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CryptoEconomic Research

GRO Protocol: A Stablecoin Yield Aggregator

Gro is a stablecoin yield farming protocol, balancing allocation to the protocols and stablecoins it invests in to manage risk exposure.
by James ChungFebruary 16, 2022
GRO Protocol

The protocol has a yield and risk tranche mechanism that allows users to choose between the “Vault”, a leverage yield product, or “PWRD”, a low-yield bearing stablecoin with deposit protection.

What’s wrong with the DeFi ecosystem today?

Interest rates have been low in traditional finance for awhile therefore there has been a large appetite for returns that’s relatively safe.  Cryptocurrencies can potentially offer high returns but they are considered speculative and highly risky.  However, somewhere in between lies the silver lining for compelling returns without the level of volatility experienced by most cryptocurrencies.  Decentralized finance attempts to offer opportunities to address this. However, it is considered complex and hard to navigate.

GRO Protocol solution

To fill the void and address the complexity of actively participating in DeFi, Gro is building products for everyone to have access that is simple and user friendly.

How does it all work?

The risk balancer module automatically rebalances the portfolio and tranches risks based on its exposure to smart contract and stablecoin risks; essentially double clicking on the money lego’s that interact with each other. The risk is spread between stablecoins and protocols by analyzing protocols with low correlation and “tranching” long tail risks.

image 10
Source: GRO Protocol

Users will have a view into the different assets and strategies their product consists of and the level of risk spread across different protocols and stablecoins. The two products (PWRD and Vault) leverages this module to offer both risk tolerant and risk adverse users the ability to obtain yield at different levels of risk mentioned above.

PWRD can be thought of as a low-risk savings product which is tokenized as a stablecoin that has both yield and protection. Below are some characteristics of the product:

  • Backed by DAI, USDC and USDT
  • Risks spread by the Risk Balancer module
  • Deposits are protected as any loss is absorbed by the Vault product. Ex: If a $1 million allocation to a protocol fails in the PWRD product, the loss would be absorbed by Vault product causing Vault to dramatically reduce total value.

Vault, on the other hand, can be thought of as a high yield stablecoin that gives up deposit protection to PWRD for higher-yields.

  • Vault is appropriate for users who want a long-term high yield investment product and has a “set it and forget it” mentality thanks to their “Risk Balancer” module.
  • Also, for additional yield, you may stake Vault stabecoins in their pool for their native governance tokens (you may stake single-sided or double-sided by pairing with the native governance tokens).

Risk balancer shares yield between PWRD and Vault as a result of yield and risk tranching mechanisms.

  • PWRD holders purchase’s protection from Vault holders.
  • Vault holders get additional yield while exposed to battle tested stablecoins and protocols.

Liquidity mining is available to allow users to stake and farm their native governance token. Single- sided and double-sided pools are available for such staking. It’s important to note the impermanent loss risk is present in double-sided pools and that the users are paid for the additional risk as reflected in their APY.

APY is determined by a combination of the token price, TVL of pool, tokens allocated to pool rewards and pool weights.

Any tokens earned (eg. staking), 10% would be unlocked the moment you start vesting while 90% would be unlocked linearly over 12 months. Fairly, you would give up locked tokens when leaving before vesting is complete.

In addition to gas fees, there is a 5% performance fee on yields generated (effective 11/27/2021) and 0.5% withdrawal fee.

Mechanism design and tokenomics

GRO is Gro protocol’s governance token and allows users to participate in governance while also stabilizing the pool.

  • Token holders are rewarded for governance participation and contribution to the overall stability of the protocol. The contributions can include projects defined in the future roadmap, protocol parameters and yield strategies.
  • Additional incentives may also be distributed to the community to provide liquidity through staking pools through on-chain and off-chain activities.
  • GRO DAO Token Allocation:
image 11
Source: GRO Protocol

Lastly, team, advisor and seed investors have 3 year vesting period with 1 year cliff and inflation is set to zero for the first 3 years which can then change based on community voting

Macro view

  • The smart contract was deployed on 9/20/2021 therefore the project is fairly new. There are many protocols attempting to address the complexity of DeFi (e.g. Vesper finance, Enzyme, etc) and GRO is no different here. However, GRO does seem to be responding to a more niche space within DeFi where users want additional yield relative to tradefi world but without the complexity and with some form of deposit protection.  This is an area that is still very fragmented and experimental but provides opportunities to projects that can successfully execute. With ~$45 million total value locked there seems to be some appetite for the product.
  • So far, Gro has done an excellent job of partnering with other DeFi protocols like Alpha Finance, Ondo Finance, Fei, etc. in the short time period since its launch.  
  • In order to deepen liquidity for GRO they have recently partnered with projects like Olympus and Fei. This will help bring more value to their protocol especially when their TVL has plateaued since early October.
  • PWRD currently yields 3.01% which is still competitive knowing it has deposit protection (~$16 million total value locked). This is a similar concept from the tradefi world where your savings account is FDIC insured. Curve 3pool offers 5.98% slightly higher but without the protection. This essentially translates to you paying additional bps for insurance.
  • Vault currently yields 8.84% taking all the risk for both Vault and PWRD products if any stablecoin or protocol were to fail.
  • There are some concerns that if the Vault product were to collapse it would remove deposit protection for PWRD. This is very true but would it have to be a blackswan event.
Further Reading

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Found this research useful? Connect with the ConsenSys Cryptoeconomic Research team at [email protected]

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