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How Babylon Will Work

In our previous post, we explained how Babylonians will be able to earn $BABL, the protocol’s governance token.

This week, we’re diving into how Babylon will work more broadly.

Babylon started as an experiment. Ramon created a DeFi investment club for his friends and family that returned over 1,000%.

However, it was time-consuming to administer and he took custody of everyone’s capital, so only people who trusted him could participate.

Ramon wanted to offer this opportunity to more people. This led to the idea for Babylon, a DeFi protocol that makes managing investment communities easier, more secure, and open to everyone.

Have your friends or family ever asked you to help them invest in crypto? If so, we’re building Babylon for you.

Babylon will enable you to start an investment community, called a “Garden” after the Hanging Gardens of Babylon.

When you create a Garden, you’ll be able to name it, define parameters (e.g. deposit limits, reserve asset, etc.), and write a description that outlines the Garden’s investment thesis and anything else you want to share.

If you’re a yield farmer, you could create a farming Garden and invite your friends to deposit ETH in exchange for locked ERC20 tokens (called “Garden Tokens”) that represent their share of the Garden’s assets.

Babylon will be trustless and transparent. The protocol will manage everyone’s capital, so your friends won’t have to worry about you running off with their ETH and they’ll be able to track every transaction.

After depositing capital, LPs (LPs are anyone who deposits capital into a Garden) will be able to design investment strategies using a no-code interface.

At launch, we plan to support longing, shorting, lending, and farming assets across a dozen or so protocols, including 1inch, Compound, Harvest, and more.

Imagine you create a simple leveraged strategy to lend 10 of the Garden’s ETH on Compound, borrow USDC against that loan, and deposit the borrowed USDC into Yearn’s USDC vault.

During strategy creation, you will need to stake some of your Garden Tokens. Your stake represents extra skin in the game beyond your principal in the Garden and signals how confident you are in the strategy to the other LPs. The more you stake, the more rewards you’ll earn if the strategy does well, and the more you stand to lose if it does poorly.

After the strategy is proposed, the other LPs can vote for or against your strategy with the full weight of their Garden Tokens. If they vote for a strategy that does well, they will receive rewards proportional to their votes.

If a quorum is reached (each Garden will set its own quorum), the strategy will enter a cooldown period, after which it will be executed by the protocol.

The protocol will automatically take actions necessary to execute a Strategy (e.g. swapping between tokens), and split gas fees across the Garden, making Babylon easier and more capital efficient than if everyone invested alone.

Garden Tokens that were staked by the Strategist will be locked until the strategy completes. If a strategy doesn’t receive enough votes to be activated, the stake will be returned to the Strategist.

You’ll notice that initially, voting will be based on the number of Garden Tokens each LP holds. We’re starting with this model because it’s simple, but we may experiment with delegative voting and/or weighting votes based on performance in the future.

Each strategy will have a predefined term, set by the Strategist when they propose the strategy. Strategists will also have the power to unilaterally end their strategies before the term is up (e.g. if market conditions change).

In traditional finance, funds often have a fee structure where managers earn 2% in management fees and 20% in performance fees.

Babylon plans to implement a similar structure, except the 2% management fee will be reduced to 0.5% (applied to assets actively allocated to strategies) and it will be paid to the Babylon treasury, which will be governed by holders of $BABL, the protocol’s governance token.

The 20% performance fee (applied only to strategy profits) will be split into a 10% performance fee paid to the Strategist, a 5% performance fee paid to Stewards (Stewards are LPs who voted on the strategy and the fee will be split between them based on how many tokens they voted with) and a 5% performance fee paid to the treasury.

To learn more about performance fees, check out our prior blog post.

Babylon will have a two-layer governance structure. Gardens will be governed by their LPs and the Babylon protocol will be governed by holders of $BABL.

50% of $BABL will be distributed via our $BABL Participation Mining Program to users who take actions that are important to the protocol, like creating a Garden, depositing capital, and proposing strategies.

At launch, $BABL will be locked, meaning it can’t be bought or sold. The primary purpose it will serve is to enable Babylonians to vote on protocol-level decisions, including upgrades, integrations, and treasury management.

To withdraw capital, LPs will be able to exchange their Garden Tokens for their share of the Garden’s assets, plus or minus any profits, losses, fees, and rewards.

There will be no withdrawal fee if the Garden has capital available. After each strategy completes, capital will be set aside in a temporary withdrawal window to help ensure liquidity.

If there isn’t capital available to withdraw, meaning it is all tied up in active strategies, the LP can wait until capital becomes available or they can withdraw immediately at a 5% penalty, paid to the Garden to compensate the remaining LPs for the cost of liquidating and rebalancing strategies.

Ancient Babylon started as a small village and grew into a bustling civilization. In much the same way, we aim to start with a simple protocol and improve it based on feedback from early Babylonians.

This announcement has been written and published by Babylon Finance, Inc. (“Babylon Finance Inc”). The directors and officers of Babylon Finance, Inc owe fiduciary and contractual duties solely to Babylon Finance Inc’ investors.

BABL confer no information, voting, economic, fiduciary, contract, or other rights against or with respect to the assets or personnel of Babylon Finance Inc. The interests of Babylon Finance Inc and its directors, officers, and investors may differ materially from the interests of BABL holders, protocol users, and other active protocol participants.

Babylon Finance Inc provides no guarantee, commitment, or undertaking to utilize any of its assets, funds, properties or personnel, BABL users, or other Babylon protocol participants. Babylon Finance Inc does not owe and does not intend to assume, any duties or obligations to BABL holders, users, and other protocol participants, other than duties or obligations arising under laws of general application, such as non-waivable torts. Moreover, Babylon Finance Inc has various legal, fiduciary, and contractual obligations that could conflict with the interests of BABL holders, Babylon users, and other Babylon protocol participants.

To the maximum extent permitted by applicable law, all software relating to the Babylon protocol is being provided on an as-is, where-is basis, with no representations or warranties being made to BABL holders, protocol users, or other Babylon protocol participants and with no liability to Babylon Finance Inc or any other person involved in the development of the Babylon protocol. The statements set forth in this announcement also are not intended to be representations, warranties, guarantees, or assumptions of duty or liability of any kind, and Babylon Finance Inc hereby disclaims the foregoing and will not be liable for any damages arising from the use of the Babylon protocol or BABL.

In the event of any conflict or inconsistency between this announcement or any other communication and the terms of any software license involved in the Babylon protocol, the terms of the software license shall govern to the exclusion of this announcement and such other communications.

The forward-looking statements in this announcement are subject to numerous assumptions, risks, and uncertainties that are subject to change over time. Such assumptions, risks, and uncertainties could cause actual results or developments to differ materially from the results and developments anticipated by us. Even if our anticipated results and developments are realized, such results and developments may nevertheless fail to achieve any or all of the expected benefits anticipated by this announcement.

We reserve the right to change the plans, expectations and intentions stated and implied herein at any time and for any reason or no reason, in our sole and absolute discretion, and we undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

This announcement is for information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any interests in Babylon Finance Inc, any Gardens or any other securities.This announcement is not intended to provide legal, financial or investment, or other advice and we recommend that you do not rely on, and do not make any financial or other decision based, on this announcement.

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