Streaming Interest-Bearing Tokens With Alluo & Superfluid 🚀

How DAOs and other organisations can save $ every month thanks to Yield-earing Streams

Background

What is Alluo

At Alluo, our mission is to bring the power of DeFi to everyone and to do that, we want to make earning yield and sending money across the world incredibly easy.

There are 2 ways to enjoy Alluo, our mobile app and our decentralised web app.

• Our mobile app is available on alluo.com. It is a non-custodial wallet deployed on Polygon. Non-custodial means that the private keys of the wallet remain with the user so we (at Alluo) do not have access to the funds of the users unlike a centralised entity (e.g. bank or centralised exchange like Coinbase)
• Our decentralised web app, available on https://app.alluo.finance, can be used by people who have access to a non-custodial wallet such as Metamask

In the background, funds invested through the mobile app or the web app flow into the Alluo protocol where users locking their Alluo tokens vote on the specific protocols where the funds should be allocated.

What is Superfluid?

Superfluid is a leading asset streaming protocol that enables Web3 native subscriptions, salaries and rewards for DAOs and crypto-native businesses.

It can be used to describe cash flows and execute them automatically on-chain over time with just a single transaction. Superfluid streams transfer value in a constant flow over time between wallets, in a non-custodial and permissionless way.

Streams are programmable, composable, and modular, allowing developers to build custom applications on top of the protocol. Ongoing streams can be forwarded as they are received to both wallets and applications, eliminating delays and drastically increasing capital efficiency.

Context

From the moment we started Alluo, we wanted to make sure we “ate our own dog food;” in other words, we wanted to make sure we used Alluo in our daily lives as much as possible.

This started when we had our very first contributors and we agreed to pay them the equivalent of a salary every month.

Of course, it didn’t feel right to be building the future of finance whilst paying contributors once a month like every other organisation out there. As we set out to find a better solution to pay our contributors on a more ongoing basis, we came across Superfluid and were immediately impressed by the user experience.

As someone used to monthly paychecks, seeing your wallet balance increase every second with Superfluid is nearly magical — the first time you experience it, you wonder why 99.9% of businesses still only pay people once a month.

Now, as great as it was, there were 2 challenges with this:

1. First, the lack of good on/off ramp to Polygon — that has been one of our biggest challenges thus far and something that we are now solving in parallel (i.e., it’s fine if you’re receiving USDC in a stream, but people still need to pay for goods and services in the real world, so providing a good off-ramp from USDC on Polygon to fiat in people’s bank account is important).
2. Second, when creating a new stream, we had to wrap USDC as USDCx. Doing so meant that we couldn’t deposit the underlying USDC tokens into Aave or other protocols which would allow us to passively earn interest on those tokens (although there are projects in the Superfluid ecosystem working on this). Whilst it would have been possible to continuously top up our Superfluid stream with the minimum amount of required USDC to keep the stream going, this didn’t feel like the best setup for our users.

Our Solution: Yield-Bearing Streams

Enter Yield-Bearing Streams — yes you read that right, streams that have some amount of yield associated with them.

When depositing into the Alluo protocol, the user receives an IBAlluoXXX token denoting the receipt of this deposit (if the deposit is in the USD farm, then the user will receive IBAlluoUSD, if the deposit is in the EUR farm, IBAlluoEUR). For context, IB stands for “interest-bearing” while the three letters at the end reference the currency being farmed

From there, the value of this IBAlluoXXX token grows at the rate equivalent to the APY that is voted on by the $ALLUO stakes as part of regular governance rounds (currently 7% per year for the USD farm).

With Yield-Bearing Streams, we have enabled IBAlluoXXX tokens to be wrapped into a Streamed IBAlluo Token (StIBAlluoXXX), which means we can now let people stream Interest-Bearing tokens to each other. The great thing about Interest-Bearing tokens is that the yield on these tokens continuously compounds up until the moment the user wants to convert them, for instance in USDC or USDT.

Behind the scenes, funds are automatically farmed into Curve/Convex and other protocols according to the Governance vote of the Alluo DAO (https://vote.alluo.com)

In effect, this means that as funds are being streamed from wallet A to wallet B, they continue to compound at a given APY and remain invested during the entire streaming process!

Interestingly, this can be utilised to great effect by DAOs who want to pay their contributors in streams, as they can take advantage of the extra yield generated.

For instance, if a DAO wants to pay a contributor $5,000 a month, at 7% APY, they only need to deposit $4,971.89 into Alluo each month. This $4,971.89 will continuously compound at 7% throughout the month and will let their contributor withdraw 5,000 USDC at the end of the month if they so choose.

That means the DAO can save approximately $28 each month for each contributor, simply by benefitting from the future yield that will be generated by the protocol!

The Future of Yield-Bearing Streams

Yield-Bearing Streams are only the first step in enabling more capital-efficient streaming solutions. The next step will be for us to allow lending using Yield-Bearing Streams as collateral.

What that means is that the recipient of a stream could put up their Streamed IBAlluoXXX as collateral and get money upfront in exchange.

The risk would be very limited for the protocol and lenders, given that the underlying IBAlluoXXX used as collateral would be locked away whilst the loan is outstanding.

In practice, you could see the following:

1. DAO X wants to pay Person A $5,000 each month for their contributions to the DAO
2. Given the current yields at 7%, $5,000 in one month is $4,971.89 today
3. DAO X deposits $4,971.89 into the USD farm on Alluo
4. DAO X then creates an interest-bearing stream using all the IBAlluoUSD they have received in the previous step

So far, this is equivalent to what we highlighted earlier — now, how about letting Person A withdraw the $5000 right away?

• If they want to, as soon as the stream has started, Person A could request $5,000 immediately from the protocol in exchange for a small fee (e.g. $30 or 0.6%)
• As soon as this happens, the collateral is locked away and the loan will be repaid using this collateral as it gradually increases in value thanks to the yield that is generated and compounding continuously
• At the end of the month, the loan is cleared off and Person A can request a new loan if their stream is topped up

This gives maximum flexibility to both the payer (i.e., DAO or other organisation) and the payee, as the payer always benefits from the yield (which means a lower cost) and the payee can decide (every month) if they want to get all or a portion of their money upfront in exchange for a small fee.

In Summary

From today on, users will be able to stream Interest-Bearing tokens in the Superfluid Dashboard app. Moreover, IbAlluoXXX tokens are native Super Tokens–meaning that IbAlluo tokens inherently support all Super Token functionalities (i.e., start a stream, cancel stream, simple transfer, etc.) without any wrapping required.

Last, we will also enable the streaming of IbAlluoXXX in our non-custodial mobile wallet within the coming weeks for both streamers and receivers.

We are very excited to join forces with the Superfluid team to build the future of finance and keep iterating on these use cases. If you have any suggestions on what the next use case for streaming Interest-Bearing tokens should be, please feel free to discuss it on Alluo’s Discord or suggest improvements on our Dework.

Disclaimer: stIbAlluo is a new token that should be used at your own risk. We’re still early in web3, and users should keep in mind that new technologies like stIbAlluo are experimental