BAMM BAMM BAMM; The Revolutionary Primitive Decentralizing The DeFi Trinity

Samuel McCulloch
Samuel McCulloch
Nov 30, 2023
DeFi Dave
DeFi Dave
Nov 30, 2023
BAMM BAMM BAMM; The Revolutionary Primitive Decentralizing The DeFi Trinity

Picture this. It’s November 2024 and the bull market is in full-swing. You are a first-time founder experiencing substantial traction in the protocol you launched merely a year ago. User numbers are up, TVL is through the roof, and token holders could not be happier. 

But not everything is sunshine and roses. Very soon, the first of several unlocks will occur. Certain members of the community are spreading FUD that the token will dump and all the meanwhile, long-term investors who do want to hold are severely limited in how they can use their tokens. The only two really tangible actions one could take with their tokens is either hold or sell them on a DEX. Lending markets are severely limited in the collateral they can support due to oracle requirements, political friction, and other points of friction. 

But what if there was finally a leveraging primitive that was as equally trustless as a DEX? What if this leveraging primitive was completely permissionless, allowing any token from an up and coming DeFi application to the meme flavor of the month, to have access to one of the most fundamental primitives in finance.

How BAMM Hits Perfectly Every Time

Enter BAMM (or Borrow AMM) that is being built by the Frax Core Team allowing users to use leverage on any token without the need of oracles. By now adding the ability to borrow from an LP pool in a safe manner, BAMM is the first instance of a primitive that encompasses all parts of The DeFi Trinity in a truly decentralized manner that anyone can tap into. 

For example’s sake, let’s say you have 1 sfrxETH that is worth $1000. You want to keep earning yield on one the highest performing LST over the past year and want to leverage your capital to farm the latest Convex coin that Cryptovestor is bullish about. You want to use leverage but you don’t want to risk permanently losing the LST you hold dearly (pun intended).

Luckily, a new BAMM market has appeared for sfrxETH-FRAX allowing you to accomplish your farming dreams with ease of mind. With liquidity pools, remember x*y=k, the value must always be k and in the case of this example sfrxETH-FRAX begins at $25000

The secret to BAMM working is that all the information it needs is inside of itself, the price of both assets and the price of the liquidity pool itself. Arbitrageurs take care of the rest. In this example we have that:

  • sfrxETH=$1000
  • FRAX= $1
  • sfrxETH-FRAX LvP- $25000

You put 1 sfrxETH in the BAMM and take out a loan of 250 FRAX. When this action happens, the LP pool is being filled with more ETH while FRAX is being taken out, but it’s fine because everything still equals k because of how overcollateralized the loan is. Now let’s say the price of sfrxETH goes down for some reason. Before bad debt can ever be accrued, BAMM sells sfrxETH at a discount into the pool in a gradual manner known as a soft-liquidation. Your collateral is being exchanged for FRAX. Conversely, if the price goes back up, the FRAX you have is sold at a discount of .999 in favor of collateralizing back into sfrxETH.

The magic of this system is that it never accrues bad debt and remains solvent 100% of the time. The value of k is always equal to 1 and any action needed to maintain this equilibrium is contained inside the BAMM pool itself, disregarding the need for oracles.

Setting the Tone for Fraxchain

Leverage is a core primitive of finance that greatly increases the capital efficiency of assets. It is a key part to growth and has been able to give traders and projects alike a way to use their capital without selling it. 

Problems with illiquidity, risks of insolvency, and just plain human error have prevented lending from being as pervasive on-chain as dexes. Uniswap was a 0-1 moment in crypto because any asset could be listed on it without the need for gatekeepers. With BAMM, any asset could be listed as well, opening up a wide-range of possibilities.

Furthermore, BAMM is premiering exclusively on Fraxchain and will be the marquee DeFi application of the chain. Users will simply want to use the tool in order to gain access to leverage for assets they simply would not be able to anywhere else. From this traction, a flywheel effect ensues, number users go up, and projects begin building around it.

BAMM is one of many reasons people will want to bridge over to Fraxchain including for (redacted). When this will all be released is early 2024 and as Sam Kazemian said on a space earlier this year “shipping in 2024 is going to make 2023 look like the Frax Core Team was slacking” We look forward and will be waiting in dock to see what the Frax team ships next.

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