What is Coconuts?

Good to know: Coconuts combines a Yearn style yield aggregator with OHM style protocol owned liquidity with Contingent Convertibles (CoCo) and unified Tranches (nuT)

ETHOnline Coconuts was a EthOnline Web3Jam sponsor prize winner in Nov '21. You can see the presentation slides here: <link> and showcase & presentation video here

Wagmi Labs Hackathon winner

Coconuts is a yield aggregator building on the concept of OHM style protocol owned liquidity and adding some tradfi concepts on top, namely Contingent Convertibles (CoCo) and Tranches (NuT).

We took Yearn, OHM, contingent convertibles, tranches, put them in a coconut and shook it all up.

With Coconuts you can earn yield, boosted by a rewards token. The rewards token can then be deposited for bonds for OHM style APYs.

This way we want to appeal to the whole yieldspace of everyone from stablecoin farmers to OHM fork connoisseurs.

This adds another dimension to (3,3), making it (1,2,3,3).

The protocol has 2 distinct components.

  1. CompoundNChill - The yield aggregator

  2. Volcano - The protocol owned liquidity and Contingent convertibles implementation

Problem statement

  1. Yield aggregators suffer from diminishing rewards, as new capital enters the pool. They can boost the reward rate using their own native tokens as is the case for harvest.finance, pickle and others. But these farming rewards usually get rapidly farmed and dumped. A mechanism to improve price action is required.

  2. OHM forks suffer from massive initial price volatility that ends up burning some early users, as the earliest users rapidly vest and dump the tokens onto the open market. A mechanism that prevents or punishes unbonding contingent on price action can align user interests and lead a more gradual but up-only price curve, attracting more capital

  3. OHM and forks are seen as a highly volatile and speculative asset. And are often ignored by farmers looking for safe yield that merely beats tradfi.

  4. Most OHM forks attract large amounts of capital. The capital though is more often than not productive and does not earn interest

Solution

We can solve 1, using:

  1. Allowing deposits of farming rewards into protocol owned liquidity (PoL) for bonds to drive deep liquidity for the yield aggregator farming token

  2. Bond discounts leading to positive price action and a use case for the farming rewards token

We can solve 2 using:

  1. Contingent Convertibles (CoCo). These can be converted back dependent on contingent conditions. The bonds are staked to create these. Think of it as sOHM. The CoCos can be unstaked but will incur a penalty if unstaked during times of negative price action

  2. Additionally, we can offer a revenue share from interest earned by treasury assets to incentivize users to pay off their debts using interest instead of unstaking and selling

We can solve 3 :

  1. By introducing tranches. We can appeal to a wider segment of DeFi users, attract more capital, and offer more diverse rewards

  2. We have tranches in 2 distinct segments. In the users preferred yield farm. And in how we handle price recovery for the reserve asset.

  3. Users choosing to merely use the yield aggregator can be seen as investing in our safest and most fluid tranche

  4. Users choosing to generate bonds can be seen as investing in our most volatile, highest risk and highest APY tranche

  5. In case the price of the reserve asset drops below the floor price, we will liquidate treasury assets starting with the safest tranches, with the farming token being the last to not negatively impact the yield aggregators survival. Starting from stables, to long tail, and finally LP.

We solve 4:

  1. By creating our own yield aggregator from day 1. Allowing the treasury to grow from the start. Since we own the yield aggregator we can modify underlying strategies to maximize yield

Overview

Our token theme is that of a tropical island.

  1. Users can stake long tails assets (wbtc, eth, L1 specific native tokens) & stables into our yield aggregator, CompoundNChill, to gain auto-compounding yield exposure

  2. The yield is boosted by our native rewards token $CompoundNChill / $CNC

  3. Users can then cast $CNC LP or select assets into our Volcano to generate $COCO. $COCO is our $OHM

  4. Users can then stake $COCO to generate $SCOCO

  5. Finally $SCOCO can be deposited into a MasterChef contract to earn a share of interest gained by the treasury

Now let's look at the flow in reverse.

  1. Users unstake $SCOCO and claim rewards.

    1. If the price action is positive, this works as expected

    2. If the price action is negative, e.g. TWAP price > spot price, the masterchef reserves some of the rewards

  2. User unbonds $SCOCO back to $COCO

    1. This works normally if price action is positive and the user gets back their staked $SCOCO + rebase rewards

    2. If price action is negative, 10% of the accrued $COCO is reflected back to the treasury and can be used to incentivize $COCO stakers

  3. The user may now sell the $COCO into the pool generating trading fees for the treasuries PoL or rebond it.

NextYield: CompoundNChill

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