1/ @saffronfinance_ is one of the most interesting anon projects out there imo

I won't go into what it is or what it does as many in the CT brain trust @DeFiGod1 @mrjasonchoi @n2ckchong @benjaminsimon97 have gone through it (see below):

2/
https://twitter.com/DeFiGod1/status/1335432166432452616?s=20
https://twitter.com/mrjasonchoi/status/1329268344671793152?s=20
https://twitter.com/n2ckchong/status/1329552349359087617?s=20
https://twitter.com/benjaminsimon97/status/1329520922999599104?s=20

Instead I want to dive a little into more the tokenomics of the protocol. Right now, 1 $SFI is required for every 1000 $DAI staked to access the junior high yield tranche.

3/ The rationale is that this would drive direct price appreciation to the token given that most degens want to access the high APY pool and the entrance fee would be to buy 1 $SFI per x DAI. As demand increases, price of $SFI goes up, simple supply & demand.

4/ However, I see this more as a friction in terms of UX given that even as a degen farmer I don't want to take on the $SFI price risk (especially in early adoption phase). Instead, a % fee model should be charged to the users

5/ In trad-fi, securitized products are a very necessary thing and a very big market. Originators of CMBS/ABS would package a bunch of these loans and distribute it to investors based on the credit rating they want in their book.

6/ The originator of these products would take fees for packaging the loans and the distributor can skim the interest on the underlying CMBS / ABS when selling it to investors depending on who they sell it to

6/ @DeFiGod1 wrote a great piece on how IL mitigation for liquidity providers and how $SFI can play a role in that. So using his AMM example of a 12% senior with no IL and a 88% junior taking on the risk, as a degen would I not give up a few % fee to access this?

7/ This fee can be split into a 1) one time upfront fee at the time of deposit to access this product as well as 2) on an ongoing basis for keeping that position. An upfront fee of 3% + 1% per quarter would still get me 81% APY

8/ The upfront fee would deter people from piling in and out on a whim as they would need to recover that first before the position is in the money.

While the ongoing 1% fee would ensure the protocol is not providing the product for free.

9/ The fees would then eventually accrue to the $SFI protocol stakers (in the S tranche or general goverance) and this would be a more clean model imo vs having liquidity providers take on the $SFI price risk.

10/ Now the question is why would lending protocols / AMMs want to use $SFI instead of coming up with their own tranche system? @MapleLeafCap brought up this great point in his wonderful Defi deck update https://twitter.com/MapleLeafCap/status/1339346115322376192?s=20

11/ As in the trad-fi world, some banks would set up their own CMBS operation while some other guys would set up their own shop and originate these loans and package to sell to the big banks to distribute. Why? In one word: efficiency.

12/ As a big lending protocol / AMM, tranching of risk is not my expertise. I may have my version of it doing basic stuff but isn't it easier to get some smart dev to figure it out and I just leverage their expertise / innovation as like a SaaS product?

13/ DeFi has too many holes and gaps still that no one protocol or team can fill it. However, we have armies of talented devs like @psykeeper_ that are pushing through new products.

So disclaimer, I am long $SFI and long DeFi innovation. Happy to discuss.