Sip of Tapioca Part One: Bentobox V2 (Yieldbox)

April 18, 2023

In conclusion

In this series, we plan to cover each and every aspect of TapiocaDAO. We gave you an overview of the entire Tapioca protocol, which was over 30 pages long. To properly do a protocol such as Tapioca justice, which has done things radically differently from what we’ve ever seen before, with some truly ingenious approaches to many of DeFi’s largest issues or missing gaps, we simply have to break it down- sip by sip. We’re sure a giant Pearl outline will be imprinted in DeFi forever, and we feel you need to know why!

To start, we must begin where it all started, and that’s Bentobox V2, otherwise known as Yieldbox, made by the legendary BoringCrypto.

What’s Bentobox?

As aforementioned, Yieldbox is Bentobox V2, so what’s Bentobox?

BoringCrypto first proposed Bentobox (and Kashi) to Sushiswap three years ago. The reasons for the proposal were that Aave and Compound, the largest lending & borrowing solutions out at the time with billions of dollars in liquidity, had major limitations that Boring felt he could address with Bentobox. 

First and foremost were isolated markets. Aave & Compound both feature ‘unified liquidity pools' made up of collaterals and borrowable assets. This means the risk of each asset is shared with one another. 

For example, you may want to lend ETH on Aave- ETH is a blue-chip asset that is obviously widely considered to be one of the least risky assets in DeFi. The issue is, even though you’re lending ETH, your risk is equal to the riskiest asset Aave supports. So if Aave decided to support FTT, your ETH would be gonezo.

This is how exploits of Aave and Compound forks such as Cream, Agora, Rari, etc, happen- as well as why an attacker recently was able to drain all of Euler’s liquidity- the liquidity is unified

With Bentobox & Kashi having isolated markets, the risk of each asset is walled off from the next, so riskier (and usually lucrative) assets can be supported- such as GLP or TriCrypto.

Secondly, Aave & Compound use fixed minimum and maximum interest rates that travel linearly between these two boundaries- this creates inefficiency and low utilization on non-stable pairs, which results in low lending yields. The Bentobox & Kashi solution contained no minimum and maximum and instead allowed the free market to decide the interest rate via the utilization rate- targeting 75% utilization (borrowed/lent) for max efficiency.

Info: https://docs.tapioca.xyz/tapioca/ 

Bentobox also supported Strategies, these strategies could keep collateral assets productive via lending them out in yield strategies. Bentobox essentially allows developers to create a “map” for assets to safely travel to earn yields- therefore your assets truly stay productive and earning you yield while you can spend and utilize your borrowed stablecoins, even allowing you to acquire leverage on the collateral asset.

These improvements could revolutionize borrowing & lending in DeFi.

Bentobox is Born

BentoBox itself is a token vault that allows developers to build complex and capital-efficient decentralized applications on top. Bentobox essentially tracks assets held inside via a “virtual balance,” and uses the aforementioned strategies (when employed) to keep assets inside Bentobox productive.

Bentobox was released in March of 2021 and was quickly deeply integrated into Sushiswap. Even though Sushi has deprecated Kashi, Sushi still uses Bentobox for its Trident AMM.

Bentobox is also well known as “Degenbox,” which is employed by Abracadabra with its Magic Internet Money ($MIM) stablecoin. 

There were still limitations with Bentobox, namely a lack of NFT and rebase token support, the lack of the ability for outside developers to develop on top of Bentobox, and the nature of each token in Bentobox having multiple strategies- this means similar to Aave & Compound, strategies employed share risk on the same asset- therefore these issues limited Bentobox from becoming a neutral token vault that anyone could use as well as it’s supportability and efficiency.

Even with these limitations, however, Bentobox (and Degenbox) amassed billions of dollars in liquidity across dozens of chains and remained completely secure over the past 2 years.

Version Two

BoringCrypto wanted to develop a true neutral token vault that many protocols could build atop of, that added support for rebase tokens (to support the many rebasing liquid staking derivatives such as RocketPool ETH and Lido stETH), NFT’s, and also isolated yield strategies. These isolated yield strategies would allow developers to create, for example, ETH-YEARN or even ETH-GEIST, and allow for users (and protocols) to tailor their yield farming experience to their specific risk appetite levels.

The Tapioca contributors joined Boring in developing Yieldbox, auditing it with the top tier auditor Certora, and it is now featured as the token vault that contains all of Tapioca’s collateral assets. 

Yieldbox with Tapioca allows you as a user to deposit your ETH as collateral (which is isolated from all other collateral assets), keep your ETH productive in yield strategies which repay your loans debt, while you borrow Tapioca’s USDO censorship-resistant over-collateralized CDP-based stablecoin. You can either utilize leverage to supply the USDO you borrowed back into Yieldbox to increase your ETH yields! 

The Tapioca protocol has no special privileges from Yieldbox and Yieldbox is ownerless, therefore any dApp can develop atop Yieldbox, a true neutral party. 

All in all, Yieldbox can be thought of as a token vault that supercharges your assets (as Boring said, “You can have your cake and eat it too), keeping them acquiring the best yields available. Tapioca also has added ERC-2612 support which allows for gasless approvals, AND LayerZero support, which unshackles your assets from only acquiring yields from the chain you deposited on, to EVERY CHAIN SUPPORTED. 

Remember, this is only part one. I’m sure your mind is already blown but screw your head back on quickly as this Pearl has many more layers to peel…

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