. After depositing your liquidity, what you would receive are yield-bearing BPTs that are your proof of deposit.
Ordinarily, those BPTs would sit in your wallet unless you transferred them out or used them to withdraw your liquidity.
However, Preon Finance will be the very first protocol that will offer 0% interest leveraging for BPTs.
Starting from Day 1 of Preon’s full launch, you will be able to take certain BPTs and deposit them as collateral in order to borrow the $STAR stablecoin at zero-percent interest to gain yield on top of the yield you are already earning on Balancer. Preon will focus on liquid-staked derivatives or LSDs like $rETH BPTs and $stETH BPTs, for example.
To answer your first question about contract risk, Sphere makes your safety a key priority and took the steps to have Balancer audit Preon’s code themselves. On top of Balancer’s audit, Preon has also been audited by Dedaub, a leading security solutions provider to the world’s leading Web3 projects, including Chainlink, Ledger, Yearn, and the Ethereum foundation.
How Does This Benefit Users?
This opens the door for several opportunities.
Firstly, because your BPTs that you deposited into Preon as collateral are yield bearing, they will continue to earn you yield through Balancer, minus a small Preon performance fee on yield harvests.
In fact, the collateralized BPTs are further deposited into Aura for optimized emissions.
Additionally, you will have access to extra liquidity by borrowing $STAR against your yield-bearing, collateralized BPTs.
It must be recognized that there is a risk of liquidation whenever you open any collateralized debt position, and the more you borrow against your collateral, the higher your risk of liquidation.
It is also important to recognize that you are free to do whatever you choose with your $STAR self-loan. This could include (but is not limited to)
- Yield-farming your $STAR stablecoins,
- Converting that $STAR into more of the same type of BPTs that you initially deposited.
This is a process known as leveraging, where you borrow funds against your own collateral and then use those borrowed funds to obtain more of that same initial collateral.
Leveraging allows you to deepen your exposure to the yield-generation of the BPTs, increasing your capital efficiency along the way.
In addition, the greater the value of your collateral, the more $STAR that you will be able to borrow. This opens up a multitude of potential yield-farming opportunities.
For example, say you deposit your BPTs and borrow $STAR, then convert your $STAR into more BPTs. You could then choose to simply keep those new BPTs in your wallet.
Alternatively, you could take those new BPTs and deposit them as additional collateral into Preon. Doing so would reduce your risk of liquidation and therefore would allow you to borrow even more $STAR.
Once again, it must be stressed that with leveraging comes additional risks. In addition, it is worth noting that these are only examples, and it is necessary to reiterate that — as always — doing your own due diligence and exercising proper risk management is essential. There is an abundance of potential strategies that emerge thanks to Preon accepting certain BPTs as collateral, and when used safely, they all point towards more optimal yield for you.
Excited for Preon?
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As always, new and exciting revelations are on the way with regards to Preon, so stay tuned!
Thank you for reading — Preon to the $STARs.
