*Migrated from Medium* Original Date - 04/25/21

The intention of this post is to highlight my initial thinking around a fascinating project in the space: Badger DAO. As I layout my current understanding of this pretty novel application, I hope to build more clarity around Badger and its potential.

Overview

Badger DAO is a protocol that builds products with the focus of making Bitcoin a productive asset within DeFi. In some ways it is similar to Yearn, and in other ways it is similar to an aggregator. Overall, its goal is to be a one stop app for all things BTC in DeFi: mint, borrow, yield, swap, etc. Currently, the DAO oversees two products:

• Sett Vault: A Yearn-like product that allows people to deposit wrapped/ tokenized BTC to earn yield
• Digg: A rebasing Bitcoin (built using Ampleforth tech) that serves as an elastic supply crypto pegged to BTC. Through the Sett Vault, it will try to stabilize the price of DIGG. It is currently valued at $44k vs. BTC at $60k

Shifting gears, in order to understand the bottom line of this ecosystem, how is money made?

The treasury derives revenue on deposits from two sources:

• 0.5% withdrawal fees through the Sett product. Note, this doesn’t include the Badger Sett and Badger<>wBTC Setts (no fees)
• 10% performance fees on the vault yield

Market TAM

Current status of Bitcoin in DeFi:

What lays ahead? Mapping out the future of BTC in DeFi, even at a conservative pace, reveals the significant market opportunity that BadgerDAO possesses. A rough TAM analysis highlights this below:

Current Competition:

• CeFi: BlockFi or Celsius where one can earn 6% APY and 6.20% APY respectively
• Sovryn: Bitcoin native yield application (0.16% APR)
• THORChain

Thesis

Currently, BadgerDAO is a VC bet on market size as well as certain PMF. My high-level thesis rests on three points:

• As crypto adoption grows, users/ institutions will want to find a way to earn yield on their Bitcoin (considered the safe haven cryptoasset). This leads to the idea of taking BTC, wrapping it, and plugging it in the DeFi API. Badger acts as an aggregator app to let you earn yield without having to worry about finding the best opportunity — one stop app framework
• Clear token economics linking DeFi tokenized BTC growth to value accrual
• Call option on Digg and the opportunity to create a pegged BTC using yield markets (potential competitive advantage)

Risks

As with all opportunities, risks are present, and BadgerDAO presents the following:

• Digg: failure to have a proper pegging mechanism, leading to no adoption
• Inherent reliance on pegged BTC assets: opens it up to problems within those tokenized assets and forms a directional bet on tokenized assets vs. THORChain/ Compound Chain
• Token inflation (only ~⅓ tokens released)
• Hard to grasp the team and capabilities

Disclosure: This blog series is strictly personal/ educational and is not investment advice nor a solicitation to buy or sell any assets. Please always do your own research.