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Liquidity Mining Set to Begin Friday on the Risk Tranching Gro Protocol

Everyone is looking for stronger yields in DeFi. Gro is a new yield platform that aims to offer boosted returns on leading stablecoins to users willing to accept some risk.

Gro is set to launch liquidity mining shortly for its depositors, which means they will begin receiving its governance token, GRO, based on the funds held in the platform, Hannes Graah, GRO’s founder, told The Defiant in an interview. Starting Friday, about 65K GRO tokens will go out to liquidity providers per day over the next month, for a total of 2M. There should be more incentive programs to follow after that.

Gro offers two versions of every pool it runs, one that offers interest  in exchange for stablecoin deposits and another that gets higher yields in exchange for absorbing all the risk of the lower-return pool. There’s about $10M in deposits already on the relatively new yield protocol, which announced itself on on July 1.

New Pool

It’s anyone’s guess how much GRO’s early distributions might be worth, but decentralized finance (DeFi) denizens have a way of responding enthusiastically to distribution schemes.

“I think any protocol looking to be decentralized needs to involve its users,” said Graah a former vice president of growth at Revolut, the London-based fintech, and a onetime senior marketing executive at Spotify., GRO will have an initial supply of 100M tokens. Of that, 5M will be sold via Balancer through a new pool (called a liquidity bootstrapping pool) where GRO will be paired with USDC. That distribution will run from Sept. 28 to Oct. 1.

An airdrop of 330K GRO went to some of its earliest users, and another 1M will go to early users and participants in the sale on Balancer.

The DAO will not be able to expand the supply for three years.

Community Incentives

Liquidity mining will kick off on Friday with four incentivized pools of the six that exist on Gro now (three for DAI, USDT and USDC in both Vault and PWRD). The team has not disclosed which pools yet. That phase of liquidity mining will run for one month, with 2M tokens dedicated to the campaign. This means the 65K GRO per day will go out to users, proportional to how much they have deposited in the relevant pools.

It’s impossible to gauge price after one of these programs begin, but the starting value for GRO in the Balancer pool that starts Tuesday is $10.

This will not be the end of liquidity mining either, but the next phases are up to the Gro DAO, which will decide what to do with the 45M tokens set aside for community incentives.

“There will be different pools with different levels of incentives,” Graah said. “It allows us to calibrate the system based on different products.”

This is very similar to the approach of the automated market maker, Curve, which tends to put very high rewards for its governance token, CRV, on new pools first, until they get strong liquidity and then it backs off.

Graah believes that this token distribution has created better alignment for real users because tokens received through liquidity mining will not be immediately tradable.

All of a users’ mined tokens will have a disincentive to trade one year from the first block the user mines. In other words, tokens earned on day 1 and day 364 will both become tradable at the year’s end. There is an option to withdraw earlier, but the user would forfeit some portion of their tokens to other miners if they don’t wait.

Three-year Vesting

“There’s lots of industrial farming and dumping,” Graah explained. “With this vesting mechanic we have put in place we can ensure that those with a longer view get an even larger stake in the protocol.”

Gro hopes to decentralize aggressively, so the full community distribution may run as quickly as three years, or even less.

The team and the seed investors have about 42% of the supply, as the tokeneconomics blog post explains, but the team and investors are subject to a three-year vesting schedule, and a one-year lockup, in order to align them with the community.

Gro could prove to be a powerful tool for blue chip DeFi projects to stash part of their treasuries and earn yield, to fund operations or prepare for the next downturn, all with built-in risk mitigation.

It will also be nice for risk-hungry degens who just want a strong yield and a new token.

Gro offers two versions of each pool, a Vault and Powered Saving. Participants in the Vault earn higher yield, but that yield is paid for with risk. If there is some catastrophic failure in some aspect of a yield strategy, losses go against the Vault investors first. It’s a risk tranched investing approach.

Gro’s Investors

“If Tether blows up the low risk tranche is not affected by that,” Graah said.

This scheme is well established in the traditional finance world (many have argued that this approach is part of the financial cocktail that led to 2008’s financial crisis). DeFi projects that offer similar approaches to splitting up risk include BarnBridge, Saffron, and Waterfall, which is coming soon.

Gro is a non-custodial protocol that currently offers deposits in USDT, USDC and DAI. Other assets will be made available based on determinations of GRO token holders, Graah said.

Gro’s investors include Galaxy Digital, Framework Ventures, Variant, Three Arrows Capital and Robot Ventures.

The DAO was initiated by early users in a vote last week. “The DAO got to vote on its own existence,” Graah said.

Corrected on Sept. 28 to report that 65K GRO tokens will go out to liquidity providers per day over the next month, for a total of 2M.
Updated on Sept. 29 to show that users can withdraw tokens early with a penalty.