A Stronger BNT = A Major Component Towards Repairing Bancor

Community Chatroom (DISCUSSION)
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The core idea of this thread is to shift brain power towards strengthening the BNT token

This topic of the BNT token has been widely discussed in multiple previous threads, however I do not believe that strengthening the BNT token is an idea that any of the core contributors are focused on.

What is being focused on by the core contributors are ways in which the protocol can generate additional revenue, however this is only one way of repairing the damage done.

Steps towards finding ways of boosting organic growth demand for the BNT token is being neglected, and I do not understand why. I have been tracking the IL on my wbtc position daily, and have noticed that when the price of BNT increases faster than the price of wbtc, that my IL improves & vice versa. Therefor a stronger BNT = a part of the solution.

The state in which the team has left the BNT token is undesirable. Simply holding / lpā€™ing with the BNT token brings on extreme risk, while at the same time, does not grant the BNT holder any desirable benefits. The APY% is now extremely low and not worth the risk. Simply buying BTC, ETH or any other good coin holds greater benefits. Eth has great upside and can earn a much higher APY from staking vs BNT. This leads me to believe that the only buyer of the BNT token is the protocol. Even here, the protocol sells BNT for vBNT, which is entirely another subject on its own, which I will briefly state my opinion on below.

BNT vs vBNT

When the price of vBNT is lower than that of BNT, theoretically, it does make more sense to sell BNT for vBNT so that the protocol can lock away additional future BNT from being sold onto the market. Whose BNT is being locked away?

ONLY the BNT from those who are lpā€™ing their vBNT

If you are not a vBNT lp and you hold BNT or are an active buyer/seller of BNT, the vortex does not affect you.

I do believe that the individuals who are vBNT lpā€™s are more commited to the wellbeing of the project rather than those who simply let BNT sit in their wallets // those who have their finger on the trigger ready to sell their BNT holdings.

Therefor targeting vBNT in the short term is not the wise decision. Running the numbers, and finding that burning vBNT as opposed to BNT may make sense mathematically, however this math does not grasp the concept of a long term user who intends to keep their BNT locked away vs a user who plans to add additional selling pressure on the BNT token.

Additionally, in our situation today, vBNT lps are getting hit with IL, and will continue to, as the vortex is constantly buying and burning their vBNT. These lps expect to get aid from the protocol at a later date ( as they were trapped in a pool in which the vortex constantly ate away at their vBNT holdings ) .

If these lpā€™s do get aid in some form from the protocol, then the protocol will have spent protocol funds to

  1. buy the initial vBNT to burn
  2. spend additonal funds to repair the damage done to the vBNT LP

The protocol is spending its funds 2x here which will result wasting fees earned. This makes no sense.

Additionally, I argue that if ANY IL was ever given to a vBNT lp since the inception of v2.1, that 100% of all the funds associated with initially buying the vBNT, then giving back the user BNT from IL was a complete waste of protocol funds. It makes no sense to spend bnt earned from fees, then to reimburse bnt from IL.

This is an error in logic which I reported to Mark. His response was the following;

the vBNT price should be much higher than BNT and should continue to trend that direction. In essence, the ILP only kicks in to any significant extent if there is considerable buying pressure for vBNT, requiring additional BNT to be created at withdrawal as compensation for the vBNT liquidity provider (or as of v3, if the vBNT price outpaces the bnBNT value). This situation cannot materialise. Since vBNT can be produced by depositing BNT, it has an effective arbitrage price ceiling that restricts the reserve balance of vBNT moving beneath that required to return all tokens to liquidity providers. These considerations are elaborated in detail in BIP9.

Ask the vBNT lps. This situation has materialized and is being ignored.

If any big brains are reading this, please find a way to calculate all the BNT distributed to vBNT lps via ILP. Once we have these numbers, then I would absolutely love to hear Marks explanation.

So whatā€™s the fix?

  1. the vortex should stop burning vBNT and simply burn the BNT. Remove todays supply of BNT rather than remove the future supply of BNT ( which came solely from the vBNT lpsā€¦)

  2. increase the price of the BNT token by increasing organic demand for the token. This can be done in multiple ways, as explained in threads below.

I will conclude that the work being done by the core contributors ; fee generation schemes, are beneficial to the project long term, as is burning vBNT, but the work being done does not help the situation we are in today, nor will they for a long time. I personally want the developers to spend their time on solutions that will improve my situation within the next few months- half year, rather than only a fee generation solution which will only be in its initial stages of improving the protocol after its developed, long after the deficit has multiplied.

Yudi has stated that

Ideas are being thought of, and once 4-5 whales from the dao decide and vote that this is what they want, then eventually the idea will get worked on. This will be a lengthy process, and I highly doubt the core developers can develop the code before bitcoin has its next large run up, which will increase the deficit my many multiples.

Adding additional features to the bnt token will increase organic demand which will push up the price for BNT which will reduce the IL for every pool. BNT from the open market must get burned by the vortex & bought and held by users. This is the fastest way at repairing the deficit. Fee generation should be worked on at the same time, but should not be the sole focus.

A strong BNT token will bring in new users, investors and LPs which will increase TVL.

this is a cheesy line ā€¦ but LETS MAKE BNT GREAT AGAIN ā€¦because right nowā€¦ there is no reason for anyone to buy it

https://gov.bancor.network/t/adding-features-to-the-bnt-token/
https://gov.bancor.network/t/proposal-14-day-trial-period-of-burning-bnt-instead-of-vbnt
https://gov.bancor.network/t/discussion-stop-burning-vbnt-burn-bnt
https://gov.bancor.network/t/future-vbnt-lp-reimbursement/

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Hey Jindo

First of all, thank for for posting. There is a lot here that I personally agree with.

I agree with this, at least as an experiment, but you can see my support for that on another thread.

As for the adding features, I am all for adding features as well.

In fact, some of the features you suggested here are quite good in my personal opinion: https://gov.bancor.network/t/adding-features-to-the-bnt-token/

I do not agree with the ILP part, but I am in favor of the protocol bringing back a withdrawal fee when feasible.

One option, as you identified, would be to give to BNT holders. Another would be to build up some protocol owned ETH or direct to a future DAO treasury.

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thanks Steven, I hope that we can really rally behind this idea and come up with something that will boost the desire for people to want to own BNT.

Which part of ILP did you disagree with? Im curious to know, if im wrong, where Im wrong. I wasnā€™t saying ILP in general is bad, only ILP for the vBNT pool as the protocol buys vBNT from these users, then would reimburse these users with BNT when they pull out. That idea seems off to me

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This part:

Iā€™m not saying youā€™re wrong, Iā€™m saying I personally dont agree. How can the DAO determine the parameters? What if the DAO is wrong and we undercharge?

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Ah got it, I thought you were referring to a part from this thread (regarding ilp for vbnt)

with regards to what you said above, that bnt insurance policy to cover the ilp for the position doesnt need to be a part of what gets implementsā€¦ was just an idea to further incentivize buying bnt // incorporating bnt into the protocol via an additional layer

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What about those that have decided that they want to leverage their vBNT and therefore swap it for another token. Isnā€™t that the primary target of the vortex so that the rate becomes juicy enough for people to vortex and then we can burn their vBNT for cheap?

What are your thoughts around the recent run up in price? I think $BNT did pretty well in keeping up with ETH, LINK and other tokens despite given the current state of the protocol. Does this mean that the index effect is working as expected?

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When people choose to sell their vBNT for another token, theyre simply trading it at their own peril. The vortex simply just sells bnt for vbnt and that all comes from the vbnt pool and its LPs. Even if the vortex is buying vBNT for cheaper, its still targeting users who didnt plan on applying sell pressure to the BNT token ( long term bancor users ) so yes more bang for your buck, but IMO its better to remove the current circulating supply of BNT today rather than target the long term users BNT in the late future. Bancor needs to solve our problem now, not later when the vBNT lps try to pull out. And today, given the IL on the vBNT pool, these users will NOT pull out until the deficit is fixed. So why bother continuing to hammer these guys when bancor can simply remove circulating supply instead?

BNT didnā€™t do poorly, however when BTC rallies, providing bnt/btc is flat, the $ will still increase. I feel that with the right implementations to the bnt token, BNT can do MUCH better with the aid of organic growth. There is no drawbacks to greater organic growth / buying of BNT from investors. A sustained rally in the BNT token will attract the eyes of investors, will bring in new users and new LPS , more TVL, more demand for the BNT token. Its a win win win. But as BNT stands now, there really is no reason for anyone other than the protocol to buy it. Simply not worth the risk because there is no reward.

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The LPs are contributing the vBNT liquidity that makes it possible for others to leverage their vBNT and therefore reduce the vBNT-BNT rate when they do so. The vortex can then lock these people out because it can buy vBNT at cheap prices so that when these people that are vortexing need to undo their leverage then the rate might be higher than when they initially vortexed themselves (now they need to buy it at a higher rate). I think you are missing this important point in your analysis as the vortex was created to let people leverage their vBNT and then burn the vBNT they are leveraging at a cheap rate which is good for the protocol.

As to the deficit, like all pools on Bancor it will just take for someone to trade their vBNT for BNT via this pool to lower it. This could happen once the rate goes higher i.e. 1 to 1 as it might become more attractive to leverage the higher the rate goes.

Agree with your paragraph here. I think we need time for new features to come online, revamp the AMM, expand into other areas, restore trust and faith in the protocol, etcā€¦ I do appreciate any discussions around revamping BNT tokenomics as it needs to be made attractive to be an investor in BNT. I myself am betting on a strong team with a proven track record.

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Yes I do understand that the vortex does target these users, and in my opinion, I am suggesting that these specific users are more than likely long term bancor users who more than likely do not have the intentions of selling their bnt in the short term.

It is good that the vortex is able to buy vBNT for a cheaper price and lock away BNT in the future from being sold, but I cannot help but think that long term this is good, but in the short term while we are in the situation we are, this is not helpful.
If the price of vBNT has not been going up against BNT with all the vortex purchases during the past few months, then why not, for a trial period, simply burn the BNT directly instead and remove BNT from the free floating supply ( since the vBNT lps are already locked in with IL and probably wont unstake anyways )

if the price of BNT increases due to the vortex purchases, and the gap increases between vbnt - bnt, then sure, lets go back to burning bnt, and when this happens, burning vBNT will give an even greater return

but for the time being, raising the price of BNT should be the main priority, not removing the future supply of BNT.

furthermore after long thought, regarding fee generation schemes

I will never approve of my funds being put to use via various fee generation methods unless it is from native network staking. Use of users funds being put to use in other defi platforms etc to generate yield is far too risky and should never be implemented.

rather, focusing on raising the price of BNT via new mechanics , vortex burning bnt directly , and perhaps if the brains here can solve the unsolvable and create a way for the protocol to MEV its own users and profit from them instead of an outsider, then great do so. I do not believe the team here is capable of creating this. So in the short term, we need to place a greater emphasis on the BNT token itself first and foremost before getting side tracked with everything else being proposed. A mass creation of BNT and a mass selling of BNT got us into this mess, and a strong BNT revival can get us out of this mess.

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Another thing to consider, the AMMs of old do not offer what the AMMs of today do. Fee generation schemes will not make bancor more attractive than the new AMMs being built which offer bridge solutions like stargate, or privacy like aztec or other revolutionary tech that will draw the attention of crypto users.

Strengthen BNT by implementing new features for the token, which will increase demand for the token, which will bring in new users and lps, which will increase trading volume and TVL which will eventually lead to repairing the deficit.

and after these steps are done, rather than wasting time on fee generation schemes for the platform to generate revenue, which literally NO ONE will care about because it does not benefit the user in any way shape or form, then perhaps the contributors and dao can focus on other, more up to date ideas that can improve bancor.

If bancor continues to simply do the same thing, and allow users to trade from x tkn to xtkn and have bnt being used in the middle to faciliate the tradesā€¦ thenā€¦ yawnā€¦ boringā€¦ nextā€¦ is what the next wave of defi users will think

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OK, a few random thoughts around BNT and how I see it interacting with the market / DeFi community.

By collecting a % of trading fees, Bancor has a good income stream. One that benefits from market volatility and is not reliant on BNT holders activities.

Increased BNT price (vs $ / ETH / DeFi) is good as it reduces the IL in the Omipool, and the higher TLV should generate more $ fees.

Burning tokens is not considered favourably by many crypto thought leader / CT etc (See MakerDAO). However, a constant buying pressure is good, and we have one from fees (even if it is largely obscured).

Burning vBNT may be the most cost effective method of locking BNT into the protocol and so the best long term economic hit for the protocol.

However, very few people understand how the vortex works. So when we say x,000 vBNT burnt, it means nothing to them.

Parking BNT in a DAO treasury also produces little impact on outside perception of $BNT value as they have seen recent BNT printing for IL protection.

I think the key to Bancors long term success is regaining LP confidence so that they will deposit assets with us. At the moment many of them are trapped by IL and we are bleeding the majority of the fee income into Bancor. So itā€™s going to take time to rebuild our reputation.

However, long term, we need new LPā€™s who will expect yield and the ability to redeem.

The good news is that I think many people have realised that the days of double digit yields are over.

Somethings we can do:

  • Highlight that we havenā€™t collapsed or run away.
  • Highlight the Fee income to the protocol.
  • We should be on cryptofees.info and showing we generate more income for Bancor that many protocols.

Iā€™m wondering if rather than burning the BNT we have collected we should sell it for DAI and / or ETH. We get a selling pressure on BNT, but we build a non BNT reserve.

Then we can start thinking how we can best use these assets to strengthen the protocol and our reputation:

  • Hold as a reserve.
  • Allocate the DAI / ETH as IL protection on selected pools (smaller TLPV / long tail tokens where we can dominate market liquidity). This restores some LP confidence, and builds a narrative for long tail tokens. Obviously covering the larger (ETH, LINK, Stable coin) pools would not be possible for what could be a significant time. But it all helps.
  • Eventually use the reserve to compensate those who took a IL hit when they withdrew.
  • Deposit into the Bancor liquidity pools to improve our trading depth.

Maybe we do a hybrid approach: 20% vBNT burn, 40% DAI and 40% ETH. :thinking:

One final thought, what if we set the vortex on BNT deposits to 0%.

Then BNT would be showing >3.5% LP fee (and No IL is possible).

Would that attract people to buy and stake BNT?

If that is the case, what else can we do to build staked BNT income (without issuance)?

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I donā€™t understand this, if we know that this is good for the long term health of the protocol why do we think that we need to do something else? I am all for continue to use the vortex until it is not economical and I think this is when it is close to a vBNT-BNT rate of 1 or above 1 as has been mentioned in other threads. From what I can tell, the current rate is .85 at the moment based on the dune chart and there is some more to go before we get there.

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lets run through this

so when the vortex sells bnt for vbnt, it locks away bnt.

whose bnt does this lock away? _____ the bnt of the vbnt lp

the current vbnt lpā€™s will not be removing their positions and selling their bnt in the short term. they have suffered from IL just like everyone else and they are trapped in. ā† the vortex is targeting their bnt

I would rather have circulating supply of bnt being removed rather than further trapping in the vbnt LPs ( which at some point, these guys will also expect to be reimbursed in some way for the IL that they receivedā€¦ which is totally another basket case on its own )

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Thanks for posting this.

Lots of interesting ideas here.

highly appreciated.

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Thanks @foxsteven

Iā€™m still working through my mental model, and I think the easiest way is to write about it. Doing so in public allows others to join in / point out my fallacies.

The best way to remove the Ominipool deficit is for BNT to outperform the other tokens.

There are two main mechanisms to do this:

  1. Fee capture and burning so that we pull BNT out of the pool relative to the other tokens and so pull the price up.
  2. Get people to buy and stake BNT

I get the impression that most of the work to date has been focused on 1:

  • Stopping BNT issue for IL protection - severe brake on withdraws for many pools.
  • Optomising pool fees - ongoing work.
  • increasing vortex % take to increase BNT
  • Other ways to gain income.

However, this is a step hill to climb. $39 M USD deficit on $44 M TLV when we are collecting ~$10,000 per day. And this is a case where BNT having massive liquidity on chain hurts us: it takes a lot of buying to move the BNT price.

I could argue that performance vs stable coins is more related to overall market trends (i.e. if CRYPTO doubles in the next 12 months, and BNT follows the market, we will wipe all the IL on stable coins pools without doing anythingā€¦). So ~ $11 M of the problem is dependent on the general market. But we still have $27 M to work onā€¦

So, how do we get people to buy and stake BNT?

Bancor / BNTā€™s reputation is not great at the moment. Over 12 months we are down 76% vs ETH while DPI is down 52%. So we have dropped 50% relative to ~Defi (lets not get side tracked into how DPI is a poor index for DeFiā€¦)

BNT vs ETH over 12 months

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DPI vs ETH over 12 months

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image688Ɨ636 27.7 KB

However, as far as I know, BNT stakers donā€™t suffer IL loss when they withdraw BNT. (as BNT has not lost any value compared to BNT). So BNT is actually the safest token to stake in Bancor: you are only exposed to price movements.

For me, this implies that anyone who wanted to sell BNT in June (either to exit the project, or buy back lower when further IL protection was minted ) has done so.

However, I donā€™t think many people have an appetite to buy BNT at the moment. Personally, Iā€™m letting my BNT stake ride in the hope that we pull off the recovery I think we can. However, Iā€™m not adding any more $ to my BNT position. [Personally, Iā€™m unwinding other positions to get more ETH].

So, how do we encourage others to buy and stake BNT?

  1. We have to stop the rot in BNT price - largely done.
  2. We have to offer a BNT yield that becomes attractive.

I do not think that a 0.39% BNT yield is attractive.

I think that if we removed the vortex on B3 BNT so that the yield was ~ 3.9%, then some people would start thinking about buying and staking BNT. Obviously higher fee capture / more market volatility will help.

So what about TKN stakers?

For individual taken stakers, I think the only rational thing to do is withdraw from Bancor as soon as the pool is in surplus.

  1. If TKN pumps vs BNT, then they get trapped by IL.
  2. YIelds are pathetic due to a combination of low market volatility and high vortex % take.

So the risk-based return is poor.

I currently have $INDEX in Bancor. Since May $INDEX has actually underperformed BNT :roll_eyes: . So, the pool is in surplus. However, at times it has been in deficit so I was locked in with a ~10% exit penalty.

In May, I was in the INDEXcoop forum telling people about IL-protected 5% yields on bnINDEX and that they should consider it. I would not recommend that anyone deposits INDEX into BNT at this time.

Note, the economics are different for protocols depositing their governance token, they may well have a longer-term view and be more focused on the benefit of DEX liquidity rather than the ability to exit. (However, they donā€™t want to see $BNT drop in price as that will effectively dump all their governance tokens onto the open market).

So what happens when $BNT price outperforms TKNā€™s?

Personally, I think people will withdraw TKN.

Say we x2 vs ETH over the next 6 months. The deficit vanishes. bnETH earns 0.04% and has the risk of IL if BNT drops vs ETH. Meanwhile, AAVE aETH is earning 1% and is always redeemable vs ETH at par?

Where would you put your ETH?

So, if we are successful in building $BNT price, we risk loosing TKN deposits / TLV.

Now a 2x vs ETH may take some time, but 2x vs USD could be achieved by a general bull market for ETH, BTC, LINK and make the stable coin pools IL free while earning ~0.4%.

My concern is that if we lose the ETH, wBTC and stable coin TLV, then our performance as an AMM suffers greatly.

So, what can we do?

Personally, I think the roadmap looks like:

  1. Stop the rot - Done by stopping IL protection minting BNT.
  2. Increase income - in progress for % fees optimisation and other methods.
  3. Strengthen BNT price - this discussion.
  • Personally Iā€™m in favour of reducing vortex on BNT so BNT yields increase.
  1. Maintain TKN balance as BNT value grows and deficits vanish on pools.
  • Personally, I think this means we will need to reduce the vortex % on some pools (can we be selective?) so yields increase and build a non-BNT reserve for IL protection to build LP confidence.

A couple of extra points:

  • I donā€™t think minting / using BNT for IL protection is the way forward. It may actually work economically, but will LPā€™s trust it a second time?
  • I donā€™t see any need to mint BNT for LP rewards, we should be able to generate yield from fees.

Please note, that Iā€™ve not done any number crunching / analysis on this. Itā€™s just how I see the liquidity moving as prices change and pools come out of deficit.

Some additional analytics that could be interesting:

  • BNT flows in and out of B3 staking over time - what are BNT holders doing? Are we seeing an accumulation by historic holders, new BNT stakers?
  • Are we seeing anyone accumulating BNT?
  • TKN flows in and out of bnTKN - do LPā€™s withdraw from pools when they switch from deficit to surplus?
  • Are we seeing much TKN being unstaked under deficit?

Finally, are we doing any market research interviewing BNT and / or TKN stakers?

  • What do they think about the current situation?
  • Do they plan to unstake TKN? If so, when?
  • What would get them to stake more BNT / TKN?
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Thanks for writing all of this up man, all good things to think over. Iā€™m the same way, I have to just write it all out to help me think.

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OK,

How about we put BNT yield on steroids:

  • Set B3 vortex for BNT to 0% ~ 3.5% APY for BNT stakers.
  • Keep B3 vortex for TNK LPā€™s at 90% and transfer the BNT collected to BNT stakers (effective adds another 3.5% to bnBNT yields)
  • Take the ~650 K BNT collected by the B3 vortex to date and auto compound it for BNT stakers over 2 months.

~650,000 BNT placed into the staking contract (~45 M BNT) so ~ 1.3%. Then burn the BnBNT over 2 months so ownership of the underlying BNT transfers to current BNT stakers at a rate of ~ 7.8% annualised.

For 2 months we get (3.5% + 3.5% + 7.8%) = 14.8% yield on BNT then we drop back to ~ 7% BNT yield.

Accompany it by publicizing the BNT yields in the native token for the next 2 months - ā€œnon incentivised yieldā€

Basically, BNT takers get ~95% of B3 swap fees to boost the BNT rewards and encourage more people to buy and stake BNT.

Burning BNT wonā€™t make anyone buy BNT on the open market. Returning it to BNT stakers may get people to buy and stake ā†’ BNT price climbs.

BNT in the v2.1 vortex can be burnt or used to buy and burn vBNT.
B3 vBNT from staking the 650 K can be burnt (no impact), or held in reserve to sell vs BNT (which defeats the purpose of buy and burn vBNTā€¦)

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Staking the 650k BNT would have no effect for the protocol. Staking it would only reduce the protocol owned BNT by 650k, in the end the protocol would earn the same amount. Then what you suggest is LM.

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I agree. Staking the protocol BNT collected from fees has no impact on how the AMM work / TLV of tokens.

What I was trying to describe was that we use the auto compounding function in B3.

My understanding is:

  1. The DAO takes the 650 K, collected from fees and stakes them - this has no great effect other than generating ~650 K bnBNT and ~650 k vBNT.
  2. The DAO take the bnBNT and puts it into an Auto compounding contract.
  3. The contract burns the bnBNT. This has the net effect of making the remaining bnBNT gain BNT. i.e. all the other BNT stakers gain BNT without doing anything.

The only remaining question is what to do with the vBNT the DAO now owns.

  • Hold
  • Burn (has no impact on the vortex.
  • Sell for more BNT (reduces vBNT : BNT ratio and so works against the vortex design.
  • Stake for governance ā€“ all sorts of recursive governance messā€¦
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Ok, so liquidity incentive on BNT stakes.

5th option for vBNT is to stake it in the protocol (vortex pool). This way it would increase the liquidity, possibly earn more fees (lock up more BNT) and could be used as a back up treasury (sell vBNT when 1vBNT > 1BNT). Which in this kind of LM will occur, because to withdraw 1BNT youā€™ll need 0.9bnBNT and 1vBNT.

I think your suggestion is a better solution then just burning vBNT. Itā€™s a trick, you provide LM incentives and at the same time you have the possibility to burn vBNT.

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