Why Synthetic Assets?
Synthetic assets are a system that allows users to create 24/7 financial markets related to any value. For example, right now there does not exist a financial market future for the US Unemployment Report. If you wanted to trade against it, or include it in a portfolio that represents a snapshot of the US economy, you would be unable to. But, with the BAO protocol all you need is to have an oracle track the price and then you can create a synthetic asset that has a price related to US Unemployment. Synthetic assets can track anything including the price of existing assets, allowing 24/7 worldwide access to markets.
The global market for cryptocurrency is at about $2 trillion. By comparison the global stock market is at $73 trillion, and derivatives are at $544 trillion.
Existing stocks and derivatives combined are worth $617 trillion (1,067x all cryptocurrency combined) and even then those derivatives do not cover the types of markets you can make with synthetic assets. Capturing even 1% of the global asset trade would mean a marketcap of $6.17 trillion (17.5x the marketcap of Bitcoin)
Existing synthetic asset solutions have significant gaps. Synthetix: Systems like Synthetix require that the bulk of the collateral is managed in their networks token. While this proves lucrative it also has two critical flaws:
It makes those assets idle meaning they can't be used for other purposes (such as pool liquidity in other providers)
It overly centralizes risk to a single asset infrastructure and creates double-risk exposure.
Given that the financial incentives of the Synthetix ecosystem are driven solely by this model, changes would be catastrophic to it. This means to buy into a synthetic asset from Synthetix, you must believe in the SNX token. While that is an easy premise for cryptocurrency supporters, it is a tough sell for institutions who simply want exposure to the synthetic asset. Now they have a double-risk in being exposed to the asset they are buying and to SNX. BAO solves these problems by using existing assets from other protocols as collateral so that:
Assets are optimized and not idle. Users don't need to decide between protocols.
Double-risk is turned into triple-benefit as users get LP fees, staking fees and asset exposure.
BAO tokens are backed by a treasury insurance fund that contains >200 assets, minimizing the risk of single asset failure.
UMA: The UMA protocol, while an improvement over the Synthetix protocol in a technical sense, its complexity and liabilities leave much to be desired. The UMA protocols relies on specific "token sponsors" in their ecosystem who manage a whitelisting processes, the creation and sale of tokens, and the initial collateralization. They also require using their own unique oracles rather than something secured and tested like Chainlink. Finally, they have a dispute resolution method tied to the oracle process. While this may make sense for betting market oracles like Augur, having all protocol assets able to be over turned by human interest arbitration defeats the point of using cryptocurrencies at all.
Overall Value Points for BAO:
BAO has broad distribution, rewarding over 200 market assets creating the most diverse yield farming distribution in history so that everyone can participate with minimal risk of monopolies. (People like Sam or Ameen won't own all the tokens)
BAO is backed by the most diverse treasury system of more than 200 assets, removing risk of single point failure from an asset.
BAO will build on top of existing protocols, meaning users don't need to choose which project they are invested in.
BAO building on top of other protocols also means users can boost their earnings and we can make diverse partnerships.
BAO building on other protocols means that we don't fail if some shiny new AMM comes along, we just support it as well.
BAO uses chainlink oracles at its core for synthetic assets meaning we can ensure accurate pricing and not force liquidations.
Unlike UMA sponsorship isn't required. No risk of liability for a single person. The synthetic assets created will be managed by the community DAO.
In a worst case scenario where BAO fails to gain traction, the BAO token includes rights to the Bao treasury for users to vote on a final distribution of liquidation. This applies only after the synthetic protocol is launched and there are collected fees to liquidate.
The addressable market for a project like BAO is >1000x larger than the existing cryptocurrency market.
BAOs token distribution model rewards early and dedicated participants. This aligns incentives long term for all users.
95% of BAO tokens are locked for 3 years and distribute in a linear fashion preventing overinflation.
Founder rewards are small and have 95% locked on the same terms as users ensuring there is no dumping disaster (like there was with SushiSwap)
BAO has dedicated community funds, liquidity provider funds and dev funds to ensure community grants, rewards and upside can be shared with users who contribute beyond just code.
BAO gets burned with each fee and creation of synthetics meaning the amount of BAO in circulation will decline over time.