Transcript: Saffron Finance founder, Psykeeper, discusses tranche-based DeFi platform integrating Neo
Psykeeper, Saffron Finance founder, joined Neo Global Development’s AMA series, Neo Live, on Wednesday, Nov. 10. Saffron is a DeFi platform that distributes yield according to a series of tranches, and was recently accepted into the N3 Early Adoption Program. Saffron offers its users a selection of risk profiles through tranches in supported liquidity pools. The Saffron ecosystem utilizes a governance token, Spice (SFI), which liquidity providers must stake to gain access to higher-yield tranches.
In the AMA, Psykeeper discussed the principles behind the risk management of Saffron, current and upcoming features of the platform, plans for integrating with Neo and Flamingo, and the economic model behind the SFI token.
The full transcript can be found below:
John Ricci (Neo Telegram admin): Saffron Finance is a peer-to-peer risk management platform that uses a tranche-based yield aggregation to divide earnings into senior, junior, and fee tranches. Saffron also provides a separate insurance fund that generates yield to depositors.
If there is a coverage event, assets from the junior tranche and insurance fund are used to cover the senior tranche first, then the junior tranche. Doing this allows users to select a risk profile for their deposited funds. In exchange for their lower coverage priority, junior depositors receive a higher share of the platform’s total earnings than the senior depositors do.
Psykeeper, Saffron founder, is a Bitcoin and crypto veteran. Having had extensive experience working in the industry starting from the early days of Bitcoin mining, he began when he discovered Bitcoin through a friend who shared the Satoshi whitepaper with him. Beginning with contributing open source code to altcoins and Bitcoin community projects, he became interested in alternative uses for blockchain technology early on by exploring the uses and unique features of alternate chains.
With a strong background in traditional finance, Psykeeper and his team sought to build a decentralized finance protocol to manage risk and enable a peer-to-peer risk marketplace for DeFi.
Psykeeper (Saffron Finance founder): Hi, everyone.
Q1: Can you tell us a little about yourself and your current role with Saffron Finance?
Psykeeper: I’m Psykeeper. I’m the founder of Saffron, and my background is in both traditional finance and engineering. I’m traditionally trained as an engineer but have worked in finance for much of my life and learned it through osmosis. I began having an interest in DeFi early on because it’s the perfect crossover between finance and technology, and I truly believe it has the power and potential to change the way the world works.
Q2: What is Saffron Finance?
Psykeeper: Saffron is a peer-to-peer risk exchange. Similar to other DeFi protocols where you’ll find users swapping tokens in a peer-to-peer network, or lending/borrowing in a peer-to-peer network, Saffron facilitates trading risk between two people.
As a very simple example, if you think that a platform (let’s call it GoxSwap) is going to fail, you’re able to use Saffron to mitigate any risk of failure or loss from it by using Saffron instead of using GoxSwap directly. In this way, Saffron is similar to insurance.
In addition, we’re adding other features (impermanent loss protection, fixed interest, etc.) which also mitigate risk for users. On the other side of this equation, users can provide insurance or take higher risks to earn a higher yield. Insurance payments go directly to users who wish to provide that coverage.
I view peer-to-peer risk exchange as the third non-dilutive way to earn yield on DeFi. I think of Saffron as a base layer protocol and DeFi primitive that will be as ubiquitous as Uniswap’s swap algorithm or Compound’s money market.
Q3: What is in Saffron’s short- and long-term roadmap?
Psykeeper: Absolutely. Here are some bullet points for the roadmap:
- Saffron V2 tranches to be released
- Saffron to expand to NEO3 blockchain
- Saffron governance to be upgraded to facilitate voting
- Treasury earning to begin
- NFT initiatives
I’ll go into detail about each of these here.
Saffron V2 tranches marks the beginning of our passive/active strategy. In Saffron V1, all users needed to be online at the beginning/end of an “epoch,” which was a two-week period. This is the same for other competitor protocols. In Saffron V2, there’s no such concept as an “epoch,” and users can join and leave their positions perpetually. This is a major improvement because it enables a passive strategy that didn’t exist before.
In addition, Saffron V2 tranches make it possible for users to earn yield by providing insurance as a stablecoin or any single-asset staking pool, giving enhanced yield to users who don’t wish to take price risk.
Saffron will expand its staking and tranche protocols to Neo N3 soon – we’ve been fortunate enough to partner with Neo and are writing a program (as well as a web3 app) for users to interface with Saffron directly on-chain. We’ll be bringing over Saffron Staking V2 (including an SFI token bridged from its native Ethereum) and Saffron V2 Tranches to the Neo ecosystem. It’s brand new, and we like developing on it a lot. We think a new ecosystem is needed to increase the diversity of infrastructure, which is currently almost entirely EVM-based.
Saffron will also have its governance token (SFI) receive additional voting power from staking soon, which was actually a feature of Saffron V1, and will also be a feature of Saffron V2. One more thing regarding the SFI token—we’re looking to do a “split” where users will migrate to a new SFI token that has a lower denomination, say 1:1,000, to make it easier for investors to buy smaller amounts and not have to hold for example 0.0081 SFI.
In Saffron V2, the treasury earns a performance fee, which is set to 12.5%. Performance fees don’t take a premium from principal deposits, and are generally between 10% – 20%. This is exciting for me because we’re going to start earning revenue as a protocol, which should give SFI as a governance token measurable value.
Finally, we’re working on NFT initiatives. Anyone in our Saffron V2 beta testing group knows that the LP positions token for Saffron V2 is an NFT and has special properties. The new economy of NFTs will open up new possibilities for finance that haven’t existed before. Luckily for us, mainstream adoption of NFTs through art has already opened the door for people to understand how they work.
Q4: Can you talk a bit about Saffron Finance’s list of strategic partnerships?
Psykeeper: Saffron began at the very tail end of the DeFi summer of 2020, before NFTs became the popular on-chain craze, and was positioned perfectly to gather strategic partners from the get-go. Venture capital groups and angel investors wished to join in on our journey to enable the DeFi space to reach higher and lower risk profile investors and decided to become partners with Saffron early on.
At first, we didn’t plan on having so many official partners, and wanted to work alone anonymously on a protocol. However, after gaining traction quickly, we noticed a lot of inbound from these parties and decided to work with them more closely on bringing Saffron to the next level.
Our partners have been foundational to our success, and it has truly been a great experience working with them. Some are even die-hard Saffron fans on Twitter, which motivates our community and is practically helpful from a marketing perspective. Others have played a more passive role, but advising from the background is appreciated as well. I know VCs get a bad rap sometimes in crypto, but they are very well connected and live and breathe DeFi just like we do. It’s necessary to have as many of those types of groups working with us as possible.
Currently, we have 28 strategic partners, including two groups that have invested non-dilutive capital into Saffron, of which Neo is one of those (and our newest partner), which we appreciate greatly. Aside from strategic partners who have provided capital and TVL for Saffron, we also have protocol partners, which work with us closely to integrate Saffron into their on-chain ecosystems.
Q5: Why did Saffron Finance choose to participate in the N3 Early Adoption Program?
Psykeeper: I’ve always been a big fan of Neo and recognize its status as an OG cryptocurrency. I’ve personally been working in the space for a long time, and when I heard that Neo was coming out with an upgrade called N3, I wanted to make sure Saffron could expand to this new DeFi marketplace. After all, a DeFi protocol should be available on every chain that has economic activity.
It’s in the best interest of Neo to have Saffron involved because we enable lower and higher risk for DeFi users, and likewise, it’s in the best interest for Saffron also because we are able to reach new areas of DeFi beyond the standard EVM chains. Besides, if we didn’t do this, someone else might fork Saffron and start their own Saffron-on-Neo without us!
Q6: How do you see your project fitting into the ecosystem? What can we expect to see regarding Saffron Finance and Neo N3 in the short term?
Psykeeper: There are two ways we’re bringing Saffron to N3:
1. Saffron Staking V2
2. Saffron V2 Tranches
Saffron Staking V2 will be one of the first single-asset staking protocols offered on the Neo N3 chain. We’re very lucky to be so early in this journey and expect many users to look for single-asset risk profile staking and are happy to provide that for them.
Saffron V2 Tranches will enable a new peer-to-peer risk marketplace, which in general, makes it easier for lower-risk profile users (traditional funds, users who enjoy stablecoin farming, users who aren’t sure about DeFi risks) to enter into this new economy while giving higher yield to users who truly understand and desire more risk.
Q7: Is Saffron going to add LP pairs with FLM or other NEP-17 tokens?
Psykeeper: Saffron will be adding LP pairs on Flamingo, and have selected Flamingo as one of the first underlying protocols to work with for our V2 system. This will be within the second phase of our development (the first will introduce staking to Neo).
Q8: Why is Saffron integrating cross-chain solutions?
Psykeeper: I think all of DeFi will eventually become cross-chain and Neo is a good place to start in that journey. Paying lower fees for gas certainly helps more people gain access to DeFi and we’ll do everything we can to enable yield opportunities for small and large investors.
Q9: How does Saffron V2 incorporate these features: Saffron insurance fund, Saffron autocompounder, and Saffron converter in providing tranche and DeFi protocols?
Psykeeper: Great question regarding our protocol features. The insurance fund is the single-asset staking pool I had mentioned earlier. It enables users to, for example, earn yield on a WETH/WBTC pool while providing only a stablecoin for farming. The stablecoins are held in the Saffron pool and provide insurance for WETH/WBTC farmers in case something goes wrong.
The converter and autocompounder are components of our system that enable swaps and yield optimization.
Q10: How do you think Saffron Finance will benefit from Neo N3?
Psykeeper: Neo is great because of the way it’s set up for multiple programming languages and is easy to develop on. I think other DeFi developers will discover this and also expand to Neo, which gives us new protocols to work with and more interesting dynamics beyond the existing DeFi applications.
Q11: How does Saffron mitigate impermanent loss?
Psykeeper: Mitigating impermanent loss is possible through a price oracle, which takes into account a user’s personalized loss profile. This is achieved with an NFT holding the entered position values and comparing it against the existing sum of prices of the two assets in the pool considering the new balance.
From a non-technical perspective: we’ve got a system in place to have users provide impermanent loss insurance to other users for a fee. This fee generates real economic activity, which is captured by the Saffron protocol and expressed as value in the SFI token.
John: Thanks for the great AMA!
Psykeeper: Thank you, everyone. It was awesome being here and participating in this AMA, looking forward to promoting the AMA transcript on our channels and also expanding the Saffron Academy to include educational materials for users to learn more about the Neo Smart Economy.
Note: Some edits have been made for formatting and readability.
The full AMA can be found at the link below:
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