BadgerDAO Review

What is BadgerDAO?

BadgerDAO is a decentralized autonomous organization focused on creating infrastructure and other products needed for Bitcoin’s adoption in DeFi across various blockchains. The organization’s shared ownership incentivizes builders from across the whole DeFi scene to come together and collaborate in the creation of various types of products, while the decentralized governance ensures these incentives remain fairly distributed, and only projects pursued by the community are sponsored. 

BadgerDAO has also released various NFT collections, through different events, that were minted and distributed to its users. Some of the collections include HODL, Pizza, BTC Whitepaper, Silkroad, and Satoshi – all available on the OpenSea NFT marketplace. 

How does BadgerDAO work?

Some of BadgerDAO’s most prominent products include its native BADGER governance token, an interest-bearing form of bitcoin called ibBTC, Sett Vaults – representing complex automated strategies to earn yield on bitcoin and more, DIGG – a decentralized, elastic supply crypto asset that’s pegged to Bitcoin and governed by BadgerDAO, and bveCVX – Badger’s vested escrow CVX designed to save on gas and optimize depositors’ income. Furthermore, BadgerDAO runs a program called Badger Boost, proposed by the community, the program allocates more BADGER rewards to users who participate in the project’s governance and hold both native BadgerDAO assets – BADGER and DIGG. 

BadgerDAO’s vaults are also named SETTs after the homes that Badgers make by digging caves and tunnels, and are at the core of Badger’s product suite. The concept behind SETTs is similar to that of Yearn Finance – users deposit their assets to earn yield that gets generated by strategies following opportunities presented across various DeFi protocols. Since each vault can have a different yield strategy, vaults also come with their unique smart contract that automatically executes its preset strategy, once users pick their preference and deposit their funds. Some vaults are incentivized with BADGER token rewards on top of their underlying APY.

BadgerDAO’s vaults have no lock-up periods, making deposits withdrawable at any time. Rewards are distributed through the badgerTree mechanism in cycles, whose progress can be checked through the cycle counter on top of the app’s dashboard. On average, each cycle lasts two hours.

Each of BadgerDAO vaults’ smart contracts has a function called Harvests. It is responsible for updating the bToken/Token ratio of each user based on the increase of the PFS (price per full share). This function can only be called by the BadgerKeeper (the single approved keeper bot that performs a vault’s strategy) and is different for each vault.

The platform’s interest-bearing bitcoin token (ibBTC) was built in collaboration with DefiDollar. ibBTC represents Bitcoin on Ethereum, Matic, and BSC, and aims to be “the most liquid, secure, and widely used BTC-backed asset through DeFi.” The token is meant to index the top Bitcoin-pegged assets in DeFi (wBTC, sBTC, tBTC, etc), and can be minted by providing either byvWBT, bCrvRenBTC, bCrvRenSBTC, or btBTCcrv. Once ibBTC is minted, the collateral provided for it gets managed by BadgerDAO to provide a base interest rate derived from the return of the collateral itself. ibBTC may be redeemed for its underlying vault tokens at any time, but can also be traded on exchange platforms such as SushiSwap. 

Convex (CVX) is seen as having a significant DeFi yield influence as it controls almost half the voting power in Curve’s governance, and as such is essential for projects needing liquidity for their tokens. However, voting with CVX to generate boosted yield requires token holders to lock it into the Curve’s governance contract for sixteen weeks. For this reason, Badger introduced its vested escrow CVX (bveCVX) token, whose vault is a managed CVX position designed to save on gas and optimize income for depositors. 

How to use BadgerDAO?

When interacting with the BadgerDAO app, if a user holds an asset with a vault in the project they can deposit it in the vault, for which they are given the b-version (or b-tokens) of the underlying asset. B-tokens are interest-bearing tokens representing a share of the underlying token deposited in a vault. B-tokens’ interest is accrued through “Harvests”, increasing the ratio between them and the underlying token. 

There are detailed guides on how to use BadgerDAO vaults on the project’s documentation webpage. Each vault comes with a different BadgerDAO fee, on top of the gas fee required for a transaction. The BadgerDAO wallet support includes MetaMask, Portis, Coinbase Wallet, and any wallet supporting the WalletConnect protocol.

BadgerDAO’s bveCVX token can be acquired by depositing liquidity on Curve’s CVX/bveCVX token pair through BadgerDAO. Deposited tokens can be withdrawn before each weekly automated lock of bveCVX. Badger uses 5% of the bveCVX vote weight to incentivize bveCVX/CVX liquidity on Curve.

BadgerDAO staking 

Users wishing to stake BADGER, the project’s native governance token, can do so by interacting with a special StakingRewards contract reserved especially for the BADGER vault. Since the contract is aiming to provide a service to the whole BadgerDAO ecosystem, there are no fees.

Furthermore, the Badger Boost program run by the project allows users to earn more BADGER token rewards, in exchange for participating in the platform’s governance and holding both Badger native assets – BADGER and DIGG. The program rewards users based on their stake ratio – the ratio of a user’s native balance compared to non-native balance. The basic principle is that the higher a user’s native balance, the more BADGER token rewards they earn.

Since the program is rather complex, the Badger team has released a tool called Badger Boost Optimizer, which can be used to determine the exact ratio of native to non-native assets required to advance to the next level of the Boost program.

The BADGER and DIGG tokens

BADGER is the platform’s native governance token. The asset is based on the ERC-20 standard and has a maximum fixed supply of 21 million. BADGER is deployed on Ethereum, BNB Smart Chain, and Polygon, but will soon also launch on Fantom. 

Besides governance rights to manage the platform’s product mix, leadership, and treasury allocation, BADGER grants its holders access to staking rewards and can be used as collateral on various DeFi platforms. Moreover, holding BADGER or its staked version bBADGER increases users’ APY in other Sett Vaults as part of the Badger Boost program. Sett Vaults emit different amounts of BADGER tokens on a 12-week rolling basis, set by governance vote. bBADGER does not maintain a 1:1 ratio with BADGER, since as interest accrues inside the vault, bBADGER’s value against BADGER increases. 

DIGG is said to be the first decentralized elastic-supply cryptocurrency, pegged to the price of Bitcoin. The asset is governed by BadgerDAO and its main goal is to remove the need for centralized parties that control users’ BTC when they use it within DeFi protocols. 

Having an elastic supply means that the total supply of the token is not fixed and gets readjusted on a periodic basis. These adjustments are referred to as “rebates” and expand the token’s total supply, with which everyone’s balance gets increased or decreased depending on DIGG’s price against BTC. For example, if the price is below the 1:1 peg, there is a negative rebase contracting the supply, while if the peg is above the 1:1 ratio, the supply of the token expands. 

BadgerDAO has created a single-asset vault for DIGG tokens, where users get bDIGG – a representation of the DIGG deposited on the sett which is not subject to rebase, making it available for use among various DeFi platforms.

Is BadgerDAO safe?

BadgerDAO was launched in September 2020 by Chris Spadafora, together with his core founding team – Ameer Rosic, Albert Castellana, and Alberto Cevallos. While Chris Spadafora is currently the Operations Lead of the BadgerDAO team, Ameer Rosic is responsible for operations, Albert Castellana is a product advisor, and Alberto Cevallos is the project’s technical advisor. 

At the beginning of December 2021, in a series of unauthorized transactions, BadgerDAO was hacked in one of crypto’s most devastating thefts, resulting in a $130 million loss. Following the incident, the company partnered with cybersecurity firm Mandiant in the investigation of the attack. 

According to the investigation, the attack was made possible due to a compromised API key that allowed the attacker to deploy a malicious worker script through BadgerDAO’s Cloudflare Workers – an interface for running scripts, operating on and altering web traffic flowing through Cloudflare proxies. The compromised API key was used by the attacker numerous times, as they periodically injected malicious code into the Badger application. 

The BadgerDAO team claimed they were not aware of the creation of the compromised API key, and Badger’s engineers didn’t authorize its creation. There were various security implementations following the incident, however, BadgerDAO continues to use Cloudflare’s services. 

Since at the time of the losses the DAO’s treasury only held roughly $53 million worth of assets, the recovery plan proposed by the team included the contributions of all 32,000 BadgerDAO users and 25 core contributors. 

The first step in the plan included restoring 192,000 BADGER tokens stolen in the exploit, as these grant governance rights, and the community believed it is only fair that those that were affected by the BadgerDAO hack should have their governance rights reinstituted. According to the project’s founders, this would lead to 17% of all affected users getting a 100% reimbursement for their lost assets, despite the token’s plummet by over 50% following the attack. 

Further details on the recovery program following the BadgerDAO hack, along with updates on it are available on the project’s webpage here.

BadgerDAO has gone through numerous audits with the latest being conducted by Code4rena (C4) in June 2022 and completed in August of the same year. The report describes two high-risk findings, three medium-risk findings, and various low-risk and non-critical issues. All important issues have been resolved by the BadgerDAO team. 

The platform also runs a Bug Bounty program with Immunefi. All bounties are capped at a maximum of 10% of the funds potentially at risk. Critical level findings are rewarded up to $750,000, high level – up to $5,000, medium – up to $500, and low – up to $250.

Partners 

Badger has raised a total of $21 million in funding, from four investors. These are – Blockchain Capital, David J. Namdar, Polychain, and ParaFi Capital. Among the project’s partners are Convex, Curve Finance, DeFi Dollar, ETHGlobal, Gitcoin, Fireblocks, Polygon, Ren, Sushi, UMA, and Yearn Finance.

What's next?

There is no updated BadgerDAO roadmap. The last one details the company’s 2021 plans and has since been completed.

Links

https://docs.badger.com

Author:

Frank Stewskid

Last updated: Dec 20, 2023