Brokkr Finance Opens Its Gates on Avalanche — Diversified DeFi Investments Made Simple
I had the opportunity to to talk to the Brokkr Finance team and try out their DeFi investment platform before the official re-launch on Avalanche. The below article summarizes the history of Brokkr, their platform’s value proposition and functionality as well as the the team’s roadmap for the coming weeks. This is a commissioned article by Brokkr Finance. (Please see the disclaimer at the end of the article*).
We all remember the Terra ecosystem’s meltdown in May this year. These catastrophic events harmed investors and savers, and many protocols built on the Terra blockchain and utilized DeFi primitives and yield sources like Anchor Protocol.
Brokkr, although still rooted in the THORChain ecosystem, originally started on Terra, utilizing available yield sources for its investment strategies and launching the native $BRO token as a CW-20 token on Terra.
At the time of the UST-depeg, when the situation got out of control, the team acted quickly and salvaged most of the project’s treasury, giving it the runway and flexibility to recover and start anew.
After intense analysis of the different potential blockchains Brokkr could migrate to, the Brokkr team decided to set shop initially on Avalanche before expanding to additional blockchains in the future.
In this article, we will explore the unique offering of Brokkr and why its diversified DeFi investment portfolios provide a valuable complementary product for the Avalanche ecosystem. But before, let’s quickly summarize the advantages of the Avalanche network and why Brokkr chose it as a starting ground.
A Short Primer on Avalanche
Avalanche is a decentralized smart contract platform focusing on high transaction speed and low fees. It further differentiates itself by allowing the creation of individual subnets.
Avalanche is, therefore, a direct answer to several problems the current smart contract platform market-leader Ethereum faces regarding scalability.
Although a relatively new project — Avalanche was founded in 2020 by Dr. Emin Gun Sirer and his team — it quickly became one of the essential platforms for DeFi (Decentralised Finance) applications and NFT (non-fungible tokens) projects. The total value locked (TVL) across its DeFi protocols accounts for 2.2 billion U.S. dollars at the time of writing.
Avalanche focuses on being an open-source platform for launching decentralized applications and enterprise blockchain deployments. It does this by providing high scalability without sacrificing security or decentralization. One central building block of its architecture is Avalanche’s unique consensus protocol, called “Snowman” which works based on sub-sampled voting (not all network validators need to confirm every transaction, but only a randomized subset of validators does).
Thanks to its unique consensus model and reliance on three different blockchains that each focus on specific tasks, Avalanche features some of the most impressive performance numbers in the blockchain space regarding throughput (up to 4,500 transactions per second), speed (3 seconds time-to-finality), and is much more scalable than existing blockchains, such as Bitcoin, Ethereum or even Polkadot.
Why Brokkr Chose Avalanche as a Starting Ground
After several weeks of in-depth analysis, Brokkr decided to start its next chapter on the Avalanche network. They laid out their detailed reasoning to go with Avalanche in a Medium article in June 2022, but we will quickly summarize their thinking here.
After the Terra collapse, the Brokkr team told me that they wanted to avoid any similar scenario again. Therefore they defined security and decentralization as two of the most critical decision criteria regarding a new underlying blockchain. Brokkr also requires good interoperability for a future multi-chain expansion and a connection to THORChain to tap into its cross-chain liquidity. Avalanche has been able to offer all of that plus a mature infrastructure, developer tools, and a vibrant DeFi ecosystem.
DeFi Investment Portfolios Made Simple
Now, let’s focus on Brokkr itself. For everyone unfamiliar with the protocol, it’s essential to know that Brokkr’s primary mission has always been to simplify DeFi investment and make it accessible and understandable. To achieve this, Brokkr — as a decentralized protocol — offers an investment infrastructure of multiple portfolios that automates the use of battle-tested DeFi protocols. The resulting yield is comparable to robo-advisors known from traditional finanical services or even the returns promised from centralized lending services like Nexo or BlockFi but built in a transparent and decentralized way, diversified across multiple yield sources.
Brokkr will be the go-to decentralized investment protocol with automated portfolios.
The whole DeFi environment has seen a phase of rapid growth since its blooming during the “DeFi summer” in 2020. But it has still not overcome the fact that the user experience of interacting with most of its products is worse than centralized financial products and that it is still challenging for everyday people to understand the underlying concepts of cryptocurrencies, let alone DeFi.
Brokkr’s goal is to offer an automated, secure, and simple portfolio-based investment protocol that caters to a “laid-back” investment approach many retail investors are looking for.
During the migration from Terra to Avalanche, the team shared with me that they completely revamped the whole Brokkr investment application. The clear focus of the user interface is now investing, leaving out all other distractions.
Automated Portfolios & Investment Strategies
Brokkr’s investment portfolios consist of multiple strategies that utilize existing DeFi protocols for yield. These portfolios are comparable to ETFs known from traditional finance but instead consist of entire strategies, not just individual tokens.
Investing in a chosen portfolio automatically diversifies the funds across multiple underlying strategies to mitigate the risk of underperformance or even failure of one individual strategy.
Brokkr will offer a wide range of investment portfolios, catering to different risk appetites and investment types. Initially, these portfolios will be evaluated and provided by the Brokkr core team, but eventually they told me that, portfolios can be proposed and voted on by the community in a decentralized manner.
Initially, Brokkr plans to start with two different investment portfolios, rewarding investors in USDC. These portfolios focus on sustainable and diversified returns mitigating market volatility based on proven yield sources on the Avalanche network.
Let’s have a closer look at both of these portfolios, but please keep in mind that the underlying strategies might change until the portfolios finally launch.
Portfolio #1: Calm
The first portfolio available after the launch of the Brokkr platform will be called “Calm.” The name already tells us a lot about its goal: offering stable returns by mitigating market and protocol risks.
The Calm portfolio will only be comprised of stablecoins, diversified into multiple liquidity pools, and staking options targeting 5% APY on average.
The current plan for the underlying investment strategies of the “Calm” portfolio is as follows:
1. Stargate USDC pool
2. Stargate USDT pool
3. TraderJoe USDC-USDC.e pool
Portfolio #2: Ambitious
This second portfolio to launch, called “Ambitious,” will consist of multiple delta-neutral strategies that will be neutral to price changes of the underlying assets. The “Ambitious” portfolio strategies are more complex as they also need to hedge against asset price movements through the combination of lending and yield farm protocols. Therefore the risk score for this portfolio is higher than in the case of “Calm” but so will the expected portfolio returns, currently aiming for 15% APY.
The current plan for the underlying investment strategies of the “Ambitious” portfolio is as follows:
1. DNS USDT — Aave → TraderJoe → VectorFinance
2. DNS USDC — Aave → TraderJoe → Vector
3. DNS BTC.b — Aave → Platypus → TraderJoe → Vector
The team mentioned that the strategies that they will finally pick for the “Ambitious” portfolio will depend on the performance at the time of the launch. They can add or remove strategies very quickly, guaranteeing an optimal performance — also over time.
After these two initial portfolios are live, the team plans to focus on adding cross-chain capabilities as well as come up with portfolios that allow dollar cost averaging (DCA) to cater to investors who want to invest smaller amounts of money regularly.
Successful Real-world Testing
I had the chance to go through a test implementation of the working product together with the team as one of the first users ever. Investing into and withdrawing from the calm portfolio was a breeze as you can see in below demonstration.
The UI is currently 100% focused on managing one’s portfolio position to make the process as simple as possible. Over time the team will introduce additional views regarding portfolio and individual performance.
$BRO and Brokkr’s Unique Treasury Model
What distinguishes Brokkr from other DeFi investment platforms is its unique treasury model.
The Brokkr protocol treasury has three revenue streams:
- Success fee on strategies
- Yield generated by the treasury’s investments
- Swap fees from LP tokens.
Returns from these revenue streams are reinvested into Brokkr’s portfolios as “Protocol-Owned-Capital” (POC), generating a positive feedback loop and auto-compounding returns.
The native protocol token $BRO plays an essential part here, as $BRO stakers lock their tokens in protocol — essentially granting them a share of the treasury — to earn staking rewards.
Every $BRO staker is eligible to vote on protocol parameters and influence the direction Brokkr is heading by voting on future portfolios and their strategy composition.
Dynamic Unstaking Period
After the Terra fallout, the Brokkr team also took the time to optimize some of the protocol-related processes. One example is how unstaking $BRO token works.
Instead of staking and locking as initially planned, Brokkr is introducing a custom unstaking period.
When a user stakes his tokens, they set a custom unstaking period ranging from 14–365 days. The longer the unstaking period, the higher rewards the user receives. This provides stakers with the highest flexibility depending on their investment timeframe and risk tolerance and also avoids the manual process of restaking in regular intervals. During the unstaking period, users will also receive around 50% of the regular staking rewards.
Users can have up to five unstaking periods running simultaneously for even more flexibility. This allows, for example, to set one long-term and one short-term unstaking period in parallel.
An Important Puzzle Piece for the Avalanche Ecosystem
With its solution, Brokkr provides a complementary offering in Avalanche’s DeFi ecosystem. Many existing protocols and yield aggregators are tailored toward expert users with often only very little information about the underlying yield sources and potential risks. Potential investors must do risk assessments and portfolio diversification independently and manage position sizes regularly. This scares off anyone with limited time and knowledge about the crypto and DeFi Space or who just wants to follow a laid-back investment approach.
Brokkr is filling this gap by offering a simple method for DeFi investing powered by automated diversification across multiple investment portfolios. Additionally, Brokkr’s solution follows the composability ethos of DeFi and can be easily integrated by both centralized and decentralized platforms.
Due to the transparency, diversification and stable returns of Brokkr’s investment portfolios, they would also naturally be the perfect home for other projects’ treasuries.
The Brokkr Launch Timeline
Relaunching a protocol based on a different blockchain framework (Terra, Cosmos-based > Avalanche, EVM-based) is not a small feat and requires thoughtful planning. The Brokkr experience did not only consist of the investment app itself but also the $BRO token, which requires liquidity to trade, the Brokkr treasury, and the Brokkr NFTs that grant holders additional benefits.
Currently, based on what the team told me, Brokkr plans the following order of events with the final goal to have an even better DeFi investment experience live on Avalanche.
1. Launch of the “Calm” Stablecoin Portfolio
2. Go live of the Brokkr DAO, including the $BRO liquidity pool and a $BRO Airdrop
3. Boosted Staking Rewards
4. Treasury Bootstrap Event
4. Delta-Neutral Portfolios
5. 2nd Airdrop to Bulls & ThorGuards NFT Holders
6. Relaunch of the Brokkr NFTs
Based on the current timeline, the launch of the Brokkr app with the first portfolio live will happen during the first week of September.
Follow Brokkr’s Development
To follow Brokkr’s progress and join the community in discussing the future of the platform, check out the following sources and social media channels:
*Brokkr Finance has commissioned this article, and the author is an investor in the project. This statement is intended to disclose any conflict of interest and should not be misconstrued as a recommendation to purchase any token or participate in any farms. This content is for informational purposes only, and you should not make decisions based solely on it. This is not investment advice. All market prices, data, and other information are not warranted as to completeness or accuracy, are based upon selected public market data, and reflect prevailing conditions and the author’s views as of this date, all of which are accordingly subject to change without notice.