What is backd?

backd is a decentralized, Ethereum-based DeFi protocol, which provides borrowers on other protocols a way to earn higher interest on their collateral, while still being protected from getting liquidated. Instead of loosing out on earnings that could have been generated from deposits that are used as excess collateral, backd acts as a solution for offering both lucrative APYs and liquidation protection.

What's the problem with over-collateralization?

Over-collateralized loans require borrowers to ensure that sufficient amounts of collateral are supplied at all times, or else they get liquidated and pay a penalty fee. To protect against liquidation risk, borrowers are faced with a trade-off. While supplying higher amounts of collateral lowers the risk of getting liquidated, it bears an opportunity cost of not being able to allocate the funds elsewhere to receive higher earnings.

How does backd protect against liquidations?

On backd, LPs can register their funds to be utilized as back up collateral on external protocols, such as Aave or Compound. Registered back up collateral is used to generate interest via backd yield farming strategies, as well as earn protocol incentives and fees until it is needed to increase collateral on the registered protocol. This is achieved via collateral top ups, where so-called backd keepers report when the collateral to debt ratio of a borrower drops below a user specified top up threshold (which generally lies above the liquidation threshold).

What are backd keepers?

Similar to how liquidators exist to buy collateral at a discount, the opposite exists in the form of backd keepers. These have the sole purpose to top up collateral before it becomes liquidable and receive a fee for doing so.

Who can be a backd keeper?

Anyone can be a backd keeper and run a top up bot. An open source "out-of-the-box" backd keeper bot implementation will be made available.

Do I have to be a borrower to use backd?

No. Anyone can be a liquidity provider (LP) on backd and earn interest. Liquidation protection is simply a core feature that borrowers may use, which provides fees to LPs.

How do LPs earn interest?

Deposits on backd are utilized by yield farming strategies which are built on top of other DeFi protocols to generate interest. Additionally, LPs receive fees from liquidation protection, as well as protocol incentives.

What are backd liquidity pools?

On backd, LPs deposit funds into single asset liquidity pools and receive a pool-specific LP token in return. Liquidity pools on backd contain funds to be used to allocate to a yield farming strategy and to top up over-collateralized loans on other protocols for users that have registered their over-collateralized position(s) on backd.

So is backd a yield farming protocol?

In part, yes. Deposits are allocated to yield farming strategies. However, an additional portion of interest will be generated via collateral top up fees. backd sits between lending protocols and yield generating opportunities. For example, liquidity from a backd pool could be allocated to existing yield aggregators, while securing over-collateralized Maker Vaults.

How does backd ensure that my funds are available for collateral top ups?

Liquidity pools maintain required reserves for deposits from users who registered for liquidation protection, as well as idle funds which are not allocated to strategies to keep withdrawal costs low. Whether funds can be withdrawn from a strategy in a single transaction ultimately depends on the design of a pool's strategy. However, for backd v1, pools employ strategies where funds should be accessible via a single transaction at all times.

Does backd have a governance mechanism?

Yes, backd was designed to use a decentralized governance model, which will go live shortly after the backd v1 launch.

Does backd have a governance token?

A backd governance token does not exist at this point and there will not be a token sale. Please do not fall for scams.

Who is behind backd?

The backd protocol is developed by the backd devs @danhper and @samwern, as well as supported by grants from AAVE and Curve.

What comes with backd v1?

For backd v1, liquidation protection will be offered for AAVE and Compound. backd v1 comes with three core pools for DAI, USDC and ETH. However, through governance support for new pools, assets and for other protocols may be added.

When will backd launch?

Very soon. But we do not want to test everything in prod and therefore decided to wait for the audit to complete. Follow us on Twitter to stay up to date on what's coming!